Consider a convertible bond as follows: par value = $1,000; coupon rate = 9.0% market price of convertible bond = $1,000 conversion ratio = 37 estimated straight value of bond = $500 yield to maturity of straight bond = 18.1% Assume that the price of the common stock is $20 and that the dividend per share is $0.75 per year. Answer the below questions.

(a) Calculate each of the following (1) conversion value, (2) market conversion price, (3) conversion premium per share, (4) co nversion premium ratio, (5) premium over straight value, (6) favorable income differential per share, and (7) premium payback period.

(b) Answer the below questions if the price of the common stock increases from $20 to $40. What will be the approximate return realized from investing in the convertible bond?