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Consider a Bond with an Equity Warrant

question 76

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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?


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