(a) Discuss the factors which determine the market price of convertible bonds.
(b) Marlowe plc has in issue bonds which are convertible in three years' time into 25 ordinary shares per bond. If not converted, they will be redeemed in six years' time at nominal value of £100 per bond. The bonds pay interest of 9 per cent per year and have a current market price of £90.01 per bond. Marlowe's current share price is £3.24. If the cost of debt of Marlowe plc is 13 per cent, calculate:
(i) The minimum expected annual share price growth that would be needed to ensure that conversion takes place in three years' time;
(ii) The implicit conversion premium.