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A bond with 10 detachable warrants has just been offered for sale at $1,000. The bond matures in 30 years and has an annual coupon of $50. Each warrant gives the owner the right to purchase two shares of stock in the company at $59 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 7 percent.
What is the value of one warrant? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Value of one warrant $
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The price of a European put that expires in eight months and has a strike price of $50 is $3. The underlying stock price is $53, and a dividend of $1 is expected in three months and again in six months. Explain the arbitrage opportunity in the above ..
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