Bond valuation and yields A newly issued callable convertible bond is selling at its $1,000 par. The bond has a 20 -year maturity and carries a 12% annual coupon rate. Each bond can be converted to 31 shares before maturity. An otherwise same issue of ordinary debt selling at par would require a 11% coupon. The issuing company may call the bonds at $1071 when conversion value >$1155. The call must occur on issue date anniversary. Current share price P0=$19, with an expected annual growth rate (g) of 8%. Suppose the issuing company intends to call the bonds on the first anniversary date when the conversion value reaches $1155. QUESTIONS 1. When do you expect the bond to be called? [3 marks] The bond is expected to be called in year 2. What is the bond's implied yield to call (YTC)? [3 marks] YTC (in \%, round to two decimal places) = 3. What is the bond's expected conversion value just before the company exercise its call option? [3 marks] Bond's expected conversion value (in S, round to two decimal places) = 4. What is the bondholders' expected yield-to-conversion? [3 marks] Expected yield-to-conversion (in \%, round to two decimal places) = [Total: 12 marks]