You own a convertible corporate bond. Information pertaining to the convertible bond and the issuing companys common equity follow:

Characteristic	Convertible Bond	Common Stock
Par value	$1,000
Coupon (assume semiannual coupons)	6%
Current market price	$960	$42 per share
Straight bond value	$940
Conversion ratio	25
Conversion option	At any time
Current Dividend		$0
Expected market rice in one year	$1,080	$54 per share

1. Is the convertible bond currently worth converting into common stock? Explain.

2. If the convertible bond really is worth converting, is it necessarily beneficial to convert immediately? Explain.

3. Calculate the expected one-year rate of return for the convertible bond.

4. Calculate the expected one-year rate of return for the common stock.

5. Suppose one year goes by and the stock price has increased to $58 per share. Name the two components of the convertible bonds value AND how does the value of each change in response to the stock price increase?