Warren Corporation's Stock Sells for $42 Per Share

question 16

Multiple Choice

Warren Corporation's stock sells for $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%

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