Question 1

Hungry Coles Corp. has just issued a 20-year callable, convertible bond with a coupon rate of 6% annual coupon payments. The bond has a conversion price of $80. The firm's stock is selling for $30 per share. The owner of the bond will be forced to convert if the bond's conversion value is ever greater than or equal to $1,100. The required return on an otherwise identical bond is 7%. a. What is the minimum value of the bond? b. If the stock price were to grow by 10% per year forever, how long would it take for the bond's conversion value to exceed $1,100?

Question 2

The capital structure of ABC ltd consists of 30m shares of common stock and 2m warrants. Each warrant gives it owner the right to purchase one share of common stock for an exercise price of $15. The current stock price is $30, and each warrant is worth $10. What is the new stock price if all warrant holders exercise today?