The Volkswagen Group has just issued a convertible bond with a €1,000 par value. The bond is convertible into 20 shares of common stock. It has a 3% coupon rate and a 10-year maturity. The interest rate on a straight bond of similar risk is currently 5%.

a. Calculate the straight bond value of the bond.

b. Calculate the conversion (or stock) value of the bond when the market price of the common stock is €40, €45, €50, €53, and €55 per share.

c. For each of the stock prices given in part b, at what price would you expect the bond to sell? Why?

d. What is the minimum price that you would expect the bond to sell for, regardless of the common stock price behavior?