Determining the implied value of warrant, Accounting Basics

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Determining the implied value of warrant

Problem:

Potter & Lopez Inc. just sold a bond with 50 warrants attached. The bonds have a 20-year maturity and an annual coupon on 12%, and they were issued at their $1,000 par value. The current yield on similar straight bonds is 15%.

Required:

Question: What is the implied value of each warrant?

Note: Provide support for rationale.

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Accounting Basics: Determining the implied value of warrant

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Accounting Basics: Determining the implied value of warrant

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