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Assume that Pogue's stock now sells for $18 per share. The company wants to sell some...

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 8%. Assume that the warrants will have a market value of $1.75 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.

$   

What annual coupon interest rate 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 two decimal places.

  %

Solutions

Expert Solution

1) Annual coupon payment is $ 75.54

2) Annual coupon rate is 7.55%

jeff jeffy answered 3 months ago
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