Response to the following problem:
The Choice Corporation has $5 million of 6% coupon bonds outstanding, each with a maturity value of $1,000. The bonds are callable at 104 at any time, are putable at 105 in five years at par value, are convertible into 20 shares of common stock, and have a warrant attached to each that give the bondholder the right to buy a share of common stock at $50 per share.
a. List all the embedded options in these bonds, identifying the party that has the option to exercise.
b. If each option is exercised, is there a cash inflow or outflow to Choice and, if there is some cash flow, what is the amount of the cash flow? (Treat each option independently in determining the impact on cash flow.)