Problem #3: You have been hired to analyze a new 20-year Callable Convertible Bond. The bond pays a 6% coupon annually, and is selling at par. The conversion price is $150 and the stock is currently selling at $35. The bond is callable at $1,150, but analysts believe that the bond will not be called unless the conversion value reaches $1,250. The YTM of a 20-year non-callable, non-convertible bond is 8.5%.

(a) What would be the price of the bond if it did not have the call and conversion features?

(b) Would the bond sell at a premium or a discount if it was convertible but not callable?

(c) Would the bond sell at a premium or a discount if it was callable but not convertible?