Jackson Limited has an outstanding issue of 16-year convertible bonds with a £1,000 par value. These bonds are convertible into 100 shares of common stock. They have an 8% annual coupon rate, whereas the interest rate on straight bonds of similar risk is 12%.

a. Calculate the straight bond value of this bond.

b. Calculate the conversion (or stock) value of the bond when the market price is £6, £99, £12, £15, and £18 per share of common stock.

c. For each of the common stock prices given in part

b, at what price would you expect the bond to sell? Why?

d. Make a graph of the straight value and conversion value of the bond for each common stock price given. Plot the per-share common stock prices on the x-axis and the bond values on the y-axis. Use this graph to indicate the minimum market value of the bond associated with each common stock price.