What coupon interest rate must the company set on the bonds


Assume if the firm's stock now sells for $20 per share. The company wants to sell some 20-year, $1000 par value bonds with interest paid annually. Each bond will have attached 50 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm's straight bonds yield 12%. Assume that each warrant will have a market value of $3 when the stock sells at $20. What coupon interest rate must the company set on the bonds with warrants if they are to clear the market (Hint: the convertible bond should have an initial price of $1000).

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Financial Management: What coupon interest rate must the company set on the bonds
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