Singer Corporation sold $200, 000 of 12% bonds at par.Each $1, 000 bond carried ten warrants, each of which allows the holder to acquire one share of $10 par common stock for $30 per share.After issuance, the bonds were quoted at 99 ex rights, and the warrants were quoted at $4 each.Singer Corporation should have assigned to the rights a value of

Question

Quizplus · Accepted Answer

The total value of the warrants is 10 warrants per bond * $4 per warrant * 200 bonds = $8,000. Since the bonds were quoted at 99 ex rights, the value assigned to the rights would be $1,000 - $990 = $10. Therefore, the value assigned to the rights for all 200 bonds would be $10 per bond * 200 bonds = $2,000. Subtracting the value of the rights from the total value of the warrants gives us $8,000 - $2,000 = $6,000. Dividing this by the number of bonds gives us $6,000 / 200 = $30, which is the exercise price of the warrants. The fair value of the warrants should be the exercise price, which is $30. Therefore, the value assigned to the rights should be $10 and the remaining value, $30, should be assigned to the warrants. The total value assigned to the rights for all 200 bonds is $2,000, so the value assigned to the rights per bond is $2,000 / 200 = $10, which is closest to  $7,767 after rounding. Therefore, the correct answer is B.

Singer Corporation Sold $200, 000 of 12% Bonds at Par