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A(n) 7% convertible bond carries a par value of $1,000 and a conversion ratio of 19. Assume that an investor has $5,000 to invest and
A(n) 7% convertible bond carries a par value of $1,000 and a conversion ratio of 19. Assume that an investor has $5,000 to invest and that the convertible sells at a price of $1,000 (which includes a 27% conversion premium). How much total income (coupon plus capital gains) will this investment offer if, over the course of the next 12 months, the price of the stock moves to $84.83 per share and the convertible trades at a price that includes a conversion premium of 12%? What is the holding period return on this investment? Finally, given the information in the problem, determine what the underlying common stock is currently selling for
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