Problem:
Lucky dog pet food has a 1,000 convertible bond outstanding with a conversion price of $18.00 per share. The bond pays an interest payment of $50 semiannually and matures in 20 years unless converted into common stock earlier or called by the company. Bonds of similar risk currently yield 12 percent. The common stock sells for $14.70 per share.
A. Calculate the conversion ratio
B. Calculate the conversion value
C. What is pure bond value?