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Consider a bond with an equity warrant. The warrant entitles the bondholder to buy 25 shares of the issuer at €50 per share for the lifetime of the bond. The bond is a 30-year zero-coupon bond with a €1,000 par value that has a yield to maturity of i€ = 5 percent. The price of the bond is €500. What is the value of the warrant?

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Karabo99

Answer:

The value of the warrant is €231.38

Explanation:

par va;ue of zero coupon bond = €1,000

present value of €1 at 5% for 30 years yeild bond = €0.23138

value of warrant = €231.38

Therefore, The value of the warrant is €231.38

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