A bank lends $1.5 billion to a gold producer to develop a new mine over the next 12 months. The mine will produce 1,000,000 ounces of gold. The spot price at the beginning of the year is $1,650 per oz. and the futures price is $1,750 per oz. At the end of the year the spot price and futures price close at $1,600 per oz. The bank requires that the mining company sell futures to fully hedge 1,000,000 oz. of gold by selling and rolling March, June, September and December contracts. Each contract is for 100 oz. The bank is A rated and has a cost of funds equal to 2% and the mining company is BBB rated and has to pay a spread of 75 bp on the loan. What does the bank earn on the loan per year?

Assume a convertible bond with a par value of $1,000 and a 3% coupon can be converted in to 50 shares at a price of $25 What is the conversion value of the bond?

A bond is purchased at 50% of face value. After 4 years the company enters bankruptcy and 55% of the bond's face value is ultimately recovered. Express the rate of return as an annualized rate based on a 4-year holding period, assume no compounding or coupon income.