First Silicon Inc. needs to raise $25 million to construct production facilities for a new type of UBS memory device. The firms straight nonconvertible debentures currently yield 9%. Its stock sells for $23 per share, has an expected constant growth rate of 6%, and has an expected dividend yield of 7%, for a total expected return on equity of 13%. Investment bankers have tentatively proposed that the firm raise the $25 million by issuing convertible debentures. These convertibles would have a $1,000 par value, carry a coupon rate of 8%, have a 20-year maturity, and be convertible into 35 shares of stock, and will be sold for $1,000 per bond. Coupon payments would be made annually. The bonds would be noncallable for 5 years, after which they would be callable at a price of $1,075. For simplicity, assume that the bonds may be called or converted only at the end of a year, immediately after the coupon and dividend payments. Also assume that management would call eligible bonds if the conversion value exceeded 20% of par value.

1. What is the floor value of the convertible bond at the end of Year 5?
2. In what year do you expect the bonds will be forced into conversion with a call?
3. What is the bonds conversion value when it is converted?
4. What is the expected rate of return for the convertible investors?

Please show work using a financial calculator not excel.