Sam Owns a $1,000 Par Value, Convertible Bond That Can

Sam owns a $1,000 par value, convertible bond that can be converted now. The conversion ratio is 20, and each share of stock is currently selling for $40 per share. What would be the conversion value of the bond, and should Sam convert the bond or hold it to maturity?

A) The conversion value is $2,000, and Sam should convert.
B) The conversion value is $1,200, and Sam should convert.
C) The conversion value is $975, and Sam should hold the bond to maturity.
D) The conversion value is $800, and Sam should hold the bond to maturity.

Correct Answer:

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