A convertible bond has the following features:
Face Value: $1,000
Maturity: 20 years
Annual coupon: $80
Conversion Price: $80
Market Price of the Convertible Bond: $800
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 11%?
c) What is the current value of the convertible as a stock if the current stock price is $60 per share?
d) Based on (b) and (c), what is the premium reflected in the Market Price?
e) If the stock price increases to $73 per share and the premium stays the same, what is the expected Market Price of the convertible?