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Unformatted text preview: l interest and has 10
warrants attached for purchase of common stock. The theoretical value of
each warrant is $12.50. The interest rate on an equal-risk straight bond is currently 13%.
a. Find the straight value of Stanco Manufacturing’s bond.
b. Calculate the implied price of all warrants attached to Stanco’s bond.
c. Calculate the implied price of each warrant attached to Stanco’s bond.
d. Compare the implied price for each warrant calculated in part c to its theoretical value. On the basis of this comparison, what assessment would you
give Dinoo with respect to the fairness of Stanco’s bond price? Explain. LG5 16–16 Warrant values Kent Hotels has warrants that allow the purchase of three
shares of its outstanding common stock at $50 per share. The common stock
price per share and the market value of the warrant associated with that stock
price are shown in the table.
price per share Market value
of warrant $42 $2 46 8 48 9 54 18 58 28 62 38 66 48 a. For each of the common stock prices given, calculate the theoretical wa...
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This document was uploaded on 01/19/2014.
- Fall '13