How many shares of stock do you need to short for each bond in order to be properly delta-hedged?

Conversion ratio x delta = 40 shares x .90 (bond price sensitivity per share) = 36 shares

(4 pts.) 8b. What is the trade that you will make? Be specific as to which asset you are buying and what it costs/generates and which you are short-selling and what it costs/generates and what the net cash flow is.

(15 pts.) 8c. Calculate thenet cash flows and market value gains and lossesat the end of one year assuming that the stock price goes down by 20%. Assume that the YTM on the straight bond is 18%. Ignore any interest on short proceeds to make the problem easier. Be sure to consider all other appropriate cash flows and changes in value that happened over this period.

(3 pts.) 8d. What is your return on investment?

(5 pts.) 8e. What would your return on investment had been if you had simply purchased the convertible bond and held it for one year? (Hint: Redo #d & #e above without the position in the stock) (You don't need to rewrite everything!)