A convertible bond has the following features (rounding allowed in answers):
Face Value: $1,000
Maturity: 10 years
Annual coupon: $50
Conversion Price: $40
a. The bond may be converted into how many shares?
b. What is the current value of the convertible as a bond if prevailing interest rates are 6% (n=10)?
c. What is the current value of the convertible as a stock if the current stock price is $38 per share?
d. Based on (b) and (c) and assuming a market premium of $40, what should the current price of the convertible bond be?