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BE92 Water Emporium issues $20 million of 4% convertible bonds that mature in 10 years. Each $1,000 bond is convertible into 20 shares of common

BE92 Water Emporium issues $20 million of 4% convertible bonds that mature in 10 years. Each $1,000 bond is convertible into 20 shares of common stock. The current market price of Water Emporium stock is $40 per share.

1.

Explain why Water Emporium might choose to issue convertible bonds.

2.

Explain why investors might choose Water Emporium's convertible bonds.

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