A recent annual report of Emhart Corporation contained the following paragraph in its notes to the financial statements:

The \(63 / 4 \%\) convertible subordinated debentures may be converted into shares of common stock at a price of \(\$ 26.50\) per share at any time prior to maturity. They are redeemable at prices decreasing from 105 percent of face amount currently to 100 percent [at a certain future date].

Required Answer the following questions:

a. If you held one \(\$ 1,000\) bond, how many shares of stock would you receive if you converted the bond into shares of stock? (Hint: You can use the principal amount of the bond to buy shares of stock at the stated price.)

b. Assume you held one \(\$ 1,000\) bond and the bond was called by the company at a price of \(105 \%\) of the face amount. If the current market price per share of the stock was \(\$ 29\), would you convert the bond into shares of stock or would you surrender the bond? Explain.