Answer:
Payback period=2 years 5 months
Payback period=3 years 8 months
Explanation:
The payback period is the estimated length of time in years it takes .
It is the number of years it takes the cash project to break-even
a) Payback period
Total cash flow for two years = 750× 2 = 1500.000
Balance of cash flow required to make up= 1800000- 1500,000 300,000
Payback period = 2 years + 300,000/750,000× 12 months= 2 years 5 months
Payback period=2 years 5 months
b) Payback period
Total cash flow for 3 years = 450,000 + $225,000 +600,000=1,275 ,000
Balance o cash required to make up 1800,000 = 1,800,000 -1275,000= 525,000
Pay back period = 3 years + 525,000/750,000× 12 months
= 3 years 8 months
Payback period=3 years 8 months
Kenneth Arrow discussed two important situations in which profit maximization can be socially inefficient. One of these occurs when
Answer:
Explanation:
One of these occurs when costs are not paid for, as in pollution, the other is when there is an imbalance of knowledge between buyer and seller. Pollution can be a consequence that cannot be solved with money and can also be socially irresponsible for a company. On the other hand, an imbalance of knowledge can prevent a company from profit maximization if the seller does not understand the product or services that the buyer is selling.
You expect General Motors (GM) to have a beta of 1.3 over the next year and the beta of Exxon Mobil (XOM) to be 0.9 over the next year. Also, you expect the volatility of General Motors to be 40% and that of Exxon Mobil to be 30% over the next year. Which stock has more systematic risk? Which stock has more total risk?
Answer:
As the beta of GM (1.3) is more than that of XOM (0.9), GM has more systematic risk than XOM.
The volatility of GM (40%) is higher than that of XOM (30%). Thus, GM has a higher total risk than XOM.
Explanation:
The systematic risk is the risk caused by factors that affect all of the market and are unavoidable. Such a risk is also known as a market risk and is measured by the beta of a stock. The market beta is always 1. A stock having a beta higher than 1 has higher systematic risk than market and a stock having a lower beta than 1 has a lower systematic risk than the market.
As the beta of GM (1.3) is more than that of XOM (0.9), GM has more systematic risk than XOM.
Total risk, on the other hand, is the risk that comprises of both systematic and unsystematic risk. The systematic risk is the market risk as mentioned above while the unsystematic risk is the firm specific risk and is avoidable. The total risk is measured by the standard deviation or volatility of the stock. The stock with higher volatility has higher total risk and vice versa.
The volatility of GM (40%) is higher than that of XOM (30%). Thus, GM has a higher total risk than XOM.
Piper's Pizza sold baking equipment for $25,000. The equipment was originally purchased for $72,000, and depreciation through the date of sale totaled $51,000. What was the gain or loss on the sale of the equipment?
Sale amount
Less:
Cost of the baking equipment
Book value
Answer:
$4,000 gain
Explanation:
The calculation of gain or loss on the sale of the equipment is shown below:-
Gain or loss on the sale of the equipment = Sales - Cost of the baking equipment - Accumulated Depreciation
= $25,000 - ($72,000 - $51,000)
= $25,000 - $21,000
= $4,000
Therefore for computing the gain or sale we simply applied the above formula.
Currently Baldwin is paying a dividend of $1.10 (per share). If this dividend stayed the same, but the stock price rose by 10% what would be the dividend yield
Answer:
Dividend yield = 227.06%
Explanation:
Assuming the Closing stock market summary for Baldwin company is $44.05
Dividend yield = Dividend * 100 / (Price* (1 + growth rate) )
Dividend yield = 1.10 * 100 / (44.05 * (1+0.10) )
Dividend yield = 1.10 * 100 / (44.05 * 1.10)
Dividend yield = 110 / 48.455
Dividend yield = 2.2706
Dividend yield = 227.06%
The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)
Answer:
Operating Activity
Explanation:
The Indirect method, reconciles the Operating Profit to the Operating Cash Flow by adjusting the following items (1) Non Cash flow items previously added or deducted from Operating Profit and (2) Changes in Working Capital items.
Amortization of bond premium is an item of non-cash flow that was previously deducted from Operating Profit and needs to be added back.
Think of two methods used to improve productivity in business. Discuss your reasons for choosing these methods
Answer:
Actually we have 2 method of launching a product. First simultaneously which isn't the best way. Second is sequentially in one market after anther. And this method seems to be more useful than others.
