Cheung Zap Inc. just issued nine-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 $53.76.

Cheungs convertible bonds pay a 6.72% annual coupon, but if Cheung had issued straight-debt bonds (no conversion), it would have had to pay 11.20% annual interest.

Based on the information available, complete the table:

	Value
Conversion ratio of Cheungs bond issue:	18.60
Straight-debt value of this convertible debt issue:	per bond
Value of the convertible option:	per bond

Cheungs common stock currently sells for $41 per share. Would an investor want to convert the bonds now?

Yes

No

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 4.5% per year. What is the expected conversion value five years from now?

$712.70 per share

$2,746.60 per share

$950.27 per share

$1,425.41 per share