ABC Inc has a $1000 par value convertible bond outstanding that matures on 12/1/23. The bond pays a 7% annual coupon, makes semi-annual payments, and can be converted into 40 shares of stock. Assume today is 12/2/21 and the yield on a non-convertible bond with the same coupon, maturity, and credit quality is estimated to be 8% and the current stock price is $30 per share.

1. What is the minimum value of this convertible bond?

a. $1200

b.$990.57

c.$1050

d.$981.85

What is the minimum value of the convertible bond if the stock price falls to $20 per share, in exactly one year, and it is known that the yield on the straight bond is 7.5%.

a.$990.87

b.$928.18

c.$800

d.$995.27