Emerson Electrical Engineering Inc. is issuing new 20-year bonds that have warrants attached. If not for the
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Question:
Emerson Electrical Engineering Inc. is issuing new 20-year bonds that have warrants attached. If not for the attached warrants, the bonds would carry an 11% interest rate. However, with the warrants attached the bonds will pay a 9% annual coupon. There are 25 warrants attached to each bond, which have a par value of $1,000. The exercise price of the warrants is $25.00 and the expected stock price 10 years from now (when the warrants may be exercised) is $50.77. What is the investor's expected overall pre-tax rate of return for this bond-with-warrants issue?
a. 10.64%
b. 11.20%
c. 11.79%
d. 12.38%
e. 13.00%
Related Book For
Fundamentals of Physics
ISBN: 978-0471758013
8th Extended edition
Authors: Jearl Walker, Halliday Resnick
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