1. Calmer Inc. plans to issue 20-year bonds with annual interest payments and with 20 warrants attached. Each warrant is expected to have a value of $0.50. A similar straight-debt issue would require an 12% coupon. What coupon rate should be set on the bonds-with-warrants so that the bond will sell for $1,000?

11.67%

11.73%

11.87%

11.99%

None of the above

2. Both Talmot and Delmont are large public companies with subsidiaries throughout the world. Delmont uses a decentralized approach and its subsidiaries make most of their own decisions. Talmot uses a centralized approach and makes most of the decisions for its subsidiaries. Which of the following is correct?

Agency costs would be the same for both companies

Agency problems would be the same for both companies

Agency problems would probably be more pronounced for Delmont because it is more likely that subsidiary decisions would conflict with the parent

Agency problems would probably be more pronounced for Talmot because it is more likely that subsidiary decisions would conflict with the parent

None of the above