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Ed Cho Financial Markets Problem Set 1 due 02/02 Friday at end of day (11:59pm) You may type or hand write your answers, as long as they are legible. Psets are required to be in PDF format, and submitted as one file
(instead of multiple files). Each person must hand in a copy of their own problem set. However, you are encouraged to discuss problem sets with other students. 1.
Calculate the present value of $5000 received five years from today if the interest rate is a.
8% compounded annually b.
10% compounded annually c.
APR = 10% compounded semiannually 2.
You are considering buying a new house worth $250,000. You then decide to put 20% down, and consequently you search for a $200,000, 30 year fixed-rate mortgage, with payments that are made monthly. After your search, the best available offer you find is a mortgage with an APR of 6% compounded monthly. a.
What is your monthly mortgage payment? b.
Assume instead that the APR is 5% compounded monthly, and calculate the new monthly mortgage payment. Relative to part (a), the APR decreased by 1%. Calculate the percentage change in your monthly payment as a result of this 1% lower interest rate. c.
You then decide you want to pay off your mortgage in half the time, so you find a 15 year fixed-rate mortgage, with an APR of 6% compounded monthly. Calculate the new monthly mortgage payment. Does your monthly payment exactly double, more than double, or less than double? Explain intuitively.
3.
Your firm’s geologists have discovered a small oil field in New York's Westchester County. The field is forecasted to produce cash flow of C = $2 million/yr, forever. The cost of developing this new oil field is $16.67 million. a.
Determine the internal rate of return on this project. b.
Suppose that instead of developing the new oilfield, you discover a large underground shale rock deposit, that has the same upfront development cost of $16.67 million to extract the shale gas, and has an internal rate of return of 10%. Assuming you only have $16.67 million to invest, which project would you invest in? c.
Redo part (a), except the oilfield is forecasted to produce a cash flow of $2 million for 20 years. Set up the equation that sells for the internal rate of return, but do not solve for it. Is the internal rate of return greater than, less than, or equal to 12%? 4.
A General Motors's bond makes the following cash flow payments in the next 10 years. You receive $80 per year starting in t = 1 until t = 10, and you also receive $1000 in t = 10. a.
If the interest rate is 9%, what is the current market price of these bonds? b.
If the interest rate is 7%, what is the current market price of these bonds? c.
What do your answers to the previous two parts say about the relationship between interest rates and the price of bonds? 5.
You've just graduated college, and you want to save for a dream vacation that takes you around the world, but that means some serious savings. You estimate that once you start work, you could save 5000 a year out of your income at the end of every year and earn an interest rate of 5% on the savings. How much will you be able to spend after 6 years? (Hint: There's more than one way to solve this question. A quick way is to first find the present value, PV, of these payments using the annuity formula, and then find the future value of the PV.) 6.
To buy a house, you borrow a large sum of money from your local savings and loans bank at a nominal interest rate of 15%. Your expectation of inflation is 2%. a.
What do you expect to earn in real terms, i.e., the real interest rate? b.
After you enter the loan agreement, inflation increases to 7%. Who gains and who loses, i.e., is wealth being redistributed from the borrower (you) to the lender (savings and loans bank), or vice versa? Explain intuitively.
7.
Wolverine National Bank has the following assets and liabilities. Assets: Liabilities Cash X 200 M Deposits Loans 160 M 100 M Short-Term Borrowing Securities 200 M Y Net Worth a.
Assume the required reserve ratio is 10%, the government sets a cap on the leverage ratio of 4, and the bank is holding $20 million in excess reserves. What is the value of X and Y? Why might the bank hold these excess reserves? b.
What is the leverage ratio of the bank? c.
As a result of the housing bubble, securities increase in value 40 million. Write down the new balance sheet after the increase in securities for the bank. Does Wolverine National Bank meet both government regulations, the required reserve ratio and leverage ratio? d.
Now assume that securities and loans both decrease by $100 million (say because the housing bubble bursts). Has the liquidity of the bank increased or decreased? Consider the bank's reserve ratio, the value of loans and securities, and the funding liquidity separately. Explain. Does this make the bank insolvent? e.
One month before the decrease in value of the securities and loans, suppose that some nervous, but savvy depositors expect a decline Wolverine National Bank’s assets. What might they do today? List the potential actions Wolverine National Bank could take.
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7. A 180-day simple interest loan in the amount of $16, 400 will be paid in full in the amount of $16, 851. Find the interest rate of the loan. Use the banker's method, which uses 360 days in a year.
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A newspaper editor starts a retirement savings plan in which $225 per month is deposited at the beginning of each month into an account that earns an annual interest rate of 6.4% compounded monthly.
