1. You have been hired to value a new 1-year callable, convertible bond. The bond has a 5.6 per cent coupon rate, payable annually. The conversion price is 50$, and the equity currently sells for $44.74. The share price is expected to grow at 8 per cent per year. The bond is callable at $1,000 but baset on prior experience it will not be called unless the conversion value is $1,200. The required return on this bond is 6 per cent. What value would you assign to this bond?

2. Rewiev the reasons for why firms issue convertible bonds. Which one do you think is the most valid? Explain.