5. A company has in issue 9% bonds which are redeemable at their par value of $100 in five years time. Alternatively, each bond may be converted on that date into 20 ordinary shares of the company.

The current ordinary share price is $4.45 and this is expected to grow at a rate of 65% per year for the foreseeable future. The cost of debt is 7% per year.

Required: Calculate the following current values for each convertible bond:

(i) market value;

(ii) floor value;

(iii) conversion premium.