In: Finance
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.
%