JMR Ltd.issued $300,000 of 7%, 8 year, non-convertible bond with detachable stock purchase warrants.KER Corp.purchased the entire issue.Each $1,000 bond carries 20 warrants.Each warrant entitles KER to purchase one common share for $20.The bond issue sells for 104 exclusive of accrued interest.Shortly after issuance, the warrants trade for $5 each and the bonds were quoted at 103 ex-warrants.The market value of the bonds and warrants using the proportional method was:

Question

Quizplus · Accepted Answer

The market value of the bonds and warrants using the proportional method can be calculated by first determining the value of the warrants and the bonds separately, and then adding them together. With each $1,000 bond carrying 20 warrants, and each warrant trading for $5, the value of the warrants is $5 * 20 * 300 = $30,000. The bonds, excluding the warrants, are quoted at 103% of their face value, so their value is $300,000 * 1.03 = $309,000. Adding these values together gives $339,000.

JMR LtdIssued $300,000 of 7%, 8 Year, Non-Convertible Bond with Detachable