Warrants

CASE STUDY IN FIXED INCOME

COCA-COLA HARMLESS WARRANTS
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Case study in frosty Income

The Coca-Cola Harmless Warrants
First, lets see whats in the package: 1 Series A note overdue 1992 97/8 % coupon (annual payment) Maturity 7 long time Callable at 100% after 4 geezerhood Issue Price 1013/8 % 2 Warrant Ÿ pay to buy a non callable bond from Coca-Cola Ÿ $1000 rationale amount of Series B at 100% Ÿ 97/8 % coupon (annual payment) Ÿ Due 1992

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Based on the term of the bond, we learn that 1985-1989 is non callable, but after1989, it can be called defend by Coca-Cola. Non-callable Callable

1985
Will investors use vindicate here?

1989

1992

The investors dont need to exercise the warrant in this gunpoint, because exercising the warrant in this period just make the bond bewilder non-callable. This makes no real sense. Investors can wait until next period (1989-1992) to decide what to do base on the situation at that time.

In this period Coca-Cola can redeem its Series A notes. If interest numbers in the market have at rest(p) down at the time of the call date, the issuer (Coca-cola) will be able to refinance his debt at a cheaper level and so will call the bonds.



Another way to look at it is that as interest rates have departed down, the cost of the bond has gone up. Therefore, it is advantageous to buy the bonds back at the par value.1 ð Interest rate goes down, Coca-cola is apt to call back the Series A notes. Interest rate goes up, Coca-cola have no reason to call back the Series A notes. moreover also in this period, the investors who hold the warrant have the right to buy the $1000 amount of Series B at 100% par value, without surrendering the series A. Just need the bills! Its just like a new investment to the investors. If interest rates in the market have gone up, higher than the yield of the series B bond, they will of menstruate invest their money in the higher interest rate but not exercising the warrant to buy the...If you privation to get a full essay, order it on our website: Orderessay



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