LPV Inc. wants to issue 20-year bonds with 15 warrants attached. The investment bankers estimate that each warrant will have a value of $15.00 and that its exercise price will be equal to $25. A similar straight-debt issue would require a 12% coupon. What coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000? *

1) 6.98%

2) 7.56%

3) 8.47%

4) 8.99%

5) None of the above