Question: Mike Ltd issues 50 000 $1 convertible notes to Jack Ltd. The notes pay interest at 3% p.a. Each note converts at any time at

Mike Ltd issues 50 000 $1 convertible notes to Jack Ltd. The notes pay interest at 3% p.a. Each note converts at any time at the option of Jack Ltd into one ordinary share. The notes are redeemable at the option of Jack Ltd for cash after 5 years. Market interest rate for similar notes without the conversion option is 4% p.a.

Calculate the value of the equity instruments, if any, that Mike Ltd needs to recognise for the redeemable convertible notes.

Group of answer choices

$43,322

$6,678

$2,226

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