hybrid costing8

hybrid costing8 - d. $342,916.76 e. $345,068.85 Bond with...

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d. $342,916.76 e. $345,068.85
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Bond with warrants Answer: b Diff: M i . Shearson PLC’s stock sells for $42 per share. The company wants to sell some 20-year, annual interest, $1,000 par value bonds. Each bond will have attached 75 warrants, each exercisable into one share of stock at an exercise price of $47. Shearson’s straight bonds yield 10 percent. The warrants will have a market value of $2 each when the stock sells for $42. What coupon interest rate must the company set on the bonds-with-warrants if the bonds are to sell at par? a. 8.00% b. 8.24% c. 8.96% d. 9.25% e. 10.00% Bond with warrants Answer: b Diff: M ii . The Random Corporation is setting its terms on a new issue with warrants. The bonds have a 30-year maturity and semiannual coupon. Each bond will have 20 warrants attached that give the holder the right to purchase one share of Random stock per warrant. Random’s investment banker estimates that each warrant has a value of $14.20. A similar straight-debt issue would require a 10 percent coupon.
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hybrid costing8 - d. $342,916.76 e. $345,068.85 Bond with...

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