Answer:
Planning is the first one because I believe this can improve productivity in everything. Giving employees a schedule of what they day should look like is a great idea to give them an idea on what their time distribution should be. It also makes their day less stressful without having to worry about unexpected jobs that need to be done and overall should make them more productive through a workday. Having a organized process is another great attribute to improve productivity. This will allow a clean process in creating your products and service and keep everything in place.
Explanation:
Many of today’s ____________________ systems concentrate on hiring and managing existing employees to get the total potential of the human talent in the organization.
Answer:
The correct answer is: Human Resource Management
Explanation:
To begin with, the Human Resource Management Systems are the ones that focus on the managing of the human factor inside the organization with the purpose of making easier the processes of hiring, collecting data and more. So therefore that this systems concentrate on hiring and managing existing employees to get the total potential of the human talent in the organization by having a better and more organized place in where the managers can deal with those issues and other stuff related to that.
Marigold Corp. issues $220,000, 20-year, 8% bonds at 104. Prepare the journal entry to record the sale of these bonds on June 1, 2020
Answer:
Selling Price of Bonds = Value of bonds * Issue price / Face price
Selling Price of Bonds = $220,000 * 104/100
Selling Price of Bonds = $228,800
Journal Entry
Date Account Title and Explanation Debit Credit
1 June Cash $228,800
Bond payable $220,000
Premium on bond payable $8,800
(To record issuance of bond)
Working
Premium On Bonds Payable = Selling Price of Bonds - Value of Bonds
= $228,800 - $220,000
= $8,800
The Retained earnings account for Nathan Corporation had a credit balance of $800,000 at the end of 2016. Selected transactions during 2017 follow:
a. Net income was $130,000.
b. Cash dividends declared were $60,000
c. Repurchased 100 shares of Nathan Corporation common stock, paying S20 per share. Each share has a $5 par value and was originally issued for $35.
d. Sold 20 shares of Nathan Corporation common stock for $22 each.
Required:
Calculate Nathan's retained earnings balance as of the end of 2011. How large of a dividend could Nathan have declared in 2011?
Answer:
1 & 2. $870,000
Explanation:
1. Retained Earnings is an equity account from which dividends are paid. The Net Income is added to this and the dividends are deducted from this.
Retained Earnings for the year = Beginning balance + Net Income - Dividends
= 800,000 + 130,000 - 60,000
= $870,000
2. Nathan Corporation could have declared the entire retained earnings of $870,000. This is however, not a recommended action because the Retained Earnings maintain a cushion for the company and as such contribute to financial health and structure of the company.
Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses: Cash Cash Revenues Expenses Year 1 $ 8,000 $ 8,000 Year 2 $12,000 $ 8,000 Year 3 $15,000 $ 9,000 Year 4 $20,000 $10,000 Year 5 $20,000 $10,000 Depreciation will be $4,000 per year. What is the accounting rate of return on the investment
Answer:
Accounting rate of return= 20%
Explanation:
The accounting rate of return is the average annual income expressed as a percentage of the average investment.
The simple rate of return can be calculated using the two formula below:
Accounting rate of return
= Annual operating income/Average investment × 100
Average investment = (Initial cost + scrap value)/2
Average profit = Total profit over investment period / Number of years
Total revenue = 8000+12000+ 15000 + 20,000+ 20,000 = 75000
Total expenses= 8000 + 8000 + 9000 +10,000 + 10,000 = 45000
Cash profit = 75,000 - 45,000 = 30,000
Depreciation = 4000× 5 = 20,000
Accounting profit = Cash profit - Depreciation = 30,000- 20,000 = 10,000
Average profit = 10,000/5 = 2,000
Accounting rate of return = 2,000/20000× 100 = 20%
Accounting rate of return= 20%
15. Karla Salons leased equipment from Smith Co. on July 1, 2021, in a finance lease. The present value of the lease payments discounted at 10% was $81,100. Ten annual lease payments of $12,000 are due each year beginning July 1, 2021. Smith Co. had constructed the equipment recently for $66,000, and its retail fair value was $81,100. What amount of interest revenue from the lease should Smith Co. report in its December 31, 2021, income statement
Answer: $3,455
Explanation:
The interest received by Smith can be calculated as;
Interest Value = Present value of lease payment * interest rate
Present Value of interest rate
Ten annual lease payments of $12,000 are due each year beginning July 1, 2021.
