Atchley Enterprises' Stock Price Is $42 Per Share

question 20

Multiple Choice

Atchley Enterprises' stock price is $42 per share. The company wants to sell some 20-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 $47. 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 $42. 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%

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Definitions:

Present Value

The current worth of a future sum of money or stream of cash flows, given a specific rate of return.

Interest Rate

The percentage rate at which interest is charged on a loan to the borrower, often expressed as an annual figure relative to the outstanding loan sum.

Present Value

The modern-day worth of a forthcoming sum of money or flow of cash payments, using a set rate of return for calculation.

Received

The action of being given or awarded something.