Question: For the Microsoft option prices below (prices at closing on June 4, 2023), the Risk-free rate R f = 3.84. Microsoft's current stock price is

For the Microsoft option prices below (prices at closing on June 4, 2023), the Risk-free rate Rf = 3.84.

Microsoft's current stock price is $335.40; Assume no dividends; Expiry of options December 15, 2023 (assume 190 days to expiration).

Calls (Expiration: 12/20/2023); Puts (Expiration 12/20/2023)

Strike Price Intrinsic value Implied Variance Strike Price Intrinsic Value Implied Variance
325 $36.46 10.4 26.06 325 $16.75 N/A 16.75
350 $22.04 N/A 22.04 350 $28.90 14.6 14.3

Microsoft is considering issuing a $10 billion face value of convertible bonds with a 10-year maturity premium of 40% on the current stock price. For the Yield to maturity of the straight bond component, use the YTM of the following MSFT bond currently trading (data as of 6/4/2023).

Maturity Coupon Price (as of June 2, 2023) Yield
5/2/2033 2.625% $96.48 ?

Question: What is the value of the straight bond component?

Please provide calculations, formulas used, and step-by-step explanations.

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