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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 $4.00 given that the stock sells for $42.

Required:

Question: What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par?

Note: Provide support for your underlying principle.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91168051

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