Cannon Manufacturing Is Considering Issuing 15-Year,8% Annual Coupon,$1,000 Face Value

Multiple Choice

Cannon Manufacturing is considering issuing 15-year,8% annual coupon,$1,000 face value convertible bonds at a price of $1,000 each.Each bond would be convertible into 25 shares of common stock.If the bonds were not convertible,investors would require an annual yield of 10%.The stock's current price is $25.00,its expected dividend is $2.50,and its expected growth rate is 5%.The bonds are noncallable for 10 years.What is the bond's conversion value in Year 5?

A) $719.90
B) $757.79
C) $797.68
D) $837.56
E) $879.44