Answer:
private citizens
Answer:
Hello There!!
Explanation:
I believe the answer is A. private citizens.
hope this helps,have a great day!!
~Pinky~
The Harris-Todaro model has all of the following features EXCEPT A. migration is driven by actual rural-urban earnings differentials. B. high rates of migration is the result of urban-rural imbalances. C. the urban areas in developing countries are beset by unemployment problems and rural migrants may not find high-paying formal sector jobs immediately after migration. D. the probability that rural migrants may find high-paying urban formal sector jobs is related to the actual unemployment level in the urban areas .
Answer:
A. migration is driven by actual rural-urban earnings differential.
Explanation:
Harris Todaro Model is used in economics to explain concerns about rural urban migration issues. This model has some features which explains the people preferences to migrate. There is difference in wage rate between urban and rural areas which lead to migration. The basic necessities problems are cause of migration.
Part of the budgeting process is summarizing the financial statement effects on the budgeted income statement and the budgeted balance sheet.
a. true
b. false
Answer:
a. true
Explanation:
The production, sales, and the financial objected of the company are predicted via applying the various independent budgets. Also these budget should become the portion of the master budget. The impact should be collated on the budgeted balance sheet, income statement, and the cash budget
Therefore the given statement is true
Which of the following is an example of a positive economic statement? Question 19 options: a) Corrupt politicians ought to be voted out of office. b) An increase in the price of gasoline will cause a reduction in the amount of gasoline purchased. c) Marginal tax rates should be reduced for individuals in the highest tax bracket. d) Workers with families should be paid at least the minimum wage. e) If crime rates were reduced, the world would be a better place to live.
Photo Framing's cost formula for its supplies cost is $1,000 per month plus $10 per frame. For the month of November, the company planned for activity of 610 frames, but the actual level of activity was 600 frames. The actual supplies cost for the month was $7,600. The spending variance for supplies cost in November would be closest to:
Answer:
$600 U
Explanation:
Calculation to determine what The spending variance for supplies cost in November would be closest to:
Actual results$ 7600
Less Flexible budget $7,000
($1,000 + $10 × 600)
Spending variance $600 U
($7,600-$7,000)
Therefore The spending variance for supplies cost in November would be closest to: $600 U
A company's fixed costs are $1,500,000, the unit selling price is $250, and the unit variable costs are $130. The amount of sales required to realize an operating income of $200,000 is Group of answer choices
Answer:
The answer is 14,167 units
Explanation:
Target sales is the amount of sales a company has projected itself to sell within a particular period.
Target sales(in units) =
(Fixed cost + target income) / contribution margin
Where contribution margin is sales in unit minus variable costs
($1,500,000 + $200,000) / $250 - $130
$1,700,000/$120
=14,167 units
Therefore, 14,167 units is the amount of sales that will need to be recorded to generate an operating income of $200,000
Miguel works for an organization that collects books from donors and redistributes the books to schools to promote literacy and good reading habits. The company is funded by a government grant. Miguel works for a(n) ________.
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only individual voting for you. a. If the company has 470,000 shares outstanding and the stock currently sells for $41, how much will it cost you to buy a seat if the company uses straight voting
Answer: $9,635,041
Explanation:
With 470,000 shares, you will need to hold a majority to vote yourself into the board.
To gain a majority, you need more than 50% of the shares:
= 470,000 / 2 + 1 share to give you majority
= 235,001 shares
The cost of 235,001 shares is:
= 235,001 * 41
= $9,635,041
Automaton, Inc.'s current stock price is $57. Analysts forecast a price of $45 in one year. Automaton's Beta is 1.2. The Risk-Free Rate is 3% and Return of the Market Portfolio is 7%. Assuming Automaton pays a $5 dividend at the end of the year, what is the Holding Period Return?
Answer:
-12.28%
Explanation:
Holding period return is the total return on an investment in the period when the investment is held by an investor.
Holding period return = price appreciation + dividend yield
price appreciation = (price in on year - initial price) / initial price
(45 - 57) / 57 = -0.21053 = -21.05%
dividend yield = dividend / initial price
$5 / 57 = 0.0877 = 8.77
Holding period return = -21.05% + 8.77 = -12.28%
Hitzu Co. sold a copier costing $4,800 with a two-year parts warranty to a customer on August 16, 2016, for $6,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2017, the copier requires on-site repairs that are completed the same day. The repairs cost $209 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2017 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 4% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.