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Instructions
In this session, we have a 6-part comprehensive problem. Download the Session 6 Comprehensive Problem Templates below to complete the 6 required parts of the problem. You will need your Bergevin and MacQueen book for reference.
Rancho Cucamonga Inc. began business on January 1, 2020. The firm earned $100 from sales in its first year of business. Rancho Cucamonga collected $90 of revenue earned in cash during 2020 and reported a $10 account receivable on its 2020 balance sheet. The firm paid $70 cash for operating expenses in 2020 and reported a $5 account payable for unpaid operating expenses on its 2020 balance sheet. Income tax laws only recognize cash collected from sales and cash paid for expenses as taxable items in the year collected or paid.
Rancho Cucamonga also reported a $10 fine, paid in cash, to the federal government for unfair business practices. Generally accepted accounting principles allow firms…
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Analysis of Receivables Method
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Accounts Receivable
Allowance for Doubtful Accounts
Bad Debt Expense
c. Determine the net realizable value of accounts receivable.
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Weygandt, Accounting Principles, 13th Edition, Custom WileyPLUS Course for Bronx Community College
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Exercise 133 a-b
CALCULATOR
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On September 30, after all monthly postings had been completed, the Accounts Receivable control account in the general ledger had a debit balance of $245,000; the Accounts
Payable control account had a credit balance of $109,000.
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Special Journals
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Total sales
$183,000
Purchases journal
Total purchases
75,000
Cash receipts journal
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128,000
Cash payments journal
Accounts payable column total
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Compute the balance of the accounts rsceivable control accounts after the monthly postings on October 31.
Accounts Receivable
Compute the balances of the accounts payable control accounts after the monthly postings on October 31.
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Chapter 2a homework
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Print out and complete this homework assignment. Pay special attention to rounding correctly. A
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1.
A local coffee shop reported that its sales have increased exactly 16% per year for the last 2
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Accounting
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Weygandt, Accounting Principles, 13th Edition, Custom WileyPLUS Course for Bronx Community College
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CALCULATOR
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Exercise 133 a-b
On September 30, after all monthly postings had been completed, the Accounts Receivable control account in the general ledger had a debit balance of $245,000; the Accounts
Payable control account had a credit balance of $109,000.
The October transactions recorded in the special journals are presented below.
Special Journals
October Transactions
Sales journal
Total sales
$183,000
Purchases journal
Total purchases
75,000
Cash receipts journal
Accounts receivable column total
128,000
Cash payments journal
Accounts payable column total
49,000
Compute the balance of the accounts receivable control accounts after the monthly postings on October 31.
Accounts Receivable
Compute the balances of the accounts payable control accounts after the monthly postings on…
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The future value of $200 received
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On October 1, 2024, Ogneva Corporation loans one of its employees $40,000 and accepts a 12-month, 9% note receivable.
Calculate the amount of interest revenue Ogneva will recognize in 2024 and 2025.
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Exercise 9-15 a-c (Part Level Submission)
On May 2, Marigold Company lends $9,500 to Chang, Inc., issuing a 6-month, 8% note. At the maturity date, November 2, Chang indicates that it cannot pay.
(a)
Prepare the entry to record the issuance of the note. (Credit account titles are automatically indented when amount is entered. Do not indent manually
Date
Account Titles and Explanation
Debit
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May 2
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Proceeds from Notes Payable
On January 26, Bella Co. borrowed cash from Conrad Bank by issuing a 30-day note with a face amount of $48,000. Assume a 360-day year.
a. Determine the proceeds of the note, assuming the note carries an interest rate of 6%.
b. Determine the proceeds of the note, assuming the note is discounted at 6%.
