Question
Warren Corporation's stock sells for $43 per share. The company wants to sell some 25-year, annual interest, $1,000 par value bonds. Each bond would have
Warren Corporation's stock sells for $43 per share. The company wants to sell some 25-year, annual interest, $1,000 par value bonds. Each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $48. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.00 given that the stock sells for $43. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? Show your calculations, if any, and explain your answer.
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Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
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