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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Definitions:

Pentanoic Acid

A five-carbon chain fatty acid, also known as valeric acid, with a chemical formula of C5H10O2.

Condensed Structural Formula

A method of representing molecules wherein the atoms are shown in order but some or all bonds are omitted for simplicity.

COOH

Refers to the carboxyl group, a functional group consisting of a carbon atom double-bonded to an oxygen atom and single-bonded to a hydroxyl group (OH), found in organic acids.

Hexanoic Acid

A colorless, oily fatty acid with an odor that resembles that of goats or other barnyard animals, used in flavoring and manufacturing.