Posted by Sundari on .
ABC stock sells for $22 bucks a share. The company wants to sell 20 year annual interest $1000 par value bonds. Each bond will have 75 warrants attached to it which is exercisable into one share of stock. The exercise price is $47.00. The stock sells for $42. The firm’s straight bond yields 10%. Each warrant has a market value of $2 given that the stock sells for 42.00. What coupon interest rate should the company set on the bonds in order to sell the bonds with the warrants at par?