Hello!
In part b) it required to determine the coupon rate, where we can work on it by stating it as “x” (unknown figure) to the amounts given.
My question is why do we have to add the call value in year 0 and what does it mean putting it there?
Thank you.
Ask the Tutor ACCA AFM
Dec ’09 – Alaska Salvage.
7y ago#1It is because of the warrants, which are effectively call options that have a value at time 0 of 2241.
So the lender invests 10,000 now, but gets options which are worth now 2241 :-)
What if there were put options? Do we still add to the initial investment?
7y ago#3But why on earth would there be put options? The whole point of offering warrants is to make the debt more attractive to investors by giving them the possibility of buying shares at a future date at a fixed price (as is made clear in the question) :-)
Oh..
Thank you sir.
7y ago#5You are welcome :-)
This topic is locked — no new replies.