Manpower Electric Company has 9 percent convertible bonds outstanding. Each bond has a $1,000 par value. The conversion ratio is 25, the stock price $39, and the bonds mature in 21 years. Use Appendix B and Appendix D as an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a. What is the conversion value of the bond? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

b. Assume after one year that the common stock price falls to $33.50. What is the conversion value of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Also assume that after one year interest rates go up to 10 percent on similar bonds. There are 20 years left to maturity. What is the pure value of the bond? Use semiannual analysis. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. Will the conversion value of the bond (part b) or the pure value of the bond (part c) have a stronger influence on its price in the market?

multiple choice

• Conversion value of the bond

• Pure value of the bond

e. If the bond trades in the market at its pure bond value, what would be the conversion premium (stated as a percentage of the conversion value)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)