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Problem - On 1 July 2013 Convertible Ltd issues convertible notes at their face value of $10,000,000. The notes are convertible into ordinary shares at the discretion of the holders. The notes pay interest at the rate of 7% per annum each 30 June, and mature in 5 years (on 30 June 2018). The company has a 30 June balance date. On 1 July 2013, comparable debt without the conversion option yields 10% per annum. Find the value of the equity conversion option on 1 July 2013?
a) $10,000,000
b) $ 569,000
c) $ 1,137,000
d) $ 615,000
e) Zero because the notes are issued at face value
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