Curran Contracting is issuing new 25-year bonds that have warrants attached.If not for the attached warrants,the bonds would carry an 11% annual interest rate.However,with the warrants attached the bonds will pay an 8% annual coupon.There are 30 warrants attached to each bond,which have a par value of $1,000.What is the implied value of each warrant?

Question

Quizplus · Accepted Answer

The implied value of each warrant is $8.42. This is calculated by taking the difference between the coupon rate of the bonds with and without warrants (11% - 8% = 3%) and dividing it by the number of warrants attached to each bond (30).

Curran Contracting Is Issuing New 25-Year Bonds That Have Warrants