ABC Corporation has outstanding a 7-¾% convertible debenture currently trading at 102. The bond is convertible into common stock at $40. ABC stock is trading $45 per share. Which of the following statements is TRUE?
A) An arbitrage opportunity does not exist in this situation. B) The bond is at parity with the stock. C) To profit in this situation, the investor should buy the bonds and short the stock.
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