A4 - ACTSC 371 Assignment#4(due Tuesday July 27th at 4:00...

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ACTSC 371 – Assignment #4 (due Tuesday July 27 th at 4:00 p.m.) 1. Warrants on XYZ with one year to expiry currently trade on the stock exchange. Each warrant given the holder the right to purchase one share at $35. Suppose XYZ stock currently trades for $37, continuously compounded interest rates are 7% per annum and the annual volatility of XYZ stock is 15%. Also, XYZ has 5 million shares outstanding and 500,000 warrants. Using the Black-Scholes formula, find the value of each warrant. 2. ABC Inc stock currently trades at $ 40 per share. ABC has 5-year convertible bonds outstanding with a face value of $1000 paying a 6% coupon. Each bond can be converted into 20 common shares of ABC Inc. Suppose the market value of each bond is $1350. Suppose also that straight bonds with a similar risk and term currently trade with a yield-to-maturity of 7.5% a. What is the conversion ratio? b. What is the conversion price? c.
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This note was uploaded on 04/27/2010 for the course ACTSC 371 taught by Professor Wood during the Spring '08 term at Waterloo.

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A4 - ACTSC 371 Assignment#4(due Tuesday July 27th at 4:00...

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