Your electric car company, Electron, sells a single convertible bond on December 31^st, 2008 for $102M. The convertible bond prospectus states that the convertible bond has a face value of $100M, an annual coupon rate of 4 percent, and a maturity of 6 years. The bond can only be converted into 250K shares on December 31^st, 2011. To gauge the level of optimism that investors have for the company, you would like to know the value of the option component of the convertible bond. Assume a risk-free rate of 3 percent, a market risk premium of 5 percent, and that the companys beta of straight debt is 0.25. The company has no other debt.

a: What is the value of the straight bond component of the convertible bond? (4 points)

b: What is the value of the convertible option component of the convertible bond? (4 points)