Reba Owns a Convertible Bond Issued by Macrofirm Inc

Multiple Choice

Reba owns a convertible bond issued by Macrofirm Inc. The bond has a par value of $1000, a conversion ratio of 40, a coupon rate of 6 percent, and will mature in 2019. The market price of Macrofirm's common stock has risen steadily over the past three years and is currently $35 per share. Which of the following best describes Reba's situation?

A) She should hold the bond until it matures.
B) She will be able to redeem the bond as soon as the price of the stock rises above $40 so that it covers the conversion ratio.
C) She may be forced to sell her bond back to the company, but if she does so, she will receive a premium above the par value.
D) She is likely to find it attractive to convert the bond to common stock.