Sheffield AG issues 3,200 convertible bonds at January 1, 2022. The bonds have a 3-year life and are issued at par with a face value of 1,000 per bond, giving total proceeds of 3,300,000. Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value of 1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%.

(a) Compute the liability and equity component of the convertible bond on January 1, 2022. Fair value of equity component= Present value of liability component=