Chapter 24 - Financial Instruments 2 Flashcards

1
Q

Hybrid instruments

A

Instruments that are both debt and equity

E.g. Convertible Debentures

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2
Q

Standard applied

A

IAS 32

Hybrid instruments are classified as both liability and equity

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3
Q

Convertible bond $1000, 5% coupon redeemable in 1 year

Debt portion now if market rate is 10%

A

Principal + Interest
$1000 + $50 = $1050

Present Value = $1050 x 1/(1+0.1)
Present Value (Debt portion) = $955

Equity Portion = $1000 - $955 = &45

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