That means first payment has been made already. Present value is;
= 81,100 - 12,000
= $69,100
Only half a year has gone by so this will need to be reflected;
Interest Value = Present value of lease payment * interest rate
= 69,100 * 10% * 6/12
= $3,455
The Asian Garden, a local Thai restaurant, expects sales to be $ 285,000 in January. Its average customer restaurant bill is $ 15. Only 20 % of the restaurant bills are paid with cash; 60 % are paid with credit cards and 20 % with debit cards. The transaction fees charged by the credit and debit card issuers are as follows:Credit cards: $0.60 per transaction + 2 % of the amount chargedDebit cards: $0.55 per transaction + 1% of the amount chargedRequried:a. How much of the total sales revenue is expected to be paid incash?b. How many customer transactions does the company expect inJanuary?c. How much of the total sales revenue is expected to be paid with credit cards?d. How many customer transactions will be paid for by customers using creditcards?e. When budgeting for January's operating expenses, how much should the restaurant expect to incur in credit card transactionfees?f. How much of the total sales revenue is expected to be paid with debit cards?g. How many customer transactions will be paid for by customers using debitcards?h. When budgeting for January's operating expenses, how much should the restaurant expect to incur in debit card transactionfees?i. How much money will be deposited in the restaurant's bank account during the month of January related to credit and debit card sales? Assume the credit and debit card issuers deposit the funds on the same day the transactions occur at the restaurant(there is no processing delay).j. What is the total amount of money that the restaurant expects to deposit in its bank account during the month of January from cash, credit card, and debit card sales? Again assume the credit and debit card issuers deposit the funds on the same day that the transaction occurs.
Answer:
a. How much of the total sales revenue is expected to be paid incash?
$855,000b. How many customer transactions does the company expect inJanuary?
19,000c. How much of the total sales revenue is expected to be paid with credit cards?
$171,000d. How many customer transactions will be paid for by customers using creditcards?
11,400e. When budgeting for January's operating expenses, how much should the restaurant expect to incur in credit card transactionfees?
$10,260f. How much of the total sales revenue is expected to be paid with debit cards?
$57,000g. How many customer transactions will be paid for by customers using debitcards?
3,800h. When budgeting for January's operating expenses, how much should the restaurant expect to incur in debit card transactionfees?
$2,660i. How much money will be deposited in the restaurant's bank account during the month of January related to credit and debit card sales? Assume the credit and debit card issuers deposit the funds on the same day the transactions occur at the restaurant(there is no processing delay).
$215,080j. What is the total amount of money that the restaurant expects to deposit in its bank account during the month of January from cash, credit card, and debit card sales? Again assume the credit and debit card issuers deposit the funds on the same day that the transaction occurs.
$272,080Explanation:
total sales $285,000 / $15 = 19,000 customers
cash sales = $285,000 x 20% = $57,000credit cards = $285,000 x 60% = $171,000debit cards = $285,000 x 20% = $57,000credit card fees = (11,400 x $0.60) + ($171,000 x 2%) = $10,260
debit card fees = (3,800 x $0.55) + ($57,000 x 1%) = $2,660
The master budget of Sheffield Corp. shows that the planned activity level for next year is expected to be 50000 machine hours. At this level of activity, the following manufacturing overhead costs are expected: Indirect labor$730000 Machine supplies200000 Indirect materials220000 Depreciation on factory building120000 Total manufacturing overhead $1270000 A flexible budget for a level of activity of 60000 machine hours would show total manufacturing overhead costs of
Answer:
Total overhead= $1,500,000
Explanation:
Giving the following information:
First, we need to separate the variable overhead and the fixed overhead:
Variable overhead:
Indirect labor 730,000
Machine supplies 200,000
Indirect materials 220,000
Total variable overhead= $1,150,000
Fixed overhead:
Depreciation on factory building $120,000
Now, we need to calculate the unitary variable overhead:
unitary variable overhead= 1,150,000/50,000= $23
Finally, the total overhead for 60,000 units:
Total overhead= 23*60,000 + 120,000
Total overhead= $1,500,000
Assume you have a margin account with a 50% initial margin. You purchase 100 shares of stock at $80 per share. The price increases to $100 per share. What is the net value of your investment (margin) now
Answer:
Net value of the investment (margin) is $6,000
Explanation:
The initial margin = (100 shares * $80) * 50%
The initial margin = $4,000
Increase in the Margin value = 100 shares* ($100-$80)
Increase in the Margin value = 100 shares * $20
Increase in the Margin value =$2,000
Net value of the investment (margin) = $4,000 + $2,000
Net value of the investment (margin) = $6,000
Use information from the Washington Post article "Why We've Been Hugely Underestimating the Overfishing of the Oceans" to determine whether each statement is true or false.
a. According to the Food and Agriculture Organization of the United Nations (FAO), worldwide catches peaked in 2001 at 86 million tons.
b. Using catch reconstruction, researchers estimate that the actual peak catch was 50% larger than the reported peak catch.
c, Catch reconstruction shows that, since the peak, catches have been increasing, not decreasing as previously reported.
d. The Sea Around Us Project found several problems with the FAO data, such as the fact that data that were not available were reported as catches of zero fish.
