Company XYX buys a convertible bond for $7,500,000. The bond has a 5% coupon rate and is also convertible by it's contractual terms into 750,000 shares of the issuer's common stock, which are publicly traded. Company XYZ determines that the conversion option is an embedded derivative as it would meet the definition of a derivative it it were freestanding. In addition, Company XYZ has determined that the features of the conversion option are not clearly and closely related to its debt host. The derivative has a fair value of $750,000 at inception.. The company also has determined that the bond instrument will be classified as a trading debt security. Which of the following entries would be approriate for the company to record upon the purchase of his security.? Dr. Debt security-trading Dr. Derivative financial instrument Cr. Cash Dr. Debt security-trading Cr. Cash Dr. Debt security-trading Dr. Derivative Financial Instrument Cr. Cash Cr. Other Comprehensive Income Dr. Debt security-trading Dr. Additional Paid-in Capital Cr. Cash $6,750,000 $750,000 $7,500,000 $ 7,500,000 $7,500,000 $7,500,000 $750,000 $7,500,000 $750,000 $6,750,000 $750,000 $7,500,000

1. (7 marks) A stock XYZ is quoted 1015. Two counterparties agree to enter into a forward contract maturing at T = 6 months. Here are the possible values of XYZ, at maturity. XYZ at T=6 months XYZ Forward Long Short 1000 1015 1020 1030 1080 (A) Find the possible values of the payoff for the buyer and for the seller of the forward and sketch a graph of the payoffs. (3.5 marks) (B) We know that spot price at expiration can be duplicated according to Forward + Zero Coupon bond = Spot Price at Maturity. Find the possible values of the zero coupon bond. What can you say about the risk associated with this bond? (3.5 marks)

es Vital Silence Corporation has just issued a 30-year callable, convertible bond with a coupon rate of 6.3 percent and annual coupon payments. The bond has a conversion price of $93.30. The company's stock is selling for $27.70 per share. The owner of the bond will be forced to convert if the bond's conversion value is ever greater than or equal to $1,130. The required return on an otherwise identical nonconvertible bond is 7.3 percent. Assume a par value of $1,000. a. What is the minimum value of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the stock price were to grow by 10.5 percent per year forever, how long would it take for the bond's conversion value to exceed $1,130? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Minimum price b. Number of years

Which type of security does it refer to? “First pay two times the Original Purchase Price on each share of Series A Preferred. The balance of any proceeds shall be distributed pro rata to holders of Common Stock.”

You purchase a $100,000 bond futures contract at 96.5.                 a)  Assume that the bond futures price falls to 94.  What is your gain/loss?               b)  Assume that the bond futures price rises to 98.  What is your gain/loss?