Troy has decided to sell $3 million of 10 year debentures with warrants at their $1,000 face value. The debentures carry a coupon of 12%. Each debenture will have attached 10 warrants, each warrant exercisable into two shares of common stock at an exercise price of $35. Each warrant is expected to trade at a market value of $5.

Currently Troy has only one outstanding issue of straight debentures which trade to yield 14%. These debentures will mature in 10 years and have a $1,000 face value.

The debentures with warrants issue has been priced in such a way that the initial market value of 1 debenture with warrants will equal the market value of 1 straight debenture plus the expected market value of the 10 attached warrants.

Required:

Calculate the interest payment (coupon rate) on the straight debenture which is already outstanding.