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 most likely:
Allow the call to be exercised realizing $90 over par value,
Convert the bond into stock realizing $200 over par value,
Convert the bond into stock realizing only par value, or
Do nothing and wait until the stock price goes up further.
The solution explains the calculation to the convertible bond.