3. Suresh Singh, CFA, is analyzing a convertible bond. The characteristics of the bond and the underlying common stock are given in the following exhibit:

Convertible Bond Characteristics Par value $1,000 Annual coupon rate (annual pay) 6.5%

Conversion ratio 22 Market price 105% of par value Straight value 99% of par value Underlying Stock Characteristics Current market price $40 per share Annual cash dividend $1.20 per share Compute the bond’s:

i. Conversion value.

ii. Market conversion price.