The intrinsic value of the warrant. Introduction: Warrant: It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it. Intrinsic v alue: It is the value that helps in measuring the worth of an asset. It is computed using valuation models which are based on the qualitative as well as quantitative aspects of business.

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Answer 1

Question

Chapter 19, Problem 16P

a.

Summary Introduction

To calculate: The intrinsic value of the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Intrinsic value:

It is the value that helps in measuring the worth of an asset. It is computed using valuation models which are based on the qualitative as well as quantitative aspects of business.

b.

Summary Introduction

To calculate: The speculative premium on the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Speculative premium:

It is the difference in between the price at which a bond is currently trading and its minimum or intrinsic value.

c.

Summary Introduction

To calculate: The percentage rise in the warrant price and the stock price if one purchases them at earlier stated price and explain their relationship.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Stock price:

The highest price of one share of a company that an investor is willing to pay is termed as the shareâ€™s price. It is the current price used for the trading of such shares.

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Suppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?

Suppose you own a convertible bond that has a conversion ratio equal to 62. Each convertible bond has a face value equal to $1,000. The current market value of the company's common stock is $16, and the bond is selling for $1,042. If you want to liquidate your position today because you need money to pay your rent, should you sell the bond or should you convert the bond into common stock and then sell the stock? Explain your answer. Round your answers to the nearest dollar. Selling the bond would generate $_______ . Converting the bond and selling the common stock would generate $_______ . Thus, it would be better to SELL THE BOND / CONVERT THE BOND INTO COMMON STOCK AND THEN SELL THE STOCK

Suppose you own a convertible bond that has a conversion ratio equal to 58. Each convertible bond has a face value equal to $1,000. The current market value of the company's common stock is $17, and the bond is selling for $1,036. If you want to liquidate your position today because you need money to pay your rent, should you sell the bond or should you convert the bond into common stock and then sell the stock? Explain your answer. Round your answers to the nearest dollar. Selling the bond would generate $ . Converting the bond and selling the common stock would generate $ . Thus, it would be better to .

Answer 2

Question

Chapter 19, Problem 16P

a.

Summary Introduction

To calculate: The intrinsic value of the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Intrinsic value:

It is the value that helps in measuring the worth of an asset. It is computed using valuation models which are based on the qualitative as well as quantitative aspects of business.

b.

Summary Introduction

To calculate: The speculative premium on the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Speculative premium:

It is the difference in between the price at which a bond is currently trading and its minimum or intrinsic value.

c.

Summary Introduction

To calculate: The percentage rise in the warrant price and the stock price if one purchases them at earlier stated price and explain their relationship.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Stock price:

The highest price of one share of a company that an investor is willing to pay is termed as the shareâ€™s price. It is the current price used for the trading of such shares.

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Answer 3

Question

Chapter 19, Problem 16P

a.

Summary Introduction

To calculate: The intrinsic value of the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Intrinsic value:

It is the value that helps in measuring the worth of an asset. It is computed using valuation models which are based on the qualitative as well as quantitative aspects of business.

b.

Summary Introduction

To calculate: The speculative premium on the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Speculative premium:

It is the difference in between the price at which a bond is currently trading and its minimum or intrinsic value.

c.

Summary Introduction

To calculate: The percentage rise in the warrant price and the stock price if one purchases them at earlier stated price and explain their relationship.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Stock price:

The highest price of one share of a company that an investor is willing to pay is termed as the shareâ€™s price. It is the current price used for the trading of such shares.

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Answer 4

Question

Chapter 19, Problem 16P

a.

Summary Introduction

To calculate: The intrinsic value of the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Intrinsic value:

It is the value that helps in measuring the worth of an asset. It is computed using valuation models which are based on the qualitative as well as quantitative aspects of business.

b.

Summary Introduction

To calculate: The speculative premium on the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Speculative premium:

It is the difference in between the price at which a bond is currently trading and its minimum or intrinsic value.

c.

Summary Introduction

To calculate: The percentage rise in the warrant price and the stock price if one purchases them at earlier stated price and explain their relationship.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Stock price:

The highest price of one share of a company that an investor is willing to pay is termed as the shareâ€™s price. It is the current price used for the trading of such shares.

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Answer 5

Chapter 19, Problem 16P

a.

Summary Introduction

To calculate: The intrinsic value of the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Intrinsic value:

It is the value that helps in measuring the worth of an asset. It is computed using valuation models which are based on the qualitative as well as quantitative aspects of business.

b.

Summary Introduction

To calculate: The speculative premium on the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Speculative premium:

It is the difference in between the price at which a bond is currently trading and its minimum or intrinsic value.

c.

Summary Introduction

To calculate: The percentage rise in the warrant price and the stock price if one purchases them at earlier stated price and explain their relationship.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Stock price:

The highest price of one share of a company that an investor is willing to pay is termed as the shareâ€™s price. It is the current price used for the trading of such shares.

Answer 6

Chapter 19, Problem 16P

a.

Summary Introduction

To calculate: The intrinsic value of the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Intrinsic value:

It is the value that helps in measuring the worth of an asset. It is computed using valuation models which are based on the qualitative as well as quantitative aspects of business.

Answer 7

Chapter 19, Problem 16P

a.

Summary Introduction

To calculate: The intrinsic value of the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Intrinsic value:

It is the value that helps in measuring the worth of an asset. It is computed using valuation models which are based on the qualitative as well as quantitative aspects of business.

Answer 8

b.

Summary Introduction

To calculate: The speculative premium on the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Speculative premium:

It is the difference in between the price at which a bond is currently trading and its minimum or intrinsic value.

Answer 9

b.

Summary Introduction

To calculate: The speculative premium on the warrant.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Speculative premium:

It is the difference in between the price at which a bond is currently trading and its minimum or intrinsic value.

Answer 10

c.

Summary Introduction

To calculate: The percentage rise in the warrant price and the stock price if one purchases them at earlier stated price and explain their relationship.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Stock price:

The highest price of one share of a company that an investor is willing to pay is termed as the shareâ€™s price. It is the current price used for the trading of such shares.

Answer 11

c.

Summary Introduction

To calculate: The percentage rise in the warrant price and the stock price if one purchases them at earlier stated price and explain their relationship.

Introduction:

Warrant:

It is a security that provides its holder with an entitlement of buying the underlying shares of a corporation at a price fixed by it.

Stock price:

The highest price of one share of a company that an investor is willing to pay is termed as the shareâ€™s price. It is the current price used for the trading of such shares.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 19 - Prob. 1DQ Ch. 19 - Prob. 2DQ Ch. 19 - Why is it said that convertible securities have a...Ch. 19 - Prob. 4DQ Ch. 19 - Prob. 5DQ Ch. 19 - Prob. 6DQ Ch. 19 - Explain the difference between basic earnings per...Ch. 19 - Prob. 8DQ Ch. 19 - Prob. 9DQ Ch. 19 - Prob. 10DQ

Solution Summary: The author explains the intrinsic value of a warrant and the speculative premium on the warrant.

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