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Calculate the implied value of the warrants

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Reference no: EM13729211

Pierre Imports recently issued two types of bonds. The first issue consisted of 10-year straight debt with a 10 percent annual coupon. The second issue consisted of 10-year bonds with a 9 percent annual coupon and attached warrants. Both issues sold at their $1,000 par values. The company's stock is currently selling for $24.50 per share. 

 

  1. Calculate the implied value of the warrants attached to each bond.
  2. What will happen to the value of the bond with warrants if the company's stock price increases? Why?
  3. What will likely happen to the value of the straight bond if the company's stock price increases? Why? 

Reference no: EM13729211

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