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

This preview shows pages 1–2. Sign up to view the full content.

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.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 04/27/2010 for the course ACTSC 371 taught by Professor Wood during the Spring '08 term at Waterloo.

### Page1 / 2

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

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online