(a) Explain what is meant by a "compound" financial instrument. Also explain the required accounting treatment of such an instrument.

(b) On 1 April 2016, a company issues a £500,000 4% convertible bond at par. Interest is payable on 31 March each year. The bond is redeemable at par on 31 March 2021 but may be converted into ordinary shares at any time before maturity. The market rate of interest to be used in discounting calculations is 6.5%. 

Calculate the liability component and the equity component of this bond.