accounting for financial instruments

Financial instruments and risk management accounting for bonds and shares. Four questions must be 100% accurate.

QUESTION;

Financial records from GM (K) LTD indicate that the net asset worth of the company as at 31st April 2009 was USD5 million. On average, the company has an annual asset growth of 40%. Last year, GM (K) LTD issued a special 5 year bond with a coupon yield of 10% paid semi-annually. It is expected that the holder of the bond will receive USD 10,000 at maturity. Assuming the current debt-ratio of GM (K) LTD is 10%, required return is 12%;

  • What is the price of this bond? (3marks)
  • How much will the bond holder earn from the bond by the end of next year?
  • What is the total debt liability for GM (K)? (1 mark)

(3marks)

If the bond was convertible after 3 years, each bond would be split into 500 shares of common stock. Calculate the total number of shares that would be obtained and the least price for each stock if the yearly dividend per share is USD 1.80. (8marks)