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- Assignment 6.1: Session 6 Comprehensive Problem (Chapter 8) Instructions In this session, we have a 6-part comprehensive problem. Download the Session 6 Comprehensive Problem Templates below to complete the 6 required parts of the problem. You will need your Bergevin and MacQueen book for reference. Rancho Cucamonga Inc. began business on January 1, 2020. The firm earned $100 from sales in its first year of business. Rancho Cucamonga collected $90 of revenue earned in cash during 2020 and reported a $10 account receivable on its 2020 balance sheet. The firm paid $70 cash for operating expenses in 2020 and reported a $5 account payable for unpaid operating expenses on its 2020 balance sheet. Income tax laws only recognize cash collected from sales and cash paid for expenses as taxable items in the year collected or paid. Rancho Cucamonga also reported a $10 fine, paid in cash, to the federal government for unfair business practices. Generally accepted accounting principles allow firms…arrow_forwardPlease check answer and add explanation solve both partsarrow_forwardCengage Learning * CengageNOWv2 | Online teachin x * Cengage Learning Assignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inprogress-false eBook Show Me How Analysis of Receivables Method At the end of the current year, Accounts Receivable has balance of $4,375,000; Allowance for Doubtful Accounts has a debit balance of $21,300; and sale for the year total $102,480,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $205,000. a. Determine the amount of the adjusting entry for uncollectible acfounts. b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense c. Determine the net realizable value of accounts receivable. Feedback T Check My Work The analysis of receivables method is based on the assumption that the longer an account receivable is outstanding the less likely that it will be collected. The…arrow_forward
- Bhaarrow_forwardReturn to Blackboard Weygandt, Accounting Principles, 13th Edition, Custom WileyPLUS Course for Bronx Community College Help | System Announcements Exercise 133 a-b CALCULATOR PRINTER VERSION BACK NEXT On September 30, after all monthly postings had been completed, the Accounts Receivable control account in the general ledger had a debit balance of $245,000; the Accounts Payable control account had a credit balance of $109,000. The October transactions recorded in the special journals are presented below. Special Journals October Transactions Sales journal Total sales $183,000 Purchases journal Total purchases 75,000 Cash receipts journal Accounts receivable column total 128,000 Cash payments journal Accounts payable column total 49,000 Compute the balance of the accounts rsceivable control accounts after the monthly postings on October 31. Accounts Receivable Compute the balances of the accounts payable control accounts after the monthly postings on October 31. Accounts Payable SUBMIT…arrow_forwardChapter 2a homework Name Print out and complete this homework assignment. Pay special attention to rounding correctly. A work must be shown to receive full credit; use a separate sheet if necessary. If you are an online student, scan your work and upload. 1. A local coffee shop reported that its sales have increased exactly 16% per year for the last 2 years. This year's sales were $81,612. What were the coffee shop's sales 2 years ago? Hint: Calculate only one years' sales at a time, (Round each year's sales to the nearest dollar.) Sales 2 years ago 2. Richard Dawks, a lawyer, charges Gunderson's Hardware, his client, 25% of what he can colle for Gunderson from customers whose accounts are past due. The attorney also charges, in addition to the 25%, a flat fee of $50 per customer. This month, Richard collected $8,800 from four of Gunderson's past-due customers, What is the total fee due to Richard? Total fee due Richard 3. Abby bought four Dunlop tires at a local Goodyear store. The…arrow_forward
- Courses Mastering Chernie X 2MateryCheme X loud/modules/unproctoredTest.QuestionSheet McCraith-Sectic x Updte Help Caroline Achienge S01243611acadceduLogout all 2021 I Chapter 1 Consumer Finance / Section 1.5 Digital Exercises Gradebook. Extemat kercises Remaining Time Unimted Suppose you are paid $3,000 per month and your employer's 401(k) matches your contributions by 10% up to a maximum of 15% of your pay. Assuming you max-out your retirement savings and you work for 25 years, how much will the 401(k) be worth when you retire (if you can get an APR of 8% during your work years)? If you are taxed at a rate of 27%, then how much will you have when you retire? Round all answers to 2 decimal places. Before taxes retirement amount $ Number After taxes retirement amount $ Number Submit Assignment Quit & Save Васк Question Menu 4 Next 38°F Partly sunny A 0) 411 PM 11/19/202 end home delete prt sc 144 4+ 4- 40 num lock backspace & 8. 6. 7. home |近arrow_forwardV pioblem - Protected View Saveu LOLTIS Searcn References Mailings Review View Help n viiuses. Unless you need to edit, it's safer to stay in Protected View.· Enable Editing Accounting Chapter 13 - Homework Problem During the last week of August, Apache Arts Company's owner approaches the bank for an $80,000 loan to be made on September 2 and repaid on November 30 with annual interest of 12%, for an interest cost of $2,400. The owner plans to increase the store's inventory by $60,000 during September and needs the loan to pay for inventory acquisitions. The bank's loan officer needs more information about Apache Arts' ability to repay the loan and asks the owner to forecast the store's November 30 cash position. On September 1, Apache Arts is expected to have a $3,000 cash balance, $135,000 of accounts receivable, and $100,000 of accounts payable. Its budgeted sales, merchandise purchases, and various cash disbursements for the next three months follow: Budgeted Figures Sales September…arrow_forwardhelp please answer in text form with proper workings and explanation for each and every part and steps with concept and introduction no AI no copy paste remember answer must be in proper format with all workingarrow_forward
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