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Table Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $65 per share, and each bond would have 80 warrants attached to it, each exercisable into one share of stock at an exercise price of $72. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.2. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.81% b. 8.68% c. 8.47% d. 7.93% e. None of the above

Table Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $65 per share, and each bond would have 80 warrants attached to it, each exercisable into one share of stock at an exercise price of $72. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.2. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.81% b. 8.68% c. 8.47% d. 7.93% e. None of the above

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Table Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $65 per share, and each bond would have 80 warrants attached to it, each exercisable into one share of stock at an exercise price of $72. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.2. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.81% b. 8.68% c. 8.47% d. 7.93% e. None of the above
Transcribed Image Text:Table Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $65 per share, and each bond would have 80 warrants attached to it, each exercisable into one share of stock at an exercise price of $72. The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.2. What coupon interest rate must the company set on the bonds in order to sell the bonds-with-warrants at par? a. 7.81% b. 8.68% c. 8.47% d. 7.93% e. None of the above
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