Titi, a Japanese Company, Issued a Six-Year Eurobond in Dollars $\bullet$

Titi, a Japanese company, issued a six-year Eurobond in dollars convertible to shares of the Japanese company. At time of issue, the long-term bond yield on straight dollar bonds was 10% for such an issuer. Instead, Titi issued bonds at 8%. Each $1,000 par bond is convertible into 100 shares of Titi. At time of issue, the stock price of Titi is 1,600 yen and the exchange rate is 100 yen =0.5 dollar
($/Y = 0.005).
a. Why can the bond be issued with a yield of only 8%?
b. What would happen if:
$\bullet$ The stock price of Titi increases?
$\bullet$ The yen appreciates?
$\bullet$ The market interest rate of dollar bonds drops?
c. A year later, the new market conditions are as follows:
$\bullet$ The yield on straight dollar bonds of similar quality has risen from 10% to 11%.
$\bullet$ Titi stock price has moved up to Y 2000.
$\bullet$ The exchange rate is $/Y = 0.006.
$\bullet$ What would be a minimum price for the Titi convertible bond?
d. Could you try to assess the theoretical value of this convertible bond as a package of other securities such as a straight bond issued by Titi, options or warrants on the yen value of Titi stock, an futures and options on the dollar/yen exchange rate?