McGovern Enterprises Is Interested in Issuing Bonds with Warrants Attached

question 12

Multiple Choice

McGovern Enterprises is interested in issuing bonds with warrants attached.The bonds will have a 30-year maturity and annual interest payments.Each bond will come with 20 warrants that give the holder the right to purchase one share of stock per warrant.The investment bankers estimate that each warrant will have a value of $10.00.A similar straight-debt issue would require a 10% coupon.What coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000?

• A) 6.75%
• B) 7.11%
• C) 7.48%
• D) 7.88%
• E) 8.27%

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Definitions:

Importance Weights

A concept in decision-making and analysis that refers to the relative significance or contribution of various factors or criteria in evaluating outcomes or making choices.

Multi-Attribute Attitude Models

Psychological models used to predict consumer attitudes and behaviors by analyzing specific beliefs related to several attributes of a product or service.

Fishbein Model

A model in psychology that predicts behaviors based on the strength and evaluation of beliefs about the behavior's outcome, integrating attitudes and norms.

Salient Beliefs

Prominent or most noticeable beliefs held by an individual which strongly influence attitudes and behavior.