A Bond with 10 Detachable Warrants Has Just Been Offered

question 5

Multiple Choice

A bond with 10 detachable warrants has just been offered for sale at $1,000.The bond matures in 12 years and has an annual coupon of $80.Each warrant gives the owner the right to purchase two shares of stock in the company at $14 per share.Ordinary bonds (with no warrants) of similar quality are priced to yield 11 percent.What is the value of one warrant?

• A)$7.00
• B)$13.58
• C)$14.00
• D)$16.67
• E)$19.48

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