Calculate implied value of warrants attached to each bond

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Reference no: EM131182631

Pierre Imports recently issued two types of bonds. The first issue consisted of 10-year straight debt with a 9 percent annual coupon. The second issue consisted of 10-year bonds with a 8 percent annual coupon and attached warrants. Both issues sold at $1,000 par. The company's stock is currently selling for $27.50 per share.

a. Calculate the implied value of the warrants attached to each bond.

b. Discuss 3 advantages to the investor of purchasing bonds with warrants instead of straight bonds?

c. Discuss 3 advantages to the company of issuing a bond with warrants instead of straight bonds?

d. What will happen to the value of the bond with warrants if the company's stock price increases? Why?

e. What will likely happen to the value of the straight bond if the company's stock price increases? Why?

Reference no: EM131182631

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