The implied price of an attached warrant can be found

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Unformatted text preview: less pronounced effect on the firm’s leverage and brings in new funds. The implied price of an attached warrant can be found by dividing the difference between the bond price with warrants attached and the straight bond value by the number of warrants attached to each bond. The market value of a warrant usually exceeds its theoretical value, creating a warrant premium. The premium results from positive investor expectations and the ability of investors to get more leverage from trading warrants than from trading the underlying stock. SELF-TEST PROBLEMS LG2 ST 16–1 Define options and discuss calls and puts, options markets, options trading, the role of call and put options in fund-raising, and hedging foreign-currency exposures with options. An option provides its holder with an opportunity to purchase or sell a specified asset at a stated price on or before a set expiration date. Rights, warrants, and calls and puts are all options. Calls are options to purchase common stock, and puts are options to sell common stock. Options exchanges, such as the Chicago Board Options Exchange (CBOE), provide organized marketplaces in which purchases...
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