You client Jonas owns an XYZ corp convertible bond with a conversion price of $60. XYZ is currently trading at $65 per share. XYZ corp is calling the bond in at a premium - at a price of 110.0 The Bond is trading in the market at 112. What should you advise your client to do?

Explanations

The bond cannot reach maturity, so A is not correct. The bond has been called in. First figure out the conversion ratio. Take the par value of the bond ($1,000) and divide it by the current share price ($65). This gives us 15.38 shares of stock. So if he converts to stock, he will receive 15.38 x 65 = $999.70. This is lower than the call price of the bond ($1,100). Converting it does not make sense. The bond is being called at 110 ($1100) so this is better than $999.70. However, since the bond is trading in the market at 112 ($1120); selling it in the market would be the best choice so Jonas receives the maximum amount