In April 2020, Southwest Airlines, which like other airlines was experiencing a dramatic drop in air travel due to the coronavirus pandemic, raised capital by selling $2 billion worth of convertible bonds. Each bond had a $1,000 par value, paid a 1.25% coupon rate, and matured in five years. Bondholders had the right to convert each bond into 25.9909 shares of Southwest common stock.

a. What is the conversion ratio?

b. What is the conversion price?

c. Suppose that the stock price increases up to $45. Should the investor exercise the conversion option?

d. Explain your answer!