A bond with 20 detachable warrants has just been offered for sale at $100. The bond matures

Question:

A bond with 20 detachable warrants has just been offered for sale at $100. The bond matures in 25 years and has an annual coupon of $5.5. Each warrant gives the owner the right to purchase two shares of stock in the company at $4.5 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 7 percent. What is the value of one warrant?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...

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