Rohan plc issues 1000 $100 5% convertible debentures at par on 1 January 2015. The debentures can be either converted into 50 ordinary shares per $100 of debentures, or redeemed at par at any date from 1 January 2020. Interest is paid annually in arrears on 31 December. The interest rate on similar debentures without conversion option is 6%.

To split the proceeds the debt value must be calculated by discounting the future cash flows in the debt instrument. The value of debt is therefore:

Present value of redemption payment $74726

Present value of interest(5 years) $21062

Value of debt $95788

Value of the equity proceeds $4212

How is the present value of interest obtained?