2 - Note: You must show formulas and cell references when computing all values in the GREEN CELLS. Problem 2a: What would be the underestimation of your earnings as an investor if you use the discount rate instead of the investment rate to measure the returnon your investment if you buy a $5,000 T-bill that matures in 91 days for $4,999.55?Solution:Face value of the T-bill=Maturity =Price for the T-bill=Annualized discount rate =Annualized investment rate =Difference between annulized discount rate andinvestment rate =Therefore, if you use the discount rate, youwould underestimate your return by:Problem 2b: What is the annualized discount rate % and your annualized investment rate % on a Treasury bill that you purchase for $9,940 that will mature in 91 days for $10,000?Solution:Face value of the T-bill=Maturity =Price for the T-bill=Discount Rate =Investment Rate =

Problem 2a: CalculationFormulaFace Value of the T-bill$ 5,000givenMaturity91 daysPrice for the…

Answered: Problem 2a: What would be the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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This is part a) question and it's answer in order to answer part b) question Question: You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today? answer : According to the question we need to calculate the current price of the perpetual consol. Perpetual consoles are priced differently because their expected income is spread through an indefinite period. So, perpetual consoles are priced using the current yield. The current yield is calculated as:- coupon amountMarket price×100coupon amountMarket price×100 After calculating the current yield price is calculated by the above formula where, i = Current interest rate y = yield so, the price of this consol will be Price = i/y I please need the solutions for part b) question b) In the next period however, the interest rate changes unexpectedly to i . What is the new price of the bond? If…
sheet. _is the excess of resources (usually cash) received or paid over the amount of resources 1. loaned or borrowed. 2. is the interest paid on both the principal and the amount of interest accumulated in prior periods. 3. Future value interest factor (FVIF) is represented by the formula 4. An installment that requires a buyer to pay equal payments at a certain period is called. 5. _means that individuals maximize returns for a given level of risk or minimize risk if the returns are the same. 6. The basic decision rule is to accept the project if the net present value is 7. If the cash flow stream lasts forever or is indefinite, then it is called 8. If payment is made and interest is computed at the end of each payment interval, then it is called 9. One way to reduce risk to an acceptable level is through wherein you invest in different types of investments with different risks and returns. 10. If the cash flow happens at the beginning of each period, then it is called.
Accounting for Fair Value Hedge: Interest Rate Swap On January 1 of Year 1, Innovative Lab issued a 4-year $50,000 note to a local bank with fixed interest payments based on 6%, payable annually on December 31. To hedge the risk of a fixed interest payment, Innovative Lab entered into a 4-year interest rate swap agreement on January 1 of Year 1, calling for interest payments tied to a designated benchmark interest rate to a counterparty and receipt of interest based on 6%, negotiated at a notional amount of $50,000. The settlement date for the net cash payment is on December 31 of each year. The following table provides additional information related to the interest rate swap as forecasted over the next 4 years. Fair value: Interest rate swap Fair value: note payable Benchmark interest rate Required Dec. 31, Year 1 Dec. 31, Year 2 Dec. 31, Year 3 Dec. 31, Year 4 $200 $0 $50,200 4.2% $400 $50,400 4.0% $0 $50,000 5.2% $50,000 5.8% a. Record the required journal entries for Year 1, Year…
Assume you have the following asset and liability in your Balance Sheet: Asset - Bond A Modified Duration = 2.6 years Value = RM1.5 million Liability - Bond B Modified Duration = 3.1 years Value = RM1.0 million a. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%? c. What should or could you to achieve immunised balance sheet? Note: Please show all workings.
Why is the optimal interest coverage ratio equal to 1 if taxes are the only imperfection?
How is the market interest rate in the short-term and long-term financial market affected under the Pure Expectations theory when suppliers and users of loanable funds expect that interest rates will decrease the next year?
4
Accounting question
Q3: Which one of the following two cases would you prefer as more profitable investment and why? Case 1: Deposit £5000 for two years in a saving account that pays simple interest at rate of 6% per annum. No withdrawal during the investment period. Case 2: Deposit £5000 for one year in a savings account that pays simple interest at rate of 6% per annum. Then, withdraw the money with interest and deposit into another account paying simple interest at 7.5% for one year. Case 1 because of higher return of £6600 Case 1 because of higher return of £5697.5 Case 2 because of higher return of £5697.5 Case 2 because of higher return of £6600
What does WRF = -0.50 mean? Group of answer choices The investor can borrow money at the risk-free rate. The investor can lend money at the current market rate. The investor can borrow money at the current market rate. The investor can borrow money at the prime rate of interest. The investor can lend money at the prime rate of interest.
The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 23 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year O Year 1 Year 2 Year 3 Year 4 $27,000 Investment Sales revenue $ 14,000 $ 14,500 $15,000 $12,000 Operating costs Depreciation Net working capital spending 2,400 6,750 ? 3,200 3,000 6,750 380 3,100 6,750 6,750 330 430 330 a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) Year 1 Year 2 Year 3 Year 4 Net income b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) Year 0 Year 1 Year 2 Year 3 Year 4 Cash flow ( Prev 2 of 10 Next >
8. Calculate the rate of return earned over a specified period of time. Explain the outcome based on what was seen in the market value, impact of cash flow and changes in value. What is the preferred investment? Investment 8.1. Sungsan 8.2. Aikon 8.3. Allamoto 8.4. Sensu 8.5. Eclipse Cash flow during the period(N$) 20,000 50 13,000 4,000 600 Beginning of the period value(N$) 140,000 600 45,000 9,000 1,000 End-of-period value(N$) 113,000 450 50,000 12,400 5,000

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