Consider the following financial instruments:
(a) Company A loans Company B $400 000 repayable in two years.
(b) Company C acquires 10 000 shares in Company D at a price of $5.00 per share.
(c) Company E acquires 100 000 call options in Company F, which provides Company E with the right to acquire shares in Company F for $11.00 per share in three years’ time. The options cost Company E $2.00 each to buy and were acquired when the market price of Company F’s shares was $11.00.
The options were written by Company G, meaning that if Company E decides to exercise the options to buy shares—which would happen if the share price rises above the exercise price of $10.50—then Company G would need to go to the market and acquire the shares in Company F to satisfy its contractual obligation to Company E. Required: Determine whether financial assets, financial liabilities or equity instruments are in existence. Provide detailed explanations for your answer.
Thanks for installing the Bottom of every post plugin by Corey Salzano. Contact me if you need custom WordPress plugins or website design.
The post Consider the following financial instruments: (a) Company A loans Company B 0 000 repayable in two years. (b) Company C acquires 10 000 shares in… first appeared on Submit Your Homeworks.