Question

Reba owns a convertible bond issued by Macrofirm, Inc. The bond has a par value of $1,000, 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. Reba:
a. is likely to find it attractive to convert the bond to common stock.
b. should hold the bond until it matures.
c. 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. 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.

Answer 1

Answer:

As the market price of common stock has risen and it is presently at $35 per share, so Reba will likely to find it attractive to convert the bonds into common stock.

Explanation:

Reba having a bond with a value of $1,000 which will get matured in the year 2019 but at present the market price of common stock has risen to $35 per share so Reba might get attract to convert the bond into common stock. As, for bond she have to wait till it matures but the market price of common stock is constantly rising for three years. Therefore, it might attract her.

Therefore, the correct option is A.