Consider a 12 per cent convertible bond, redeemable at nominal in five years time, which can be converted at any time in the next three years into 40 ordinary shares. The bond is currently trading ex-interest at 130 and the current ordinary share price is 3. The market value of the share is expected to grow by 4 per cent per year. Assume that the required rate of return is 14% and the investor is considering to convert the bond in the year 3 or to redeem it in the year 5. The par value is 100. Which option is better?