Unformatted text preview: is reflected in an increased price for its stock. In this case, the firm conveniently obtains needed funds. The Implied Price of an Attached Warrant
implied price of a warrant
The price effectively paid for
each warrant attached to a bond. When warrants are attached to a bond, the implied price of a warrant—the price
that is effectively paid for each attached warrant—can be found by first using
Implied price of
all warrants Price of bond with
warrants attached Straight bond value (16.1) 692 PART 6 Special Topics in Managerial Finance The straight bond value is found in a fashion similar to that used in valuing convertible bonds. Dividing the implied price of all warrants by the number of warrants attached to each bond results in the implied price of each warrant.
EXAMPLE Martin Marine Products, a manufacturer of marine drive shafts and propellers,
just issued a 10.5%-coupon-interest-rate, $1,000-par, 20-year bond paying
annual interest and having 20 warrants attached for the purchase of the firm’s
stock. The bond...
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