Given the following information concerning a convertible bond:

Principal $1000

Coupon 5%

Maturity 15 years

Call price $1050

Conversion Price $37 (i.e.,27 shares)

Market Price of the

common stock $32

Market Price of the

bond $1040

1. What is the current yield of this bond?
2. What is the value of the bond based on the market price of the common stock?
3. What is the value of the common stock based on the market price of the bond?
4. What is the premium in terms of stock that the investor pays when he or she purchases the convertible bond instead of the stock?
5. Nonconvertible bonds are selling with a yield to maturity of 7%. If this bond lacked the conversion feature, what would the approximate price of the bond be?