Preissle Company wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $42 per share, and each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $54. The warrants expire in 5 years. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.00. The company’s stock is expected to grow at 7% indefinitely. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.83% b. 8.24% c. 8.65% d. 9.08% e. 9.54%

Preissle Company wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $42 per share, and each bond would have 75 warrants attached to it, each exercisable into one share of stock at an exercise price of $54. The warrants expire in 5 years. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.00. The company’s stock is expected to grow at 7% indefinitely. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.83% b. 8.24% c. 8.65% d. 9.08% e. 9.54%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 15P

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