An 8% 20-year convertible bond issued by Trading Inc. is trading at $1030. Each bond has a face value of $1000 and is convertible into 20 shares of Trading Inc., which are currently priced at $25 per share. The company is expected to pay annual dividends of $1.5 per share indefinitely. The risk-return characteristics of the convertible bond most likely resemble that of:

A. a busted convertible.
B. Trading Inc.'s common stock.
C. a hybrid instrument.

Correct Answer: A

Market conversion price = $1030/20 = $51.5, which is well above the market price of its common stock.