Consider a Bond with an Equity Warrant

question 89

Multiple Choice

Consider a bond with an equity warrant.The warrant entitles the bondholder to buy 25 shares of the issuer at €50 per share for the lifetime of the bond.The bond is a 30-year zero coupon bond with a €1,000 par value that has a yield to maturity of i_€ = 5 percent.The price of the bond is €500.What is the value of the warrant?

• A)€231.38
• B)€268.62
• C)€500
• D)none of the options

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Definitions:

Derivative-Action Provisions

Legal guidelines that allow a minority shareholder to sue or take legal action on behalf of a corporation, typically to redress harm done to the company.

Relief-From-Oppression

Legal measures aimed at protecting individuals or groups from unfair or abusive treatment.

Director

A member of a company's board responsible for making major decisions and overseeing the organization's management.

Corporation Ratifies

An action whereby a corporation formally confirms or approves an agreement or decision made on its behalf.