What is the investor expected overall pretax rate of return

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Question 1 - Gregg Company is issuing new 30 year bonds that have warrants attached. If not for the warrants attached, the bonds would carry an 8% annual coupon rate. However, with warrants attached the bonds will pay 6% annual coupon. There are 25 warrants attached to each bond, which have a par value of $1000.00. The exercise price of the warrants is $30.00 and the expected stock price 15 years from now (when the warrant: may be exercised) is $65.55. What is the investor's expected overall pretax rate of return for this bond with warrants issue?

Question 2 - The following data apply to Nembhard's Corporation convertible bonds.

Maturity 15

Par value $1000

Annual coupon 9%

Stock price $45

Conversion price $50

Straight-debt yield 12%

(a) What is the band's conversion ratio?

(b) What is the band's initial conversion value when issued?

(c) What is the band's straight-debt value at the time of issue?

(d) What is the floor price at which Nembhard's bonds should sell?

Reference no: EM133053733

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