Global sells $1,350,000 face value of convertible bonds at a price of 101.Global realizes proceeds of $ 1,363,500.The ten year bonds carry an interest rate(coupon rate) of 6% with interest paid semi annually.The market rate for equivalent non convertible bonds is 8%.The convertibility feature is not separable from the bonds is 8%.The convertibility feature is not separable from the bonds.The fair value of the bond component is $1,166,531 determined as follows:
PV of principal repayment $616,122.50
PV of interest payments 550,408.50
Fair value of bond at 8% $1,166,531