Consider a convertible bond as follows: par value = $1,000; coupon rate = 9.0% market price...

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Consider a convertible bond as follows: par value = $1,000;coupon rate = 9.0% market price of convertible bond = $1,000conversion ratio = 37 estimated straight value of bond = $500 yieldto maturity of straight bond = 18.1% Assume that the price of thecommon stock is $20 and that the dividend per share is $0.75 peryear. Answer the below questions.
(a) Calculate each of the following (1) conversion value, (2)market conversion price, (3) conversion premium per share, (4) conversion premium ratio, (5) premium over straight value, (6)favorable income differential per share, and (7) premium paybackperiod.
(b) Answer the below questions if the price of the common stockincreases from $20 to $40. What will be the approximate returnrealized from investing in the convertible bond?

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1 Conversion value Stock price Conversion ratio Conversion value 20 37 Conversion value 740 2 Market conversion price Convertible security market price Conversion ratio Market conversion price 1000 37 Market conversion price 2703 3 See Answer

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Consider a convertible bond as follows: par value = $1,000;coupon rate = 9.0% market price of convertible bond = $1,000conversion ratio = 37 estimated straight value of bond = $500 yieldto maturity of straight bond = 18.1% Assume that the price of thecommon stock is $20 and that the dividend per share is $0.75 peryear. Answer the below questions.(a) Calculate each of the following (1) conversion value, (2)market conversion price, (3) conversion premium per share, (4) conversion premium ratio, (5) premium over straight value, (6)favorable income differential per share, and (7) premium paybackperiod.(b) Answer the below questions if the price of the common stockincreases from $20 to $40. What will be the approximate returnrealized from investing in the convertible bond?