A convertible bond has the following terms: Principal of $1000, coupon interest of 7%, maturity in 10 years, callable after five years at 1070. The conversion price is $40 (25 shares). The current price of the common stock is $4 Similar risk bonds have a yield to maturity of 8%. Would it make sense to convert the bond today, not convert it, or wait a while to decide whether to convert? Why (you should use some numbers in your answer)?

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3. How are convertible bonds different from put bonds? Which bond would make more sense, from an investor’s viewpoint, in a low interest rate environment? Why?
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