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

Sam owns a $1,000 par value, convertible bond which 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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