EmbeddedDerivatives - Guide CASE STUDY 1EMBEDDED DERIVATIVES Requirements 1.

For each instrument, please identify the terms of the embedded derivative, and analyze the instrument (as of the date of inception) to determine whether the embedded derivative, if any, is closely related to the host contract. 2. Unless otherwise stated, all scenarios are based on the following assumptions: a. If the embedded derivative and host portions of the contract are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and b. The contract is not a financial asset or financial liability at fair value through profit or loss.

EmbeddedDerivatives - Guide

Closely Related Instrument Economic Characteristics Embedded Feature (Yes/No)1

Bond: Accrues interest at six percent to June 2011; thereafter, at 2.5 3month LIBOR.

A bond that has a one percent coupon and guarantees repayment of principal with upside potential based on the strength of the gold market.

A bond that provides an introductory above-market yield that is less than twice the market rate at inception and steps up to a new coupon, which will be below then-current market rates.

A bond issued by a monoline insurer that has a coupon rate of interest that resets based on changes in the issuers credit rating.

A corporate bond with a contractual principal amount that is indexed to the non-leveraged inflation rate, but cannot decrease below par; the coupon rate typically is below that of traditional bonds of similar maturity.

Please include the applicable paragraph of IAS 39 Application Guidance that supports your answer