1. How much warranty expense does the company report in 2016 for this copier?
2. How much is the estimated warranty liability for this copier as of December 31, 2016?
3. How much warranty expense does the company report in 2017 for this copier?
4. How much is the estimated warranty liability for this copier as of December 31, 2017?
5. Prepare journal entries to record (a) the copier’s sale; (b) the adjustment on December 31, 2016, to recognize the warranty expense; and (c) the repairs that occur in November 2017.
Answer:
1. $240
2. $240
3. $0
4. $31
5. August 16, 2016
Dr Cash $6,000
Cr Sales $6,000
Aug. 16, 2016
Dr Cost of goods sold $4,800
Cr Merchandise inventory $4,800
Dec 31,2016
Dr Warranty expense $240
Cr Estimated warranty liability $240
Nov. 22, 2017
Dr Estimated warranty liability $209
Cr Repair parts inventory $209
Explanation:
1. Calculation to determine How much warranty expense does the company report in 2016 for this copier
Warranty expense = 4% × $6,000
Warranty expense= $240
Therefore the amount of warranty expense that the company report in 2016 for this copier is $240
2. Calculation to determine How much is the estimated warranty liability for this copier as of December 31, 2016
Estimated warranty liability= 6% × $6,000
Estimated warranty liability= $240
Therefore estimated warranty liability for this copier as of December 31, 2016 is $240
3. The 2017 warranty expense that the company report in 2017 for this copier will be $0 because NO ADDITIONAL WARRANTY EXPENSE in the year 2017 should be reported for this copier
4. Calculation to determine how much is the estimated warranty liability for this copier as of December 31, 2017
2017 ESTIMATED WARRANTY LIABILITY
Beginning 2017 balance $240
(4%*$6,000)
Less Parts cost ($209)
Ending 2017 balance $31
Thereforea m the estimated warranty liability for this copier as of December 31, 2017 is $31
5. Preparation of the journal entries
August 16, 2016
Dr Cash $6,000
Cr Sales $6,000
Aug. 16, 2016
Dr Cost of goods sold $4,800
Cr Merchandise inventory $4,800
Dec 31,2016
Dr Warranty expense $240
Cr Estimated warranty liability $240
Nov. 22, 2017
Dr Estimated warranty liability $209
Cr Repair parts inventory $209
Harris Fabrics computes its plantwide predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 44,000 direct labor-hours would be required for the period’s estimated level of production. The company also estimated $521,000 of fixed manufacturing overhead cost for the coming period and variable manufacturing overhead of $2.00 per direct labor-hour. Harris’s actual manufacturing overhead cost for the year was $687,120 and its actual total direct labor was 44,500 hours. Required: Compute the company’s plantwide predetermined overhead rate for the year. (Round your answer to 2 decimal places.)
Answer:
Predetermined manufacturing overhead rate= $13.84 per direct labor hour
Explanation:
To calculate the predetermined manufacturing overhead rate we need to use the following formula:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= (521,000 / 44,000) + 2
Predetermined manufacturing overhead rate= 11.84 + 2
Predetermined manufacturing overhead rate= $13.84 per direct labor hour
The Porter Beverage Factory owns a building for its operations. Porter uses only half of the building and is considering two options for the unused space. The Popcorn Store would like to purchase the half of the building that is not being used for $715,000. A 6% commission would have to be paid at the time of purchase. Salty Snacks would like to lease half of the building for the next five years at $188,800 each year. Porter would have to continue paying $47,000 of property taxes each year and $9,000 of yearly insurance on the property, according to the proposed lease agreement. Determine the differential income or loss from the lease alternative. Enter a loss as a negative number. $fill in the blank 1
Answer:
Differential income = $8,100
Explanation:
The differential income is the difference in income between the two alternative uses of the unused space. This would be done as follows:
Option 1
Income from the pop corn option:
$
Sales value 715,000
Less commission (6%×715,000) (42,900)
Net sales value 672,100
Option 2 :
Lease income from Salty Snacks
$
Lease income 188,800
Taxes 47,000
Insurance 9,000
Annual Net lease income 132,800
Total lease income for 5 years 132800× 5= $664,000
Differential income 672,100-664,000 = 8,100
Differential income = $8,100
Favre and Carter Law Office employ 12 full-time attorneys and 5 paraprofessionals. Budgeted salaries include $100,000 for each attorney and $30,000 per paraprofessional. For 20x1, indirect costs were budgeted at $250,000, but actually amounted to $300,000. Actual salaries were $110,000 for each attorney and $30,000 for each paraprofessional. Direct and indirect costs are applied on a professional labor-hour basis that includes both attorney and paraprofessional hours. Total budgeted labor-hours were 50,000; however, actual labor-hours were 60,000.
