Analysis of compound financial instrument into components
An entity issues a bond for €100, paying an annual cash coupon of 5% on the issue price and mandatorily convertible after five years on the following terms. If, at the date of conversion, the entity”s share price is €1.25 or higher, the holder will receive 80 shares. If the entity”s share price is €1.00 or lower, the holder will receive 100 shares. If the entity”s share price is in the range €1.00 to €1.25, the holder will receive such number of shares (between 80 and 100) as have a fair value of €100.