PopQuant, a video-based social media company, is founded by Allen and Dan. As one of the founders, Allen has 100 thousand shares of stock, and the company currently has 1 million shares of stock and convertible bonds (par value: $1000, callable, 10-year maturity) with a face value of $45 million outstanding. Currently, the stock price of PopQuant is selling for $24 and the conversion price of the convertible bond is $30. Given the good performance of PopQuant, it is expected that its stock price will grow 15% every year.

Required

(a) What is the percentage of the common stock owned by Allen now?

(b) If all the convertible bonds are called and forced conversion today, what is the resulting percentage of the common stock owned by Allen? Suppose Allen has no convertible bonds.

Suppose the convertible bond has a 5% coupon rate and the bondholder will surrender if the conversion value reaches $1,500. Assume that the required return on this bond is 8 percent.

(c) What is the straight bond value of this convertible bond today?

(d) When will the conversion value reach the expected value that the bond will be converted?

(e) What is the reasonable convertible bond price today?