Atlas Anglers Inc. is considering issuing a 15-year convertible bond that will be priced at its $1,000 par value. The bonds have a 6.5% annual coupon rate, and each bond can be converted into 20 shares of common stock. The stock currently sells at $30 a share, has an expected dividend in the coming year of $3, and has an expected constant growth rate of 5.5%. The required rate of return on a similar straight-debt issue is 9.5%.

(1). Calculate the bond value at the end of year 3. (2 marks)

(2). Calculate the conversion value at the end of year 3. (2 marks)

(3). What is the estimated floor value of the convertible at the end of Year 3? (1 marks)

(4). Explain why the market price of the convertible bond is likely to be more than the floor value calculated in part (3). (2 marks)