Cheung Zap Inc. just issued 19-year convertible bonds at a par value of $1,000. At any time before maturity, investors have the option to exchange their bonds for shares of Cheungs common stock at a conversion price of $62.40. Cheungs convertible bonds pay a 7.80% annual coupon, but if Cheung had issued straight-debt bonds (no conversion), it would have had to pay 13.00% annual interest.

1. Conversion ratio of Cheungs bond issue?
2. Straight-debt value of this convertible debt issue?
3. Value of the convertible option? 4. Cheungs common stock currently sells for $31 per share. Would an investor want to convert the bonds now? (Yes or No?) 5. Suppose analysts expect Cheung to pay a dividend of $2.50 per share at the end of the year and for the dividend to grow at a constant rate of 2% per year. What is the expected conversion value five years from now? $2,135.95 per share $548.71 per share $823.07 per share $411.53 per share