HI. Would you know how to solve this exercise?

ACME has 100 zero-coupon bonds with a combined face value of 90M euro maturing in 2 years' time. The company's assets are currently worth 120M euro and can go up each period by a factor of 1.25 or down by a factor of 0.8. ACME has 2 million shares outstanding and the risk-free interest rate is 10% per year. Please use risk-neutral option pricing to answer the following questions.

a) What is the current share price of ACME?

b) What is the value of ACME's existing bonds?

c) The executive team at ACME would like to reduce its payment obligations in two years' time by offering bondholders to exchange their securities for a non-callable convertible bond. The new bonds would have the same end date as the old ones but would have a combined face value of 70M euro and can be converted into 2 million shares in total. Should the bondholders accept the exchange?

Thank you in advance

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