2. Warrants ts are long-term options to buy a stated number of common shares at

Question

2. Warrants ts are long-term options to buy a stated number of common shares at a specified price that is generally Warran attached to debt issues. Warrants are attached to debt in hopes of enticing investors to buy lower-coupon, long-term debt, because warrants give investors the chance to profit from the firm's upside potential. Warrants are like long-term: O Put options O Call options Triptych Food Corp. is issuing new five-year bonds with 17 warrants attached to each $1,000 par value bond. Triptych Food Corp. wanted to issue the bonds at par, but a straight-debt bond (without warrants) would have required a 12.00% coupon rate. Instead, the attached warrants allow Triptych Food Corp. to issue the bonds at par with a 7.20% coupon. Calculate the straight value of the bond and the value of each warrant in the following table. (Note: Assume that the company pays annual coupons.) Value What is the straight value of the bond? What is the value of each warrant? The consensus opinion of analysts is that Triptych Food Corp, undervalued the warrants that it a According to the analysts, is the coupon rate on Triptych Food Corp.'s bonds too high or too low? tached to its bonds. O Too low O Too higlh

Explanation / Answer

1) warrants are like call options since they give incentive to invetor to buy hence like call option

2)too low

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