Question 2.(15 points) The Montrell Company is planning to finance an expansionwith convertible preferred stock.Each share will pay a dividend of $2.10 per share.The price of the company's common stock is currently $42.The conversion ratio will be 1.0, i.e., each share of convertible preferred can be converted into one share of common.The convertible's par value (and the issue price) will be equal to the conversion price.The conversion price will be a premium over the current market price of the common stock.

a. Calculate the conversion price if it is set at a 10%

premium.

b. Calculate the conversion price if it is set at a 30%

premium

c. If the company expects its growth rate to be high,

would it be better to use apremium of 10% or a 30%? Why?

d. If the company expects its growth rate to be low, would

it be better to use apremium of 10% or a 30%? Why?

e. Should the convertible preferred stock include a call

provision? Why or why not