E) Thompson Utilities has issued a bond with 50 warrants attached. The bonds have a 20-year maturity and an annual coupon of 12%, and they were issued at their $1,000 par value. The current yield on similar straight bonds is 15%. What is the implied value of each warrant?

Question

Quizplus · Accepted Answer

The implied value of each warrant is $3.76. This is calculated by taking the difference between the current yield on similar straight bonds (15%) and the yield on the Thompson Utilities bonds (12%), and then multiplying that difference by the par value of the bond ($1,000) and dividing by the number of warrants attached to each bond (50).

E) Thompson Utilities Has Issued a Bond with 50 Warrants