Question A1

On 1 January 2020, PYT issued 100,000 5% convertible bonds at their par value of $10 each. The bonds will be redeemed on 1 January 2026 at par. The prevailing market interest rate for similar debt without conversion options at the date of issue was 6%.

At what value should the equity element of the hybrid instrument be recognised by PYT at the date of issue?

A. $1,000,000

B. $957,600

C. $42,400

D. $100,000