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What coupon interest rate must the company set on the bonds-with-warrants if the bonds are to sell…

Bond with warrants30. Shearson PLC’s stock sells for $42 per share. The company wants to sellsome 20-year, annual interest, $1,000 par value bonds. Each bond willhave attached 75 warrants, each exercisable into one share of stock at anexercise price of $47. Shearson’s straight bonds yield 10 percent. Thewarrants will have a market value of $2 each when the stock sells for $42.What coupon interest rate must the company set on the bonds-with-warrantsif the bonds are to sell at par?a. 8.00%b. 8.24%c. 8.96%d. 9.25%e. 10.00%Bond with warrants31. The Random Corporation is setting its terms on a new issue with warrants.The bonds have a 30-year maturity and semiannual coupon. Each bond willhave 20 warrants attached that give the holder the right to purchase oneshare of Random stock per warrant. Random’s investment banker estimatesthat each warrant has a value of $14.20. A similar straight-debt issuewould require a 10 percent coupon. What coupon rate must be set on thebonds so that the package will sell for $1,000?a. 6.0%b. 7.0%c. 8.0%d. 9.0%e. 10.0%

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