Answer:
"Why We've Been Hugely Underestimating the Overfishing of the Oceans"
Determining whether each statement is true or false:
a. False
b. True
c. False
d. True
Explanation:
The article "Why We've Been Hugely Underestimating the Overfishing of the Oceans," was published by the Washington Post on January 19, 2016. It was written by Chelsea Harvey. It tried to show how the world fish stock had been declining due to overfishing. This is why it provided a report contrary to the FAO report.
While the FAO report noted that the peak of worldwide catches was at 86 million tons in 1996, the contrary and independent report, using "catch reconstruction" showed that the peak was at 130 million tons in 1996. The reconstructed research also showed that worldwide fish catches had suffered declines ever since the 1996 peak, thereby threatening "world food security and marine ecosystems". The contrary report also suggested that all stakeholders must collaborate so that fish stocks can rebuild naturally.
Though not specifically cited in the producer's contract, the producer is expected to telephone prospects on the insurer's behalf to arrange sales appointments. This is an example of what kind of producer authority?
Answer:
Implied authority
Explanation:
Implied authority defines an authority with respect to agent that involves jurisdiction to perform the acts so that the objectives of the organization could be achieved. Also, it is a binding contract on other person behalf or company
Therefore according to the given situation, this is an example of implied authority
Sally Eason put $4,000 in her deductible IRA this year. If Sally is in the 25 percent marginal tax bracket, the government actually contributed ____ of that amount for her. Group of answer choices
Answer: $1000
Explanation:
From the question, we are informed that Sally Eason put $4,000 in her deductible IRA this year and that Sally is in the 25 percent marginal tax bracket.
Based on the above information, the government contributed:
= 25% × $4,000
= 25/100 × $4,000
= 0.25 × $4,000
= $1000
the annual discount rate is 10% beginning in 2016, you will receive $10000 on the first day of every year. what is the resent value of this inginite sequence of cash flow
Answer:
$100,000
Explanation:
Data provided
Perpetual cash flow = $10,000
Discount rate = 10%
According to the given situation, the computation of Present value of this inginite sequence of cash flow is shown below:-
Present value = Perpetual cash flow ÷ discount rate
= $10,000 ÷ 10%
= $10,000 ÷ 0.1
= $100,000
Therefore for computing the present value we simply applied the above formula.
A firm has the following gross requirements for Item OF. Ordering costs are $60 per order and carrying costs are $0.50 per period.
Item F Period
LT: 1 1 2 3 4
Gross Requirements 60 40 80 60
Schedule Receipts
Project on Hand 100
Net Requirements
Planned Order Receipts
Planned Order Releases
If EOQ lot sizing is used the minimum order quantity would be:_______
a. 85
b. 100
c. 120
d. 150
Answer:
c. 120
Explanation:
The economic order quantity is the minimum amount of inventory that a seller must keep to demand and lower the holding cost. The formula for Economic order quantity is represented by the formula:
EOQ = [tex]\sqrt{\frac{2*Demand*Ordering Cost}{Holding cost} }[/tex]
EOQ = [tex]\sqrt{\frac{2*240*60}{0.5} }[/tex]
EOQ = 120
Duval inc budgets direct materials at $1/liter and requires 4 liters per unit of finished product. April’s activities show usage of 832 liters to complete 196 units at a cost of $798.72. Calculate the direct materials price and quantity variances and indicate favorable or unfavorable results.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Duval inc budgets direct materials at $1/liter and requires 4 liters per unit of the finished product.
April’s activities show usage of 832 liters to complete 196 units at a cost of $798.72.
