Reference no: EM132894565

Question 1 - XYZ Inc has purchased 280 call options on the shares of ABC Corp with each option giving XYZ Inc the right to buy one ABC Corp common share at a strike price of $81.50 per share. XYZ paid $2.75 for each option. Two months later, on the next financial reporting date, the market value of each option is $8.21 per option, while each ABC Corp share is trading at $88.67 per share. What is the absolute value of the total derivatives gain or loss to be recorded by XYZ on this financial reporting date? Ignore any commissions.

Question 2 - XYZ Inc reported net income of $347,160 for the year and had 207,390 common shares outstanding throughout the year. Also outstanding all year were 51,980 employee stock options with each option giving the holder the right to purchase one common share at $11.35 per share. The average market price for the common shares during the year was $15.41 per share. Calculate the company's fully diluted earnings per share.

Question 3 - An outstanding bond has a carrying value of $874,290, and a face value of $934,000 on January 1 of Year 3. The bond pays a semi-annual coupon every January 1 and July 1 using an annual coupon rate of 7.70%. The yield to maturity (or the market yield) of the bond was 9.35% at the time of issue. (Assume semi-annual compounding for the annual interest rates.) What will be the carrying value of the bond on January 1 of Year 4 immediately after paying the coupon?

Question 4 - On January 1 of this year, the carrying value of XYZ Inc's bonds was $725,850. The face value of these bonds was $740,000. On the same date, the company redeemed 78.65% of these bonds at a price of 94.37% of the face value. Assuming that the normal maturity of the bonds was two years later, what is the absolute value of the gain or loss recognized on the redemption of the bonds on January 1 of this year?