Raptor Software is issuing new 10-year bonds that have warrants attached. If not for the attached warrants, the bonds would carry a 15.0% interest rate. However, with the warrants attached the bonds will pay a 9.0% annual coupon. There are 25 warrants attached to each bond, which have a par value of $1,000. The exercise price of the warrants is $26.00, and the expected stock price 5 years from now (when the warrants may be exercised) is $38.00. What is the investor's expected overall pre-tax rate of return (component cost of bonds with warrants) for this bond-with-warrants issue?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Raptor Software is issuing new 10-year bonds that have warrants attached. If not for the attached warrants, the bonds would carry a 15.0% interest rate. However, with the warrants attached the bonds will pay a 9.0% annual coupon. There are 25 warrants attached to each bond, which have a par value of $1,000. The exercise price of the warrants is $26.00, and the expected stock price 5 years from now (when the warrants may be exercised) is $38.00. What is the investor's expected overall pre-tax
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