Problem:
Preissle Company, wants to sell some 20-year, annual interest, $1,000 par value bonds. Its stock sells for $42 per share, and 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 yeild 10%. Each warrant is expected to have a market value of $2.00 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: Show supporting computations in good form.