(a) On May 22, 2002, Warren Buffet's company Berkshire Hathaway sold $400 million notes in a private placement to qualified institutional investors. Upon purchasing the bonds, investor received a warrant allowing them to purchase Berkshire stock at an exercise price that represents a 15% premium over the closing price of the class A shares on the NYSE on May 21, 2002. The notes paid the holders a 3.0% interest rate per annum and holders had to pay 3.75% instalment payments per annum on the warrants. This was the first ever negative coupon security issued in history. Explain why these investors were willing to buy such notes with negative coupon? (3 marks)

(b) Recognising the high level of risk associated with crowd funding investments, list two features of the crowd funding regulation that help to make investors aware of the risk. Identify the potential risk and explain how the current regulation help to protect investors against them. (2 marks)

(c) Some people say that the introduction of some credit derivatives can weaken the effectiveness of bank regulations. What do you think is the rationale behind their argument? (3 marks)