To calculate the direct material price and quantity variance, we need to use the following formulas:
Direct material price variance= (standard price - actual price)*actual quantity
Actual price= 798.72/832= $0.96
Direct material price variance= (1 - 0.96)*832
Direct material price variance= $33.28 favorable
Direct material quantity variance= (standard quantity - actual quantity)*standard price
Standard quantity= 4*196= 784
Direct material quantity variance= (784 - 832)*1
Direct material quantity variance= $48 unfavorable
Suppose we have the following information for 2008: Potential output: $17 trillion Actual output: $16 trillion Actual Deficit: $ 500 billion Tax Rate: 15% What is the structural deficit in 2008
Answer:
The structural budget in 2008 is $350 billion
Explanation:
Actual deficit = Government spending - Tax Revenue Collection
i.e Actual deficit = G-T
T = (Tax rate) (Actual output)
$500 billion = G - (0.15)($16 trillion)
$500 billion = G - 2400 billion
G = $500 billion + 2400 billion
G = $2900 billion
Thus, Government spending is $2900 billion
Structural deficit = G - T'
T' = (Tax rate)(Potential output)
T' = (0.15)(17000 billion)
T' = $2550 billion
Structural deficit = G - T'
Structural deficit = $2900 billion - $2550 billion
Structural deficit = $350 billion
Thus, the structural budget in 2008 is $350 billion
Time Again LLC produces and sells a mantel clock for $150.00 per unit. In 2017, 43,000 clocks were produced and 36,000 were sold. Other information for the year includes: Direct materials $43.00 per unit Direct manufacturing labor $8.00 per unit Variable manufacturing costs $4.00 per unit Sales commissions $15.00 per part Fixed manufacturing costs $63.00 per unit Administrative expenses, all fixed $38.50 per unit What is the inventoriable cost per unit using absorption costing?
Answer:
Unitary cost= $118
Explanation:
Giving the following information:
Production= 43,000
Direct materials $43.00 per unit
Direct manufacturing labor $8.00 per unit
Variable manufacturing costs $4.00 per unit
Fixed manufacturing costs $63.00 per unit
The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.
Unitary cost= 43 + 8 + 4 + 63
Unitary cost= $118
A firm has current assets of $36,000, cash of $5,000, current liabilities of $20,000, total assets of $80,000 and total liabilities of $45,000. What is its net working capital?
a. $16,000
b. $28,000
c. $35,000
d. $44,000
Answer:
Option A, $16000, is the right answer.
Explanation:
The current assets = $36000
Cash = $5000
Current liabilities = $20000
Total assets = $80000
Total liabilities = $45000
Use the below formula to find the net working capial.
Net working capital = Current assets - Current Liabilities
Net working capital = 36000 – 20000
Net working capital = 16000
Therefore, option A, $16000 is correct.
According to the lecture video on building dynamic charts, which of the following Excel functions are used in the "Refers to:" formula in Name Manager?
A) SUMIF
B) COUNTIF
C) OFFSET
D) COUNT
Answer:
OFFSET
COUNT
Explanation:
two options are correct, select both.
Answer:
Option C and D are correct
Explanation:
OFFSET - From a cell or a range of cells, returns a reference to a range with a specified number of rows and columns.
COUNT - To determine the number of entries in a number field that is part of a range or array of values, use the COUNT function.
Explain how you would value a stock. Provide an example of a valuation of a stock based on retrieved real data. Include evidence of the retrieved data in your answer. Compare your valuation with the actual price of the stock at the designated time for your valuation.
Answer with Explanation:
There are numerous stock valuing models but here, I will use Dividend Valuation Model which is based on finding the intrinsic value of Stock which is the present value of the stock at a required rate of return. The formula to calculate Intrinsic value of stock is given as under:
P0= D0 * (1 + g) / (ke - g)
Here
P0 is the intrinsic value of the stock
D0 is the dividend just paid
g is the growth rate
ke is the investor's required rate of return
The model doesn't holds if the company doesn't pays Dividend.
Now suppose that the Dividend just paid by Apple is $20 per stock. The anticipated growth rate of dividend is 10% and the required rate of return is at 15%.
By putting values in the above equation, we have:
P0= $20 * (1 + 10%) / (15% - 10%)
= $20 / (15% - 10%)
= $400 per share
The value of stock of Apple is $400 per share which must be its fair market value as per the Dividend Valuation Model.
As per the model, if the value of stock is higher as per dividend valuation model then we must purchase the stock as it will generate higher value and vice versa. The inherent limitation of the model is that it assumes that the dividend is growing at constant rate and is consistently paid. The main disadvantage of Dividend valuation model is that it doesn't account for political factors, economical factors, evolving business risks, technological factors, etc.
