Problem:
You have been hired to value a new 25-year callable, convertible bond. The bond has a 6.80 percent coupon rate, payable annually. The conversion price is $150, and the stock currently sells for $44.75. The stock price is expected to grow at 12 percent per year. The bond is callable at $1,200; but based on prior experience, it won't be called unless the conversion value is $1,300. The required return on this bond is 10 percent. What value would you assign to this bond?