Question: 1. Given the information below, answer the following questions. A convertible bond has the following features: Principal $1,000 Maturity date 10 years Interest $40 (4%

1. Given the information below, answer the following questions. A convertible bond has the following features: Principal $1,000 Maturity date 10 years Interest $40 (4% coupon) Call price $1,040 Conversion price $50 a share a) The bond may be converted into how many shares? b) What is the value of the bond in terms of stock if the price of the stock is $55? c) If comparable nonconvertible debt offered an annual yield of 6 percent, what would be the value of this bond as debt? d) Would you expect the bond to sell for its value as debt, that is, the value determined in (c), if the price of the stock were $55? e) If the price of the bond were $1,210, what would be the premiums over its value as stock and its value as debt? f) If the price of the stock rose to $73, what would happen to the price of the bond? g) If the price of the stock were $73, what would the investor receive if the bond were called and the investor did not convert? h) What will the investor receive when the bond matures if the bond is not called?

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