Question 1 (60 marks): Please read the following case study, think from Financial Management perspectives and broadly cover what we discussed in the class and structure your short answers in below format;
A) Please list your expected return for the following investment in different scenarios;
B) Please list the risks and discuss the impacts;
C) Why you go ahead with that investment by listing your recommendations;
Case Scenario: If you are a CFO who is responsible for your companys investment. World leading C Bank relationship manager came to you and offered you the following investment product; some key features are illustrated in below:
Auto callable Contingent Coupon Equity Linked Securities Linked to an Equally Weighted Basket of Four Underlying Due 31March2025;
Issuer: C Bank Group Global Markets Holding Inc.
Guarantee: All payments due on the securities are fully and unconditionally guaranteed by C Bank Group which is AAA Grade rating;
Underlying Company Stock
Weight
Advanced Micro Devices, Inc
25%
Square, Inc
25%
Tesla, Inc
25%
Zoom Video Communications, Inc
25%
Stated Principal amount: $1,000 per security;
Issue Date: 31March2021
Pricing Date: 31March2021
Valuation dates: the 5th Business day of each calendar month
Maturity date: 31March2025 unless earlier redeemed
Coupon Payment: Monthly Dividend at 0.8333% p.m. roughly 10% unless the market value of any underlying company stock is not below 60% of the initial pricing as of 31March2021;
Payment at Maturity: If the securities are not automatically redeemed prior to maturity, callable when any of underlying stock price is below 60% of the initial pricing; If that is the case, your principal payment will be 60% of the initial purchase price + any of previous paid coupon;
Otherwise, your return will be the ending sales price previous coupon payment- management fee as of 2%; However capped at 20% capital gain;
