ION 14 ABC Inc. just issued a convertible bond due in 10 years and the bond has an 8 percent coupon paid semi-annually. The conversion ratio is 25 shares. The interest rate for straight debt is 10%. The current share price is $28 per share. Each convertible bond is trading at $900 in the market. 1. What is the straight bond value? 2. What is the conversion value? 3. What is the option value of the bond? 4. If the company ABC performs poorly, your convertible option has chance to be exercised? Why? QUESTION 15 James E. is a new CEO of JP firm. His six-year contract states that his compensation will include 10,700 at-the-money European call options on the company's stock that expire in three years. The current stock price is $45 per share, and the standard deviation of the returns on the firm's stock is 75 percent. The company does not pay a dividend. Treasury bills that mature in three years yield a continuously compounded interest rate of 8 percent. Using the Black-Scholes model to calculate the value of the stock options, determine the value of stock option on the date the contract is signed