Toys R Us has the following convertible bond outstanding:

Coupon: 5 percent; Principal: $1,000; Maturity: 20 years:

Conversion Price: $10; Call Price: $1,000 Plus one years interest.

Comparable nonconvertible bonds yield 8 percent. Toys R Us stock is selling for $15 and pays no dividend. (10 points)

a. If the bond were selling for $1,350, what would you do?

b. If the bond were selling for $1,523, is there any reason to expect that Toys R Us will currently call the bond?

c. If the bond is called and you do not convert, what do you receive?