How much should the client be billed in a normal costing system which uses budgeted rate and cost allocations are based on actual data, when 1,000 professional labor-hours were used?
a. $27,000
b. $32,000
c. $34,800
d. $37,400
Answer:
Billed costs= $32,000
Explanation:
Giving the following information:
Total estimated cost attorney= 12*100,000= $1,200,000
Total estimated cost paraprofessional= 5*30,000= $150,000
Estimated Indirect costs= $250,000
Estimated number of hours= 50,000
First, we need to calculate the allocation rate:
Allocation rate= total estimated costs for the period/ total amount of allocation base
Allocation rate= (1,200,000 + 150,000 + 250,000) / 50,000
Allocation rate= 1,600,000/50,000
Allocation rate= $32
Now, for 1,000 hours:
Billed costs= 1,000*32= $32,000
A primary function of the promotional mix is to Multiple Choice explain how to use a product. persuade consumers to try a product. inform customers of complementary offerings. inform customers of pricing changes. point out flaws in competitors' products.
Answer: persuade consumers to try a product.
Explanation:
The Promotional Mix has to do with the promotional tools which are used by a company in order to create, and increase the demand for the goods and services offered by the company.
The Promotional Mix integrates promotional tools like direct marketing, personal selling, Advertising, Sales Promotion, etc
The promotional mix is useful in informing the prospective buyers about the importance of a good or service and also convince them to try it and the benefits attached to the product.
Damon is saving up money for a down payment on a house. He currently has $4412, but knows he can get a loan at a lower interest rate if he can put down $5266. If he invests the $4412 in an account that earns 4.5% annually, compounded monthly, how long will it take Damon to accumulate the $5266
Answer:
47 YEARS
Explanation:
number of years = log ( FV / PV) ÷ log (1 + r)
fv = future value
pv = present value
r = interest rate = 4.5 / 12
log ($5266 / $4412) ÷
log (1.194) / log(1.00375)
0.077 / 0.00164 = 47
Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions.
May.
11 Sydney accepts delivery of $40,000 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cost Troy $30,000. Sydney pays $345 cash to Express Shipping for delivery charges on the merchandise.
12 Sydney returns $1,400 of the $40,000 of goods to Troy, who receives them the same day and restores them to its inventory. The returned goods had cost Troy $1,050.
20 Sydney pays Troy for the amount owed. Troy receives the cash immediately. (Both Sydney and Troy use a perpetual inventory system and the gross method.)
Required:
a. Prepare journal entries that Sydney Retailing (buyer) records for these three transactions.
b. Prepare journal entries that Troy Wholesalers (seller) records for these three transactions.
Answer:
1. Sydney Buyer
11 Dr Accounts Payable $40,000
Cr Merchandise Inventory $40,000
11 Dr Merchandise Inventory $345
Cr Cash $345
12 Dr Merchandise Inventory $1,400
Cr Accounts Payable $1,400
20 Dr Accounts Payable $38,600
Cr Merchandise Inventory $1,158
Cr Cash $37,442
2. Troy - Seller
11 Dr Accounts Receivables $40,000
Cr Sales $40,000
Dr Cost of Goods Sold $30,000
Cr Merchandise Inventory $30,000
13 Dr Sales Returns and Allowances $1,400
Cr Accounts Receivables $1,400
Dr Cost of Good Sold $1,050
Cr Merchandise Inventory $1,050
21 Dr Cash $37,442
Dr Sales Discount $1,158
Cr Accounts Receivables $38,600
Explanation:
