Convertible debentures are issued by an entity at par (nominal) value, with a coupon rate of 2%. In three years' time, at the choice of the debenture holder, the debenture is redeemable for cash (at par), or convertible into a set number of shares per 300 nominal value.

The required return of debentures that are identical in all respects to the above convertible debentures, but without the conversion option should be:

1. The same return of 2%
2. Higher than 2%
3. The same return of 2%