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sir in its part b) what they do is deduct the call value from issue price, saying that “value of the warrant as a benefit accruing immediately to the lender”, now again am finding myself scratching my head and trying hard to understand what the answer is trying to say, but sadly to no avail!!
Why do we deduct this $2241 from $10,000 of issue price???
And secondly sir do you think we could get questions on Warrants? I mean they are nowhere to be found in my study text, so it came as a surprise to me when i found this in the exam kit.
Your inputs would be much appreciated sir!
The investors are lending 10,000 but they immediately receive the warrant which is worth 2,241. So the net amount they are investing is 10,000 – 2,241. Whether or not they choose to sell the warrant or kept themselves is entirely up to them.
Warrants can certainly be mentioned in the exam because they are assumed knowledge from Paper FM (was F9) which is. probably why your Study Text does not mention them.
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