6.

Piglet Pies has issued a zero-coupon 12-year bond that can be converted into 10 Piglet shares. Comparable straight bonds are yielding 10%. Piglet stock is priced at $62 a share.(Assume a face value of $1,000 and semi-annual compounding.)

a.Suppose that you had to make a now-or-never decision on whether to convert or to stay with the bond. Which would you do?

• Convert the bond
• Stay with the bond

b.If the convertible bond is priced at $407, how much are investors paying for the option to buy Piglet shares?(Do not round intermediate calculations.Round your answer to 2 decimal places.)

Option value$_________

c.If after one year the value of the conversion option is unchanged, what is the value of the convertible bond?(Do not round intermediate calculations.Round your answer to 2 decimal places.)

Bond value$___________