The ABCD Company is issuing a 7-percent, 20-year convertible debt callable at a price of $1,080 at any time. The conversion price has been set at a 30-

percent price premium over the current stock price. The bonds have been recommended to a pension fund manager. The argument has been made, “You will earn a high return since we can expect the stock price to easily double within the next 10 years.” However, it is agreed that it is unlikely that the annual rate of growth in stock price will exceed 10 percent per year. Comparable-risk straight noncallable debt is being issued at a yield of 11 percent.

Should the bonds be bought if they sell at par? Explain.