Q2 (Workshop 2020) Assume a 20-year 10.5% annual coupon callable convertible bond will sell at its $1,000 par. An otherwise same issue of straight debt selling at par would require a 12% ytm The issuing company may call the bonds at $1,100 when conversion value > $1,200. There is a 5-year call protection period and the call must occur on issue date anniversary. Share price PO = $20; g = 8%. Conversion ratio = CR = 40 shares. (a) Find out the implied value of the conversion option. (b) What is the convertible's expected conversion value in year 10? * What are the floor values in year 10? c) If the company intends to force conversion on the first anniversary date when conversion value reaches $1,200, when is this bond expected to be called? (d) What is this convertible bond's expected cost of capital to the company? Q2 (Workshop 2020) Assume a 20-year 10.5% annual coupon callable convertible bond will sell at its $1,000 par. An otherwise same issue of straight debt selling at par would require a 12% ytm The issuing company may call the bonds at $1,100 when conversion value > $1,200. There is a 5-year call protection period and the call must occur on issue date anniversary. Share price PO = $20; g = 8%. Conversion ratio = CR = 40 shares. (a) Find out the implied value of the conversion option. (b) What is the convertible's expected conversion value in year 10? * What are the floor values in year 10? c) If the company intends to force conversion on the first anniversary date when conversion value reaches $1,200, when is this bond expected to be called? (d) What is this convertible bond's expected cost of capital to the company