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Warren Corporation’s stock sells for $40 per share. The company wants to sell some 10-year maturity,...

Warren Corporation’s stock sells for $40 per share. The company wants to sell some 10-year maturity, semi-annual annual coupon payments bond at $1,000 (par value). Each bond would have 40 warrants attached to it, each exercisable into one share of stock at an exercise price of $45. The firm’s straight bonds yield to maturity is 10%. Each warrant is expected to have a market value of $5 given that the stock sells for $42. What annual coupon rate must the company set on the bonds in order to sell the bonds-with-warrants at par value?

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