CORPORATE FINANCE>CUSTOM<
11th Edition
ISBN: 9781308755465
Author: Ross
Publisher: MCG/CREATE
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Chapter 24, Problem 2CQ
a.
Summary Introduction
To determine: Lower bound on the price of warrants.
Warrant Value:
The difference between value of the stock and exercise price is called the warrant value. Warrant is issued by the company which increases the number of the share.
b.
Summary Introduction
To determine: The lower bound on the price of the warrant is the difference of the stock and exercise price.
c.
Summary Introduction
To determine: Upper bound on the price of warrant is the current value of the firm stock
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Check out a sample textbook solutionStudents have asked these similar questions
A warrant gives the owner:
a) the obligation to sell securities directly to the firm at a fixed price for a specified time.
b) the obligation to purchase securities directly from the firm at a fixed price for a specified time.
c) the right to purchase securities directly from the firm at a fixed price for a specified time.
d) the right to sell securities directly to the firm at a fixed price for a specified time
e) None of the above.
Which of the following statements concerning warrants is CORRECT? JUST EXPLAIN ONE ANSWER WHICH IS INCORRECT.
Bonds with warrants and convertible bonds both have option features that their holders can exercise if the underlying stock’s price increases. However, if the option is exercised, the issuing company’s debt declines if warrants were used but remains the same if it used convertibles.
Warrants are long-term call options that have value because holders can buy the firm’s common stock at the exercise price regardless of how high the stock’s price has risen.
A firm’s investors would generally prefer to see it issue bonds with warrants than straight bonds because the warrants dilute the value of new shareholders, and that value is transferred to existing shareholders.
What is a warrant? If a company decides to raisecapital by issuing bonds with warrants, how wouldthe terms on both the bond and the warrant beset? Consider in particular how the coupon rateand maturity of the bond would be related to theexercise price and life of the warrant, together withany other factors that might affect the decision.
Chapter 24 Solutions
CORPORATE FINANCE>CUSTOM<
Ch. 24 - Prob. 1CQCh. 24 - Prob. 2CQCh. 24 - Convertible Bonds and Stock Volatility Suppose you...Ch. 24 - Convertible Bond Value What happens to the price...Ch. 24 - Prob. 5CQCh. 24 - Warrants and Convertibles What is wrong with the...Ch. 24 - Warrants and Convertibles Why do firms issue...Ch. 24 - Convertible Bonds Why will convertible bonds not...Ch. 24 - Convertible Bonds When should a firm force...Ch. 24 - Conversion Price A convertible bond with a par...
Ch. 24 - Conversion Ratio A convertible bond with a par...Ch. 24 - Conversion Premium Eckely, Inc., recently issued...Ch. 24 - Convertible Bonds Hannon Home Products, Inc.,...Ch. 24 - Prob. 5QPCh. 24 - Convertible Bond Value An analyst has recently...Ch. 24 - Convertible Bond Value Sportime Fitness Center,...Ch. 24 - Convertible Bonds You own a callable, convertible...Ch. 24 - Prob. 9QPCh. 24 - Convertible Bonds Vital Silence Corp. bas just...Ch. 24 - Convertible Bonds Rob Stevens is the chief...Ch. 24 - Prob. 12QPCh. 24 - Prob. 13QPCh. 24 - Prob. 14QPCh. 24 - Warrant Value Superior Clamps, Inc., has a capital...Ch. 24 - Prob. 16QPCh. 24 - SS AIR'S CONVERTIBLE BOND Chris Guthrie was...Ch. 24 - What is the floor value of the SS Air convertible...Ch. 24 - What is the conversion ratio of the bond?Ch. 24 - What is the conversion premium of the bond?Ch. 24 - What is the value of the option?Ch. 24 - Is there anything wrong with Todds argument that...Ch. 24 - Is there anything wrong with Marks argument that a...Ch. 24 - Prob. 8MCCh. 24 - During the debate, a question comes up concerning...
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- Which of the following statement on bond valuation is correct? A. If bond price is greater than bond face value, the bond is mispriced and no investor will be interested in the bond. B. If YTM is greater than coupon rate, the bond price is greater than the bond face value. C. If the coupon rate is greater than the YTM, the bond price is less than the bond face value. D. If the coupon rate is less than the YTM, the bond price is less than the bond face value.arrow_forwardWhich of the following is the best explanation of what the call premium is? Group of answer choices The amount above the face value an investor must pay to purchase the bond. The additional amount above the face value that the company must pay to repay the bond early. The additional amount above the market price that a company must pay to repay the bond early. The amount above the market price that an investor must pay to purchase the bond.arrow_forwardThe purpose of the Securities Act of 1933 is to regulate a security's investment price. True Falsearrow_forward
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