Triptych Food Corp. is issuing new nine-year bonds with 21 warrants attached to each $1,000 par…

Triptych Food Corp. is issuing new nine-year bonds with 21
warrants attached to each $1,000 par value bond. Triptych Food
Corp. wanted to issue the bonds at par, but a straight-debt bond
(without warrants) would have required a 11.20% coupon rate.
Instead, the attached warrants allow Triptych Food Corp. to issue
the bonds at par with a 6.72% coupon. Select the straight value of
the bond and the value of each warrant in the following table.
(Note: Assume that the company pays annual coupons.)

The consensus opinion of analysts is that Triptych Food Corp.
undervalued the warrants that it attached to its bonds. According
to the analysts, is the coupon rate on Triptych Food Corp.’s bonds
too high or too low?

Too high

Too low

Consider the following statement about warrants:

Warrants combined with debt instruments that can be removed by
the holder and sold in the secondary markets separately are
called detachable warrants.

True or False:

True

False