DEF has recently issued convertible bonds. These bonds have a conversion price of $25 and are available for immediate conversion. The current stock price of DEF is $21, and the current market price of the convertible bond is $990.

1. What is the minimum price for the convertible bond?
2. Explain the difference between the current market price of each convertible bond and the value of the common stock into which the bond can be immediately converted?
3. Mayers (2000) suggests that convertible bonds can be the most cost-effective solution to a sequential financing problem. Explain this phenomenon.