Question 2 (12 Marks) a. (6 Marks) A 20-year callable, convertible bond has a face value of $1,000 and pays a 6%coupon annually and each bond is convertible into 13.333 shares. The stock currently sells for $25 per share. The required return is 10% p.a. for equivalent straight debt Calculate the straight bond value, converted equity value and explain why there should be a time premium above the greater of these values b. (6 Marks) Calculate the present value of the convertible bond assuming it is called at $1,150 (converted equity value) if the stock is expected to grow at 8% p.a. and the yield is 10% pa C. (Bonus 3 Marks)If the stock price growth rate has a normal distribution with a mean of 8% with a standard deviation of 6%, calculate the probability of calling the bond in 10 years. Question 2 (12 Marks) a. (6 Marks) A 20-year callable, convertible bond has a face value of $1,000 and pays a 6%coupon annually and each bond is convertible into 13.333 shares. The stock currently sells for $25 per share. The required return is 10% p.a. for equivalent straight debt Calculate the straight bond value, converted equity value and explain why there should be a time premium above the greater of these values b. (6 Marks) Calculate the present value of the convertible bond assuming it is called at $1,150 (converted equity value) if the stock is expected to grow at 8% p.a. and the yield is 10% pa C. (Bonus 3 Marks)If the stock price growth rate has a normal distribution with a mean of 8% with a standard deviation of 6%, calculate the probability of calling the bond in 10 years