Question: Bernanke Corp. has just issued a 30-year callable, convertible bond with a coupon rate of 6 percent annual coupon payments. The bond has a conversion

Bernanke Corp. has just issued a 30-year callable, convertible bond with a coupon rate of 6 percent annual coupon payments. The bond has a conversion price of $93. The company’s stock is selling for $28 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 nonconvertible bond is 7 percent.

a. What is the minimum value of the bond?

b. If the stock price were to grow by 11 percent per year forever, how long would it take for the bond ’ s conversion value to exceed $1,100?

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