An 8% convertible bond carries a par value of $1,000 and a conversion ratio of 20. Assume that an investor has $5,000 to invest and that the convertible sells at a price of $1,000 (which includes a 25% 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 $75 per share and the convertible trades at a price that includes a conversion premium of 10%? 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.

Hint: You