Consider the case of Cheung Zap Inc.:

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.

Based on the information available, complete the table:

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

Cheungs common stock currently sells for $31 per share. Would an investor want to convert the bonds now?

a.Yes

b.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 2% per year. What is the expected conversion value five years from now?

a. $823.07 per share

b. $411.53 per share

c. $2,135.95 per share

d. $548.71 per share