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Valuing warrants
Assume a firm has warrants outstanding that permit the holder to buy one new share of stock at $25 per share. The market price of the stock is now $34.
a. What is the intrinsic value of the warrant?
b. Why might the warrant sell for $2 on the market even if the stock price is $22?
Consider Toews, an unlevered firm with assets valued at approximately $1 billion. Toews has a current stock price of $10 per share, and also has a policy of not paying dividends. Next consider Jones, with 500 shares of Toews purchased 2 years ago at ..
Assume the rate on the issuance of $100m of 100-year bonds is 7.5%; the annual debt service payment would be $7.505m. How high would the interest rate have to be on 30-year bonds for the annual debt service payment to be the same for both financings?
Payments are made at the beginning of each quarter for 50 quarters. The first payment is $100, the second payment is $102, the third payment is $104, and so on, with each subsequent payment increasing by $2. If the effective interest rate is 2.5% per..
Which has a longer Macaulay’s duration: a $1 million face value zero coupon bond with a two-year maturity and a yield of 6 percent, or a $1 million face value coupon bond with a two-year maturity that pays 6 percent coupon interest? Explain your reas..
Sandersen Inc. sells minicomputer. During the past year, the company sales were 3.17 million. The cost of its merchandise sold came to 1.85 million and cash operating expenses were 340,000; depreciation expense was 100,000 and the firm paid 146,000 i..
Over the last four years, the common stock of Plymouth Shippers has had an arithmetic average return of 9.3 percent. Three of those four years produced returns of 14.1 percent, 15.6 percent, and 3.4 percent, respectively. What is the geometric averag..
Suppose a portfolio manager’s primary objective is capital appreciation. Would it ever make sense for her to write covered calls? Explain. A portfolio manager wants to hedge against a market downturn. Would it make sense to write index calls and use ..
ugenheim, Inc. offers a 8.75 percent coupon bond with annual payments. The yield to maturity is 4.775 percent and the maturity date is 9 years. What is the market price of a $1,000 face value bond? Max, 22, just started working full-time and plans to..
Stephanie Enterprises has bonds that have a 9 percent coupon rate. The interest is paid semiannually and the bonds mature in 8 years. Their par value is $1,000. The price of the bonds are $1,070, and are callable in 5 years with a call price of $1,05..
What monthly car mortgage payments for the next 36 months are required to amortize a present loan of $3000 if interest is 12% compounded monthly?
The optimal output and hence the supply curve for an oligopoly is
Here is a forecast of sales by National Bromide for the first 4 months of 2015 (figures in thousands of dollars): On average, 60% of credit sales are paid for in the current month, 20% in the next month, and the remainder in the month after that. Wha..
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