At the beginning of current year, Susan Company issued 5,000 convrtible bonds. The bonds have a three-year term and are issued at 110 with a face amount of P1,000 per bond. Interest is payable annually in arrears at a nominal 6% interest rate. Each bond is convertible at anytime up to maturity into 100 ordinary shares with par value of P5. When the bonds are issued, the prevailing market interest rate for similar debt instrument without conversion option is 9%. The present value of 1 at 9% for 3 periods is .771 and the present value of an ordinary annuity of 1 at 9% for 3 periods is 2.53. 1. What is the equity component arising from the original issuance of the convertible bonds? A. 1,150,000 B. 1,650,000 C. 891,000 D. 391,000
Problem 7-13
At the beginning of current year, Susan Company issued 5,000 convrtible bonds. The bonds have a three-year term and are issued at 110 with a face amount of P1,000 per bond.
Interest is payable annually in arrears at a nominal 6% interest rate.
Each bond is convertible at anytime up to maturity into 100 ordinary shares with par value of P5.
When the bonds are issued, the prevailing market interest rate for similar debt instrument without conversion option is 9%.
The present value of 1 at 9% for 3 periods is .771 and the present value of an ordinary annuity of 1 at 9% for 3 periods is 2.53.
1. What is the equity component arising from the original issuance of the convertible bonds?
A. 1,150,000
B. 1,650,000
C. 891,000
D. 391,000
Step by step
Solved in 2 steps
