Convertible Bonds Sometimes companies find it desirable to include a convertibility option to sell bonds at a reasonable interest rate. In 2003, Siemens AG, the huge German electronics company, issued 2.5 billion of convertible bonds with a coupon rate of 1.375%, which is less interest than Siemens would have paid if the bonds were not convertible. Each 1,000 bond can be converted into 17.8 common shares of Siemens stock. In 2003, Siemens had revenues of more than 70 billion and a net income of about 1 billion. The company pays dividends of about 1 per share. The market price of a share of Siemens common stock is approximately 52. 1. Compute the annual interest received by the holders of the convertible bonds. 2. Suppose the price of one share of Siemens common stock quickly rose to 60. If you held some of the Siemens convertible bonds, would you immediately convert your bonds to common stock? Why or why not? 3. Suppose the maturity date of the convertible bonds was rapidly approaching. Would you convert your holdings of the convertible bonds if the price of Siemens stock were 60 per share? If the price were 50 per share? Explain.