You Own a $1,000 Par Value Convertible Bond with a 6

Multiple Choice

You own a $1,000 par value convertible bond with a 6% coupon rate. The bond is convertible into 20 shares of stock at the investor's discretion. The stock price has reached $51 per share with a $1 per share annual dividend, but you do not forecast any further price appreciation in the stock. Should you make the conversion?

A) No, 20 shares of stock are not worth $1,000.
B) Yes, since the stock is worth $51 per share it is worth more than the bond.
C) No, the total stock is only worth $20 more than the bond, and you would lose $40 in annual cash flow based on the coupon rate versus the dividend.
D) Yes, while the stock is only worth $20 more in total than the bond, you will receive an annual $1 per share dividend.