Anna hired Juan to act as her sales agent in her auto dealership. However, Anna has instructed Juan not to enter into any sales contracts before she has had a chance to review the transaction. One day, Juan entered into a sales contract with William without informing Anna first. Has Juan created a contract with William that is binding on Anna in this situation?
Answer:
Yes, Juan did have apparent authority to act.
Explanation:
In the situation that is being described it can be said that Yes, Juan did have apparent authority to act. Even though Anna has asked Juan to let her review the transaction before entering into a contract, she gave Juan the authority to act on her behalf and represent her as an authority in the auto dealership when she made him a sales agent. Therefore any and all contracts entered by Juan in the dealership are binding on Anna as well.
Hotel Cortez is an all-equity firm that has 10,900 shares of stock outstanding at a market price of $37 per share. The firm's management has decided to issue $66,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 8 percent. What is the break-even EBIT
Answer:
$32,264.07
Explanation:
The computation of the Break-even EBIT is shown below:
(EBIT ÷ Number of shares) = (EBIT - Interest) ÷ Number of shares
(EBIT ÷ 10,900) = (EBIT - $66,000 × 0.08) ÷ (10,900 - (66,000 ÷ $37))
(EBIT ÷ 10,900) = (EBIT - $5,280) ÷ (10,900 - 1,783.78)
(EBIT ÷ 10,900) = (EBIT - $5,280) ÷ (9116.22)
After solving this, the value of break-even EBIT is $32,264.07
If D = 8,200 per month, S = $44 per order, and H = $2.00 per unit per month, a) What is the economic order quantity? The EOQ is 601601 units (round your response to the nearest whole number). b) How does your answer change if the holding cost doubles? The EOQ is 425425 units (round your response to the nearest whole number). c) What if the holding cost drops in half? The EOQ is nothing units (round your response to the nearest whole number).
Answer: A) The Economic Order Quantity is 601 units.
B)The Economic Order Quantity is 425 units.
C )The Economic Order Quantity is 849 units
Explanation:
EOQ, economic order quantity = [tex]\sqrt{ 2 x Dx S/ H}[/tex]
where D= demand
S = Order cost
H= holding cost.
a)when D = 8,200 per month, S = $44 per order, and H = $2.00
EOQ, economic order quantity = [tex]\sqrt{2x D x S /H}[/tex]
= [tex]\sqrt{2 x 8,200 x 44 /2 }[/tex] = [tex]\sqrt{360,800}[/tex] = 600.666= 601 units
b) if the holding cost doubles, holding cost = HX 2 = 2 X 2 = 4
EOQ, economic order quantity =[tex]\sqrt{ 2 x D xS /H }[/tex]
= [tex]\sqrt{2 X 8,200 X 44 / 2 X $2}[/tex] = [tex]\sqrt{180,400}[/tex] = 424.73 = 425units
C) if the holding cost drops in half, holding cost = H/2 = 2 X 1/2 = 1
EOQ, economic order quantity =[tex]\sqrt{ 2 x D xS /H }[/tex]
= [tex]\sqrt{2 X 8200 x 44/1}[/tex] = [tex]\sqrt{721,600}[/tex] = 849.47 = 849units
Your grandfather has great faith in bonds and has heard about some "high yield bonds" that are available. He has asked you for your opinion. What advice will you give him?
Answer: That they are risky
Explanation:
Bonds tend to give a low return compared to other investments such as stocks which is because they offer a constant payout. However even with bonds there will still be those that promise a higher return than the others and this is because they are riskier.
Bonds are debt instruments which means that the rate they pay is directly related to the risk attached. This is because the interest payment is meant to compensate you for the risk you are taking by getting that bond.
If the yield/return is high it would therefore follow that the risk Is high as well. Your Grandfather should therefore be aware of this risk before investing because riskier bonds might not pay back.
A three-year annuity-immediate will be issued a year from now with annual payments of 5,000. Using the forward rates, calculate the present value of this annuity a year from now.
Answer:
13,152.5
Explanation:
Given the the above parameters as mentioned in the question
To calculate the PV (Present Value)
We have PV = 5000 * 1.05 * [ 1/(1.0575)² + 1/(0.625)³ + 1/(1.065)⁴]
PV = 5000 * 1.05 * (0.8942094350 + 0.8337064929 + 0.7773230908) =
=> PV = 5000 * 1.05 * 2.5052390187
= 13,152.50
Therefore, in this case, using the forward rates, the present value of this annuity a year from now is 13,152.50
