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Calculate the equity component of the bonds

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Question - Norman Ltd issues 4,000 x $1,000 6% convertible bonds at the start of 1 July 2021.

The bonds are issued at par and are redeemable in three years' time or are convertible into 250 ordinary shares per $1,000 bond.

When the bonds are issued, the prevailing market interest rate for similar debt without conversion options is 9%.

Discount factors are:

 

9%

6%

Year 1

0.917

0.943

Year 2

0.822

0.890

Year 3

0.772

0.840

Required - Calculate the equity component of the bonds?

Reference no: EM133115188

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