PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 21, Problem 16PS
Summary Introduction
To determine: Value of option warrants.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Potter Industries Inc. has warrants outstanding that permit its holders to purchase 1 share of stock per warrant at a price of $18. (Refer to Chapter 18 for parts a, b, and c.)
a. Calculate the exercise value of Potter’s warrants if the common stock sells at each of the following prices: $18, $21, $25, and $70.
b. At what approximate price do you think the warrants would sell under each condition indicated in part a? What premium is implied in your price? Your answer will be a guess, but your prices and premiums should bear reasonable relationships to each other.
c. How would each of the following factors affect your estimates of the warrants’ prices and premiums in part b?
The life of the warrant is lengthened.
The expected variability (sp) in the stock’s price decreases.
The expected growth rate in the stock’s EPS increases.
The company announces the following change in dividend policy: Whereas it formerly paid no dividends, henceforth it will pay out all earnings as dividends.
d.…
The Bank of Willaine, Inc. issued an obligation to depositors who agree to pay ten (10) percent failsafe for one year. With the funds it acquires, The Bank of Willaine, Inc. can invest in different financial assets like in the stock market. What is the risk if the bank uses the funds it acquired from the depositors to invest in common stock? What liability type does the bank has by issuing that obligation?
Hong Corporation issues P500,000, 20 percent, 120-day commercial paper. However, the funds are needed for only 90 days. The excess funds can be invested in securities earning 19 percent. The brokerage fee for the marketable security transaction is 1.0 percent. What is the net cost to the company for issuing the commercial paper?
choose the letter of the correct answera. P10,416.00b. P15,416.00c. P20,416.00d. P25,416.00e. P30,416.00
Chapter 21 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 21 - Binomial model Over the coming year, Ragworts...Ch. 21 - Binomial model Imagine that Amazons stock price...Ch. 21 - Prob. 3PSCh. 21 - Binomial model Suppose a stock price can go up by...Ch. 21 - Prob. 6PSCh. 21 - Two-step binomial model Suppose that you have an...Ch. 21 - Prob. 8PSCh. 21 - Option delta a. Can the delta of a call option be...Ch. 21 - Option delta Suppose you construct an option hedge...Ch. 21 - BlackScholes model Use the BlackScholes formula to...
Ch. 21 - Option risk A call option is always riskier than...Ch. 21 - Option risk a. In Section 21-3, we calculated the...Ch. 21 - Prob. 16PSCh. 21 - Prob. 18PSCh. 21 - American options The price of Moria Mining stock...Ch. 21 - American options Suppose that you own an American...Ch. 21 - American options Recalculate the value of the...Ch. 21 - American options The current price of the stock of...Ch. 21 - American options Other things equal, which of...Ch. 21 - Option exercise Is it better to exercise a call...Ch. 21 - Option delta Use the put-call parity formula (see...Ch. 21 - Option delta Show how the option delta changes as...Ch. 21 - Dividends Your company has just awarded you a...Ch. 21 - Option risk Calculate and compare the risk (betas)...Ch. 21 - Option risk In Section 21-1, we used a simple...Ch. 21 - Prob. 30PS
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Mini Lop, Inc. paid $350,000 to retire a bond with a face value of $300,000. The note was issued with an 8% coupon rate paid semi-annually. The note was four years from maturity and had a carrying amount of $340,000. What is the net gain or loss on the redemption of the note? Group of answer choices a. $50,000 loss b. $40,000 loss c. $40,000 gain d. $10,000 loss e. The provided answers are incorrectarrow_forwardyou bought a 30-year bonds many years ago. The bond has par value of $ 1,000 and coupon rate of 12%, paid semi-annually. The current price of the bond is $1,137.99 and the yield to maturity is 10%. How many years ago did yoy buy the bond Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for surearrow_forwardNote:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Do not provide Excel Screet shot rather use tool table Answer completely. On January 1, 2008, Debtor Corporation issued 10,000 five-year bonds with a face value of $1,000 and an annual coupon of 4 percent. Bonds of similar risk were yielding 8 percent p.a. in the market at the time. a. What did the firm receive for each bond issued?b. At the end of 2008, the market was still yielding 8 percent on the bonds. 1. What was the firm’s borrowing cost before tax for 2008?2. How much interest expense was reported in the income statement for 2008? c. At the end of 2009, the yield on the bonds had dropped to 6 percent. 1. What was the firm’s borrowing cost before tax for 2009? 2. How much interest expense was reported in the income statement for 2009? d. Creditor Corporation purchased 2,000 of the bonds in the issue. FASB Statement No. 115 requires firms to mark these…arrow_forward
