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How do find the fair market value of the warrant

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Reference no: EM132912657

A non-callable bond has 10 years to maturity. Principal amount of $1,000. Coupon rate is $100 per year (payable at the end of the year but accrued daily). The annual effective yield is 10%.

  • A callable bond has the same features but the effective yield is 11%. The callable bond is callable at par anytime prior to maturity with payment of accrued interest (in addition to par value).
  • The warrant allows the warrant holder to exchange warrant+callable bond for the above mentioned non-callable bond at anytime prior to maturity.

Problem 1: Find the fair market value of the warrant.

Reference no: EM132912657

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