A Warrant Is Attached to a $1,000 Par, 10 Percent

question 72

Multiple Choice

A warrant is attached to a $1,000 par, 10 percent, 10-year bond, paying annual interest and having20 warrants attached for the purchase of the firm's stock. The bonds were initially sold for $1,200.When issued, similar risk, straight bonds were selling at a 14 percent rate of return. The implied price of the warrant is

• A) $20.00
• B) $10.00.
• C) $20.40.
• D) $10.40.

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Definitions:

Average Total Costs

The total cost of production divided by the number of units produced, representing the per-unit production cost.

Marginal Costs

The charge for generating one more unit of a product or service.

Average Fixed Costs

The total fixed costs of production divided by the quantity of output produced, indicating how fixed costs change with different levels of production.

Marginal Costs

The increase in total cost that arises from an extra unit of production.