Nick Andrews, a fixed-income investment analyst, has been asked by his supervisor to prepare an analysis of the convertible bond issued by Heavy Element Inc., a chemical industry company, for presentation to the investment committee. Andrews has gathered the following data from the convertible bond’s prospectus and market information:

Issuer: Heavy Element Inc.

Issue Date: 15 September 2020

Maturity Date: 15 September 2025

Interest: 3.75% payable annually

Issue Size: $100,000,000

Issue Price: $1,000 at par

Conversion Ratio: 23.26

Convertible Bond Price on 16 September 2022: $1,230

Share Price on 16 September 2022: $52

A few months have passed. Because of chemical spills in lake water at the site of a competing facility, the government has introduced very costly environmental legislation. As a result, share prices of almost all publicly traded chemical companies, including Heavy Element, have decreased sharply. Heavy Element’s share price is now $28. Now, the risk–return characteristics of the convertible bond most likely resemble that of:

A. A bond.

B. A hybrid instrument.

C. Heavy Element’s common stock.