Answers
Straight bonds offered a coupon of 10% and issued at par value. Issue pirce is equal to par value. So Yield to maturity of both bonds will be 10%
We will calculate straight value of second bond:
face value =1000
annual coupon = 1000*8% = 80
years to maturity (n) =12
YTM (i) =10%
Bond price formula = Coupon amount * (1 - (1/(1+i)^n)/i + face value/(1+i)^n
=(80*(1-(1/(1+10%)^12))/10%) + (1000/(1+10%)^12)
=863.7261635
Striaght value of second bond =863.73
issue price of bond with warrant = 1000
Implied value of warrants = Issue price - straight value of bonds
=1000-863.73
=136.27
So implied value of warrants attached is $136.27
value of 1 warrant = 136.27/5 =$27.254
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