A company issues a 10-year convertible bond with a 6% coupon, paid annually. The bond is convertible into common shares at a conversion rate of 55. Straight bonds of similar risk currently yield 7.8%. The stock price is currently priced 25% less than the conversion price. The company's stock price is expected to grow by 8% per year, and the bond is callable at $1,100. The bonds will not be called until their price is 125% of the conversion value.
a. How many years do you expect it will take for the bonds to be called? (Round your answer up to a full year)
b. What will be the overall return to the convertible bondholder?