1. Preparation of journal entries that Sydney Co. records for these transactions.
1. SYDNEY BUYER
11 Dr Accounts Payable $40,000
Cr Merchandise Inventory $40,000
11 Dr Merchandise Inventory $345
Cr Cash $345
12 Dr Merchandise Inventory $1,400
Cr Accounts Payable $1,400
20 Dr Accounts Payable $38,600
($40,000-$1,400)
Cr Merchandise Inventory $1,158
($38,600-$37,442)
Cr Cash $37,442
[$38,800- [($1,400 × (100% – 3%)]
2. Preparation of the journal entries that Troy Corporation records for these transactions.
TROY - SELLER
11 Dr Accounts Receivables $40,000
Cr Sales $40,000
Dr Cost of Goods Sold $30,000
Cr Merchandise Inventory $30,000
13 Dr Sales Returns and Allowances $1,400
Cr Accounts Receivables $1,400
Dr Cost of Good Sold $1,050
Cr Merchandise Inventory $1,050
21 Dr Cash $37,442
[$38,800- [($1,400 × (100% – 3%)]
Dr Sales Discount $1,158
($38,600-$37,442)
Cr Accounts Receivables $38,600
($40,000-$1,400)
Workings:
May 11 Purchased goods=($40,000 × [100% – 3%])
May 11 Purchased goods= $38,800
May 12 Returned goods= ($1,400 × [100% – 3%]) May 12 Returned goods= $1,358
May 20 Paid balance within the discount period= ($38,800 – $1,358)
May 20 Paid balance within the discount period= $37,442
The Texas Electronics Company (TEC) is contemplating a research and development program encompassing eight major projects. The company is constrained from embarking on all projects by the number of available scientists, which is 40, and the budget constraint, which is $300,000. Following are resource requirements and the estimated profits for each project:
Project Expense($000) Scientists Required Profit ($000)
1 60 7 36
2 110 9 82
3 53 6 29
4 147 4 16
5 192 7 56
6 185 6 61
7 173 8 48
8 165 5 41
Formulate this problem using integer programming.
Solve it using excel. (Hint: in excel, assign integer constraint to decision variables by selecting "int" when selecting integer constraints)
What is the maximal profit? Which projects should be selected?
Suppose the management team decides that project 2 and project 5 are mutually exclusive, what it the revised formula? What is the revised maximal profit? What is the revised projected selected?
Suppose the management team also decides to undertake at least two of the projects involving consumers products (these happens to be projects 5-8). Then what is the revised formula? What is the revised maximal profit? What is the revised projected selected?
Answer:
937373839828282828828288
Explanation:
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After all of the account balances have been extended to the Income Statement columns of the work sheet, the totals of the Debit and Credit columns are $74,440 and $93,750, respectively. What is the amount of the net income or net loss for the period
In the first few minutes of your speech to the new product team, you show the members that you feel comfortable with them and that you are confident that the team will be successful.
a. True
b. False
Answer: True
Explanation:
Being in good spirits at the beginning of the project among team members is vital. What is communicated at the beginning plays a vital role of how the project will go. If a project manager begins his address with negative words, threats and accusation, it would rub off on all the team members and might kill corporation but when his first speech is encouraging, energetic and inspiring, they would want to do better.
Suppose that in the country of Sudland, when the yearly rate of economic growth fell from 3.0% to 1.5%, the yearly rate of increase in airborne pollutants fell from 6% to 5%. What is the average slope of a nonlinear curve between these points using the arc method
Answer:
2/3 0r 0.66667
Explanation:
we have to get which is the dependent variable and also the independent variable.
Δ in rate of economic growth causes Δ in the airborne pollutants. this tells us that airborne pollutants is dependent on the rate of economic growth.
change in economic growth = 1.5% - 3% = -1.5%
Δx = -1.5
the dependent vaiable is the y variable, that is the variable on the Y-axis.
ΔY = 5%-6% = 1%
from here we calculate the average slope
Δy/Δx = -1/-1.5
= 1/1.5
this is also equivalent to 2/3 or 0.66667
Rula has purchased a new car for $15000. She paid $2,000 as a down payment, and she paid the remaining balance by a loan from her hometown bank. Rula will pay off the loan by equal annual installments of $4280. How many years will it take Rula to pay off the loan, given an opportunity cost of 12%?
