A convertible security $($usually convertible bonds or convertible preferred stock$)$ may be tendered at the option of the holder for shares of common

stock in the issuing firm. In other words, the bonds or preferred stock may be converted to common stock.

When warrants are exercised, new shares are issued, or treasury stock the company has previously purchased is provided to the warrant holder. When

convertibles are exercised:

Debt is replaced by common stock on the balance sheet.

New capital is provided to the issuer.

Consider the case of Cheung Zap Inc.:

Cheung Zap Inc. just issued $9-$year convertible bonds at a par value of $$1,000.$ At any time before maturity, investors have the option to exchange

their bonds for shares of Cheung's common stock at a conversion price of $$68\mathrm{.}16.$

Cheung's convertible bonds pay a $8\mathrm{.}52\%$ annual coupon, but if Cheung had issued straight$-$debt bonds $($no conversion$),$ it would have had to pay

$14\mathrm{.}20\%$ annual interest.

Based on the information available, complete the table:$($Note: Round your answers and intermediate calculations up to two decimal place.$)$

Value

Conversion ratio of Cheung's bond issue:

Straight$-$debt value of this convertible debt issue:

Value of the convertible option:

per bond

per bond

Cheung's common stock currently sells for $$32$ per share. Would an investor want to convert the bonds now?

No

Yes