Provide Solution

A firm currently has outstanding a 9 percent, $1,000 convertible bond. The bond is convertible into 100 shares of common stock at a conversion price of $10 per share and callable at $1,090. The current market price of the firm's stock is $12 per share. The bond holder will ________.

A) allow the call to be exercised realizing $90 over par value

B) convert the bond into stock realizing $200 over par value

C) convert the bond into stock realizing only par value

D) wait until the stock price goes up further

Answer: B