Answer: 4 years
Explanation:
First find the amount Rula borrowed from her hometown bank:
= Price of car - Down payment
= 15,000 - 2,000
= $13,000
The amount that Rula is to pay is an annuity. The loan is the present value of that annuity.
Present value of annuity = Annuity * Present value interest factor of annuity
13,000 = 4,280 * Present value interest factor of annuity
Present value interest factor of annuity = 13,000 / 4,280
= 3.0373
Use an annuity table to find out the year that 12% as a discount rate intersects with, such that the present value of interest factor of annuity is 3.0373.
That number is:
= 4 years
Privett Company
Accounts payable $32,581
Accounts receivable 74,771
Accrued liabilities 6,290
Cash 24,116
Intangible assets 42,381
Inventory 74,844
Long-term investments 95,587
Long-term liabilities 79,677
Marketable securities 31,145
Notes payable (short-term) 24,824
Property, plant, and equipment 671,789
Prepaid expenses 2,412
Based on the data for Privett Company, what is the amount of quick assets?
a. $1,660,292
b. $823,594
c. $119,071
d. $53,633
Answer:
$130,032
Explanation:
Calculation to determine the amount of quick assets
Using this formula
Quick assets=Accounts receivable +Cash+Marketable securities
Let plug in the formula
Quick assets=$74,771+$24,116+31,145
Quick assets= $130,032
Therefore the amount of quick assets is $130,032
A restaurant is considering buying a new coffee making machine, which will be replaced over and over with a new one when an old one dies. Each coffee making machine costs $113,000, and is expected to die after exactly 5-years. Each machine will costs $9,200 per year to operate. The discount rate that the restaurant assigns to this coffee making machine project is 9 percent per year. The straight-line depreciation method would be used when calculating the machine's loss of value for tax purposes. Each coffee making machine will be fully depreciated all the way to zero at the end of its life. Also, each coffee making machine will have a before-tax salvage value of $8,500 at the end of its life. The restaurant's tax rate is 25 percent. As always, assume that all cash flows occur at year end. If the restaurant buys a coffee making machine over and over in perpetuity, as soon as one dies, what would be the average, or the equivalent, annual cost (EAC) of the machine? (Since cost is a cash outflow, a negative dollar amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)What is the EAC?
Answer:
Restaurant's Coffee-Making Machine
The Equivalent annual cost (EAC) of the machine is:
= $37,184
Explanation:
a) Data and Calculations:
Cost of each coffee making machine = $113,000
Estimated useful life = 5 years
Estimated annual operating cost = $9,200
Assigned discount rate = 9%
Before-tax salvage value = $8,500
Restaurant's tax rate = 25%
After-tax salvage value = $6,375 ($8,500 * (1 - 0.25)
Annuity factor for 5 years at 9% = 3.890
Discount factor for 5 years at 9% = 0.650
Present values:
Initial cost ($113,000 * 1) = $113,000
Annual operating cost ($9,200 * 3.890) 35,788
Salvage value ($6,375 * 0.650) = (4,144)
Total cost = $144,644
Equivalent annual cost of the machine = $37,184 ($144,644/3.890)
Bengal Co. provides the following unit sales forecast for the next three months: July August September Sales units 10,000 10,700 6,100 The company wants to end each month with ending finished goods inventory equal to 20% of the next month's sales. Finished goods inventory on June 30 is 2,000 units. The budgeted production units for August are:
Answer:
9780 units
Explanation:
Calculation to determine what The budgeted production units for August are:
Using this formula
Budgeted production in August= Budgeted sales + Desired ending inventory - Beginning inventory
Let plug in the formula
Budgeted production in August= $10,700 + ($6,100*20%) - ($10,700*20%)
Budgeted production in August=$10,700 + $1,220- $2,140
Budgeted production in August= 9780 units
Therefore The budgeted production units for August are:9780 units
Sherry is known for being very task oriented in her approach to manage subordinates. Which at the following statement is noot likely to describe sherry?
a. She tends to work to develop trusting relationships with subordinates.
b. She tends to be very involved in task assignments and defining work schedules.
c. She tends to write standard operating procedures for her employees.
d. She tends to be one-way and top-down in her
Answer:
a. She tends to work to develop trusting relationships with subordinates.
