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Warren Corporation’s stock sells for $42 per share. The company wants to sell some semi-annual coupon...

Warren Corporation’s stock sells for $42 per share. The company wants to sell some semi-annual coupon payment bond with 6 years maturity at $1,000 today. Each bond would have 80 warrants attached to it, each exercisable into one share of stock at an exercise price of $47. The firm’s straight bonds yield to maturity is 8%. Each warrant is expected to have a market value of $2.25 given that the current stock sells for $42. What annual coupon rate must the company set on the bonds in order to sell the bonds-with-warrants at its par value?

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