Question: 1. A firm currently has 20,000,000 shares with a price of $40 per share. They want to issue another 2,000,000 shares so they give each shareholder the right to buy .1 shares of new stock for $3 (it will take ten rights to buy one new share for $30). How much are each of those rights worth?
2. Thomson Engineering is issuing new 12-year bonds that have 15 warrants attached. If not for the attached warrants, the bonds would carry a 9% interest rate. However, with the warrants attached the bonds will pay a 8% annual coupon and still sell for the face value of $1,000. What is the value of each warrant?