Molly Ltd holds a well-diversified portfolio of shares that is valued at $1.55 million. On this date it enters into 60 futures contracts on All Ordinaries Share Price Index futures in which it takes a sell position. The All Ordinaries Index on 1 July 2023 is 2500 with $10 per index point. So the total price of the futures contract is calculated as 2500 × 60 × $10 contracts = $1,500,000. A total deposit of $100,000 is paid on the futures contracts. On 29 July 2
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On 1 July 2023, Molly Ltd holds a well-diversified portfolio of shares that is valued at $1.55 million. On this date it enters into 60 futures contracts on All Ordinaries Share Price Index futures in which it takes a sell position. The All Ordinaries Index on 1 July 2023 is 2500 with $10 per index point. So the total price of the futures contract is calculated as 2500 × 60 × $10 contracts = $1,500,000. A total deposit of $100,000 is paid on the futures contracts. On 29 July 2023 Molly Ltd decides to sell its portfolio of shares and to close out its futures contracts. On this date, the market value of the share portfolio is $1.725 million and the All Ordinaries Index is 2720. Required: Prepare the entries of Molly Ltd for any financial assets or financial liabilities that arise in each case and show your working process.
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- Patient Investor Ltd has a diversified portfolio of shares. On 1 January 2020, the shares are worth $2,850,000. On this day, the company enters into 80 futures contracts on the All Ordinaries Index futures in which it takes a sell position. The All Ordinaries Index on 1 January 2020 is 2900 and the total price of futures contract is calculated as 2900 x 80 x $12 contracts = $2,784,000. A total deposit of $150,000 is paid to the broker on the futures contract and the broker requires a minimum deposit of $150,000 and this deposit must be maintained at the same level. On 5th February 2020, Smart Investor Ltd decided to sell its portfolio of shares and to close out its futures contract and recover its deposit from the broker. On this date, the market value of the share portfolio is $2,950,000 and the All Ordinaries Index is 3000 points. Required a. Briefly explain the difference between futures contracts for hedging and futures contract for speculation. b. Provide the journal…On August 15, 2019, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price is $40. The option expires on January 31, 2020. The following data are available with respect to the call option. Date Market Price of Counting Crows Shares Time Value of Call Option September 30, 2019 $48 per share $180 December 31, 2019 46 per share 65 January 15, 2020 47 per share 30 Instructions Prepare the journal entries for Outkast for the following dates. a. Investment in call option on Counting Crows shares on August 15, 2019. b. September 30, 2019—Outkast prepares financial statements. c. December 31, 2019—Outkast prepares financial statements. d. January 15, 2020—Outkast settles the call option on the Counting Crows shares.Yellow Company is a calendar-year firm with operations in several countries. At January 1, 2021, the company had issued 40,000 executive stock options permitting executives to buy 40,000 shares of stock for $30. The vesting schedule is 25% the first year, 25% the second year, and 50% the third year (graded-vesting). The fair value of the options is estimated as follows: Vesting Date AmountVesting Fair Valueper Option Dec. 31, 2021 25 % $ 6 Dec. 31, 2022 25 % $ 7 Dec. 31, 2023 50 % $ 9 Assuming Yellow prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), what is the compensation expense related to the options to be recorded in 2022?
- ABC entered into 3 short futures contracts for AC common shares. Each contract has a standard size of 1,000 shares and a total agreed price of P1,200. On the agreed date, the market value of an AC share is P1,180 Compute the net gain or (loss).On a particular day, the September S&P 500 stock index futures was priced at 960.50. The S&P 500 index was at 956.49. The contract expires 73 days later. Assuming continuous compounding, suppose the risk-free rate is 5.96 percent and the dividend yield on the index is 2.75 percent. Is the futures overpriced or underpriced? Assuming annual compounding, suppose the risk-free rate is 5.96 percent and the future value of dividends on the index is $5.27. Is the futures overpriced or underpriced?On July 1, 2020 an investor holds 50,000 shares of a certaincompany stock. The market price at this time is $30 per share. (a) what is the current value of investor’s portfolio Value_________ The investor is interested in hedging against movements in the market over the next months (until Sep 2020) and decides to use the September 2020 Mini S&P 500 futures contract. The index futures price is currently 1,500 and one contract is for delivery of $50 times the index. (b) What is the current value of one Mini S&P 500futures contract? Value___________ (c) The beta of the stock is 1.3. How can investor hedge his portfolio against market risk exposure by trading S&P 500 market index Trading strategy______ (d) The beta of the stock is 1.3. How can investor hedge his portfolio against market risk exposure using futures contract. Should he/she enter LONG or SHORT position. For how many futures contracts? SHORT or LONG (circle) N contracts________ (e)…
- On March 2022, ABC Co. is considering the issuance of $100 million 10-year bonds rated AAA. The issue will most likely be registered and sold some time in June. ABC Co. desires to hedge the pending issue using Treasury bond futures contracts each representing $100,000. In order to hedge the bond issue, ABC Co. musta. Sell 1,000 contractsb. Buy 1,000 contractsc. Sell 100 contractsd. Buy 100 contractsOn January 2, 2020, Ayayai Company purchases a call option for $310 on Merchant common stock. The call option gives Ayayai the option to buy 1,090 shares of Merchant at a strike price of $49 per share. The market price of a Merchant share is $49 on January 2, 2020 (the intrinsic value is therefore $0). On March 31, 2020, the market price for Merchant stock is $53 per share, and the time value of the option is $200. Prepare the journal entry to record the purchase of the call option on January 2, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 2, 2020 enter an account title to record the transaction on January 2, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction on January 2, 2020 enter a debit…An investor sold a bond issued by PQR Corporation with nominal yield of 2% and maturity of June 30, 2027 on June 30, 2020. If the yield on US Treasury Bonds was 1.5210% and the spread for PQR was 200 basis points, the trading price was ? (round to two decimal points).
- Warren Co. purchased a put option on Echo common shares on January 7, 2020, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2020. The following data are available with respect to the put option. Date Market Price of Echo Shares Time Value of Put Option March 31, 2020 $80 per share $200 June 30, 2020 82 per share 90 July 6, 2020 77 per share 25 Instructions Prepare the journal entries for Warren Co. for the following dates. a. January 7, 2020—Investment in put option on Echo shares. b. March 31, 2020—Warren prepares financial statements. c. June 30, 2020—Warren prepares financial statements. d. July 6, 2020—Warren settles the put option on the Echo shares.On January 1, 2020, ABC Corporation invested in P2,000,000 bonds of DEF Company that will mature on December 31, 2022. The bond has a coupon rate of 10% and a required rate of return of 12%. What is the value of the investment on January 1, 2020.Under its executive stock option plan, National Corporation granted 30 million options on January 1, 2021, that permit executives to purchase 30 million of the company’s $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $30 per share. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. Suppose that unexpected turnover during 2022 caused the forfeiture of 5% of the stock options. Compute the amount of compensation expense for 2022 and 2023.