A company recently issued bonds with attached warrants. The bond-plus-warrantspackage sells at a price equal to its $1,000 face value. The bonds mature in 10 yearsand have a 6% annual coupon. The company also has 10-year straight debt (withno warrants attached) outstanding. The straight debt has a yield to maturity of 8%.What is the straight-debt value of each bond? What is the value of the warrantsattached to each bond?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
A company recently issued bonds with attached warrants. The bond-plus-warrants
package sells at a price equal to its $1,000 face value. The bonds mature in 10 years
and have a 6% annual coupon. The company also has 10-year straight debt (with
no warrants attached) outstanding. The straight debt has a yield to maturity of 8%.
What is the straight-debt
attached to each bond?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
