Smith Corporation issued convertible bonds 5 years ago with an original maturity of 30 years, coupon of 4.5%, and annual payment. They were sold at their par value of $1,000 and with a conversion price of $28.57. Common stock at the time was selling for $14 per share. During the last 5 years, the stock price has not exceeded $22 per share. Straight nonconvertible debentures issued at approximately the same time had a coupon rate of 7.2%. 10 points

A.What is the bond’s conversion ratio?

B.At the time the bonds were issued, what was the value of the bond alone (not conversion feature)?

C.If today’s interest rates are similar to those 5 years ago, what is the current price of the bond alone (not conversion feature)?

D.What is the value if a bondholder converts the bond? During the next 5 years the stock price is expected to reach $35. What would be the value of the bond alone? What would be the value if the bondholder converts the bond?