Response to the following problem:
A certain 6% annual pay convertible bond (maturing in 20 years) is convertible at the holder's option into 20 shares. The bond is currently trading at $800. The share (which pays 75¢ a share in annual dividends) is currently priced in the market at $35 a share.
a. What is the bond's conversion price?
b. What is its conversion ratio?
c. What is the conversion value of this issue? What is its conversion parity?
d. What is the conversion premium, in dollars and as a percentage?
e. What is the bond's payback period?
f. If comparably rated non-convertible bonds sell to yield 8%, what is the investment value of the convertible?