Baldie - Financial Instruments

Dear Sir, I have seen that this question has been posted before on the forums but I still do not understand. Please help Baldie Co issues 4,000 convertible bonds on 1 January 20×2 at par. The bonds are redeemable three years later at a par value of $500 per bond, which is the nominal value. The bonds pay interest annually in arrears at an interest rate ( based on nominal value) of 5%. Each bond can be converted at the maturity date into 30 1$ shares. The prevailing market interest rate for three year bonds that have no right of conversion is 9% Required Show how convertible bond would be presented in the statement of financial position at 1 January 20×2. Cumulative Three year annuity Factors: 5% 2.723 9% 2.531 Answer: Working: FV of equivalent non- convertible debt PV of principal payable at end of 3 years (4,000 x $500 = ($2m x 1/1.09)3 = 1,544,367 PV of interest annuity payable annually in arrears for 3yrs [(5% x $2m) x 2.531] = 253,100 Financial Liability of Convertible bond $1,797,467 (1,544,367+253,100) Equity = 2,000,000 – $1,797,467 = $202,533 My Answer: ( I am confused on the discounting bit) Net proceeds = 4000 bonds *$500 = $2m PV of Liability at Acq: Yr1: $2m * 1/1.09 Yr2: $2m * 1/1.09^2 Yr3:$4m * 1/1.09^3 Total Liability = $5.062M Equity = (balancing figure) = 3.062m