Explanation:
since in the given situation it is mentioned that sherry to be called as the very task oriented person in order to manage the subordinates so as per the given situation the first option is correct as it is not describe her behavior that she develop the relationship with the subordinates in a trust worthy way
So the option a is correct
with the aid of graphs, illustrate the effect of a change in demand for chicken by restaurants to a chicken farmer
Answer:
Systematic component of demand = (level + trend) X seasonal factor
Explanation:
Now in the given case, we can use the above equation as well as graphs based on historical trends to define the demand of chicken during each season. When the demand is high, chicken prices can lead to an increase with more pressure on chicken farmer to supply more chicken.
An example of a push strategy is ________. organizing couponing campaigns utilizing newspaper advertising using television advertising employing direct marketing paying a shelf fee
Answer: Using television advertising
Explanation:
Push marketing strategy, refers to the strategy whereby take its products to the consumers in order to increase the exposure of the product.
Push marketing simply means pushing the brand through the use of promotions and paid advertisiment. On the other hand, pull strategy draws customers towards the product.
Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with four years to maturity (YTM) has a coupon rate of 6%. The yield to maturity of the bond is 11.00%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note:_________.
a.) $841,635.85
b.) $715,390.47
c.) $530,230.59
d.) $1,009,963.02
Answer:
a.) $841,635.85
Explanation:
The value of the Treasury note is the present value of its future cash flows, its semiannual coupon payments and the face value receivable by the investors in the T-note at maturity.
Semiannual coupon=face value*coupon rate*6/12
face value=$1,000,000
coupon rate=6%
semiannual coupon=$1,000,000*6%*6/12
semiannual coupon=$30,000( there would 8 semiannual coupons in 4 years)
The present value of the cash flows can be determined using a financial calculator bearing in mind that the calculator would be set to its default end mode before making the following inputs:
N=8(semiannual coupons)
PMT=30000(amount of each semiannual coupon)
I/Y=5.50%(semiannual yield to maturity=11.00%*6/12)
FV=1000000(the face value of T-note)
CPT
PV=$841,635.85
Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.2. Stock B has an expected return of 14% and a beta of 1.8. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered the better buy because
Answer:
B; it offers an expected excess return of 1.8%
Explanation:
Here are the options :
A; it offers an expected excess return of .2%A; it offers an expected excess return of 2.2%B; it offers an expected excess return of 1.8%B; it offers an expected return of 2.4%
to determine which stock is the better buy, we have to calculate the expected return of the stocks using CAPM
According to the capital asset price model: Expected rate of return = risk free + beta x (market rate of return - risk free rate of return)
Stock A = 5% + 1.2(9% - 5%) = 9.8%
Stock B = 5% + 1.8(9% - 5%) = 12.20%
The next step is to determine the excess return
stated expected return - calculated expected return = excess return
Stock A's excess return = 10% - 9.8% - 0.2%
Stock B's excess return = 14 - 12.20 = 1.8%
Security B would be considered because it has a higher excess return
IF COUNTRIES FIND WAYS OF IMPROVING THEIR FACTOR OF PRODUCTIVITY
Answer:
THEIR FACTOR OF PRODUCTIVITY will increase.
Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. The broker quotes a price of $1,180. Jim is concerned that the bond might be overpriced based on the facts involved. The $1,000 par value bond pays 14 percent interest, and it has 25 years remaining until maturity. The current yield to maturity on similar bonds is 12 percent. Compute the new price of the bond.
Answer:
Jim Busby and Bonds of Disk Storage Systems
The new price of the bond is:
= $21,059
Explanation:
a) Data and Calculations:
Quoted price of bond = $1,180
Face value of bond = $1,000
Coupon interest rate = 14%
Bond's maturity period = 25 years
Current yield to maturity = 12%
Therefore, new price of the bond is computed as follows:
Bond Price = C* (1-(1+r)-n/r ) + F/(1+r)n
where C = Periodic coupon payment = $140 ($1,000 * 14%)
• F = Face / Par value of bond = $1,000
• r = Yield to maturity (YTM) = 12% and
• n = No. of periods till maturity = 25 years
= $140 * (1 – (1+0.12)^-25)/0.12 +$1000/(1+0.12)^25
= $140 * (1 - -17.00)/0.12 + $1,000/17.00
= $140 * (18.00)/0.12 + $1,000/17.00
= $140 * 150 + $59
= $21,000 + $59
= $21,059
