Coupon must company set on the bonds with warrants

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Reference no: EM132061965

Assume that Pogue's stock now sells for $18 per share. The company wants to sell some 20-year, annual interest, $1,000 par value bonds. Each bond will have 25 warrants, each warrant entitles the holder to buy 1 share of stock at a price of $21. Pogue's pure bonds yield 11%. Assume that the warrants will have a market value of $1.00 when the stock sells at $18. What annual dollar coupon must the company set on the bonds with warrants if they are to clear the market (i.e., the market is in equilibrium)? Round your answer to the nearest cent.

Reference no: EM132061965

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