Assume the call price ofa $1,000 face value convertible bond with a 20-year life is $1,084. The interest rate ofstraight debt is .10 and of the convertible is .06. Ifthe bond were called at time 2, the investor would be indifferent to having bought the convertible compared to having bought the straight debt. The bond is convertible into 50 shares.

a. Assume the call takes place at time 3 when the stock price is

$18 per share. The investor (wins, loses) by having bought the convertible at face value rather than the straight debt. Choose one and briefly explain.

b. Assume the call takes place at time 1 when the stock price is

$18 per share. The investor (wins, loses) by having bought the convertible at face value rather than the straight debt. Choose one and briefly explain.