Chapter 24 - Financial Instruments 2

Question 1

Hybrid instruments

Answer 1

Instruments that are both debt and equity

E.g. Convertible Debentures

Question 2

Standard applied

Answer 2

IAS 32

Hybrid instruments are classified as both liability and equity

Question 3

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

Debt portion now if market rate is 10%

Answer 3

Principal + Interest
$1000 + $50 = $1050

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

Equity Portion = $1000 - $955 = &45