hapter 20: Hybrid Financing 1. Warren Corporation's stock sells for $42 per share. The company wants to sell some semi-annual coupon payment bonds with 8 -year maturity at par value ($1,000) today and each bond would have 90 warrants attached to it, each exercisable into one share of stock at an exercise price of $45. The firm's straight bonds yield to maturity is 7%. Each warrant is expected to have a market value of $3.00 given that the current stock sells for $42. What annual coupon rate must the company set on these bonds? (5 points) 2. Orient Airlines' common stock currently sells for $31, and its 10-year maturity convertible bond with 8.5% coupon rate paid semi-annually has a yield to maturity of 12%. Each bond can be converted into 25 shares of common stock at any time before five years from now. Assuming its stock price is expected to grow at 2% every year, show with calculations whether bondholders of this convertible bond more likely to convert the bond into common stock today? Show your calculations to support your answers to earn full points ( 5 points)