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Coupon Rate on Bonds

Curry Corporation is setting the terms on a new issue of bonds with warrants. The bonds will have a 30-year maturity and annual interest payments. Each bond will come with 20 warrants that give the holder the right to purchase one share of stock per warrant. The investment bankers estimate that each warrant will have a value of $10.00. A similar straight-debt issue would require a 10% coupon. What coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000?

a. 6.75%

b. 7.11%

c. 7.48%

d. 7.88%

e. 8.27%

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The total package is to be sold for $1,000 and the value for each warrant is $10.00. For the 20 warrants, the total value is 20X10 = $200. The ...