Response to the following problem:
The Basis Corporation issued $300 million of 5% coupon bonds, each with a warrant, to buy a share of Basis Corporation common stock at $20 per share.
a. If the price of a share of stock is $15, is this warrant worthless? Explain.
b. If the price of a share of stock is $26, what is the minimum price you would be willing to pay for the warrant?
c. If the price of a share of stock is $22, what is the minimum price you would be willing to pay for the warrant?
d. If the warrant had an expiration date two years into the future, how would this warrant price compare with a similar, yet perpetual warrant?