Coupon interest rate on warrants
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Coupon interest rate on warrants. Please see the attachment.
Shearson PLC's stock sells for $42 per share. The company wants to sell some 20-year, annual interest, $1,000 par value bonds. Each bond will have attached 75 warrants, each exercisable into one share of stock at an exercise price of $47. Shearson's straight bonds yield 10 percent. The warrants 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-warrants if the bonds are to sell at par?
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Solution Summary
The solution explains how to determine the coupon rate on bonds such that it sells for par
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The bonds and warrants should sell at the value of $1,000 which is the par value. We find the value of bond so as to ...
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