On January 1, 2019, Auld issued P10,000,000 face value, 10% convertible bonds at 9%. Each P1,000 bond is convertible into 40 of Auld's P10 par ordinary shares, pays interest every December 31, and matures in 10 years. Without the conversion option, the bonds would sell at 11%. 2. Determine the equity component of the convertible bonds