- A business plans to borrow approximately $40 million in short-term funding through the issue of commercial paper in three months’ time. The business does not have a view on what is likely to happen to interest rates over the next three months, but it would be very satisfied if it could obtain its funding at the current yield. Using the following data, show how 90-day bank-accepted bills futures contracts can be used to hedge the interest rate risk to which the business is exposed. Show the calculation and timing of all transactions and cash flows (ignore transaction costs and marginrequirements). Today’s data: current commercial paper yields 6.00 per cent perannum 90-day bank-accepted bills futures contract 93.75. Data in threemonths: commercial paper yields 7.00 per cent perannum 90-day bank-accepted bills futures contract93.25.arrow_forwardThe Alberta Capital Finance Authority issued a 20-year $100,000 bond on December 15, 2005, with a coupon rate of 4.45%. If Mirabelle purchased the bond on June 15, 2007, at a market rate of 4.56% and subsequently sold the bond on March 31, 2009, at a market rate of 3.74%, determine the amount by which the market price increased or decreased for Mirabelle. (The answer is $10,122.56 increse but I need help with the process. Thank you in advance!)arrow_forwardThe Pretty Lake Bank Corp. has placed $100 million of GNMA-guaranteed securities in a trust account off the balance sheet. A CMO with four tranches has just been issued by Pretty Lake using the GNMAs as collateral. Each tranche has a face value of $25 million and makes monthly payments. The annual coupon rates are 4.5 percent for Tranche A, 5 percent for Tranche B, 5.5 percent for Tranche C, and 6.5 percent for Tranche D. Which tranche has the shortest maturity, and which tranche has the most prepayment protection?arrow_forward
- Four years ago, Dania Incorporated issued a 10-year annual zero-bond for $708.92 when the interest rate was 3.5%. The interest rate has remained the same since that time. What would be the market value of the bond today? The correct answer is $813.50. Can you show me the steps please and use equations and no excel or financial calculator.arrow_forwardHoward Corporation issued a bond that pays $200 annual coupon. The par value of the bond is $1000 with 3 yrs left to maturity. The going rate is 21% for these types of securities. There is a sudden decline in market rate and required changes to 20%. What will be the percent change in the value of this bond? Answer step by step .Do all calculation.Don,t copy from anywhere.Answer must be correct. Use word file for answerarrow_forwardDear Bartleby, I was not able to verify the same answer that was calculated to the preceding question. What is the value of a 15-year 10% $1000.00 coupon bond when the market interest rate is 15% The answer given was 708; however, when I did the calculations in excel, I came up with 707.63 I would appreciate it if you would recheck the answer given, in addition to a detailed explanation. I am enclosing a copy of my spreadsheet below. For the coupon rate (100 * 10%) =100 For the Present Value =-PV(B8,B7,B6,B4) Particulars Values Face Value 1000 Coupon Rate 10% Coupon Payment 100 Number of years 15 Market Interest Rate 15% Present Value $707.63arrow_forward
- Howard Corporation issued a bond that pays $200 annual coupon. The par value of the bond is $1000 with 3 yrs left to maturity. The going rate is 21% for these types of securities. There is a sudden decline in market rate and required changes to 20%. What will be the percent change in the value of this bond? Show all calculation.Do it word file.Do step by step.Don,t copy from any where.arrow_forwardA firm could have issued straight debt at a 15% interest rate. However, with warrants attached, the bonds were sold to yield 12%. Someone buying the bonds at their $1,200 initial offering price would thus be receiving a package consisting of a 10% annual coupon rate, 20-year bond plus 20 warrants. What is the value of each warrant?arrow_forwardOn July 1, Somers Inc. issued $300,000 of 12%, 10-year bonds when the market rate was 14%. The bonds paid interest semi-annually. A. Assuming the bonds sold at 59.55, what was the selling price of the bonds? $ B. Explain why the cash received from selling this bond is different from the $300,000 face value of the bond. Investors can earn a higher rate/lower rate? in other similar bonds so the bond sells at a Premium/discount?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning