Yesterday Dexters Laboratory paid a dividend of $4.20 a share on its common stock. The firms earnings and dividends are expected to grow indefinitely at 5%, and the market requires a 15% rate of return on DexterAc€?cs common stock. Ten years ago you purchased a convertible debenture of Dexters Lab. At that time, the bond had 20 years left to maturity and its yield to maturity was 12% a year, compounded semi-annually. The $1,000 par value bond pays an annual coupon of 14%, compounded semi-annually. The bond is convertible into DexterAc€?cs common stock at a conversion price of $25 a share.

{a} What price did you pay for the bond?

{b} What annual internal rate of return did you earn over the last 10 years if you convert the bond today?

{c} What annual rate of return did you earn over the last 10 years if, instead of converting, you surrender the bond when it is called today at $1,090?