The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract. Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

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Chapter 22, Problem 5CP

A

Summary Introduction

To explain: The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract.

Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

B

Summary Introduction

To explain: Compare the cost price of the future contract at higher price with the spot price of bonds prior to the maturity.

Introduction: Vanhusen suggested that carry price of the future bonds are higher than the spot prices of the prior bonds. Future contract is an agreement between buyer and seller for the future time to exchange commodities at specific price.

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Stevens Textile Corporation's 2019 financial statements are shown below Balance Sheet as of December 31, 2019 (Thousands of Dollars) Cash $ 1,080 Accounts payable $ 4,320 Receivables 6,480 Accruals 2,880 Inventories 9,000 Line of credit 0 Total current assets $16,560 Notes payable 2,100 Net fixed assets 12,600 Total current liabilities $ 9,300 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860 Total assets $29,160 Total liabilities and equity $29,160 Income Statement for December 31, 2019 (Thousands of Dollars) Sales $36,000 Operating costs 34,000 Earnings before interest and taxes $ 2,000 Interest 160 Pre-tax earnings $ 1,840 Taxes (25%) 460 Net income $ 1,380 Dividends (40%) $ 552 Addition to retained earnings $ 828 Stevens grew rapidly in 2019 and financed the growth with notes payable and long-term bonds. Stevens expects sales to grow by 20% in the next year but will finance…

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Answer 2

Question

Chapter 22, Problem 5CP

A

Summary Introduction

To explain: The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract.

Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

B

Summary Introduction

To explain: Compare the cost price of the future contract at higher price with the spot price of bonds prior to the maturity.

Introduction: Vanhusen suggested that carry price of the future bonds are higher than the spot prices of the prior bonds. Future contract is an agreement between buyer and seller for the future time to exchange commodities at specific price.

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Answer 3

Question

Chapter 22, Problem 5CP

A

Summary Introduction

To explain: The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract.

Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

B

Summary Introduction

To explain: Compare the cost price of the future contract at higher price with the spot price of bonds prior to the maturity.

Introduction: Vanhusen suggested that carry price of the future bonds are higher than the spot prices of the prior bonds. Future contract is an agreement between buyer and seller for the future time to exchange commodities at specific price.

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Answer 4

Question

Chapter 22, Problem 5CP

A

Summary Introduction

To explain: The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract.

Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

B

Summary Introduction

To explain: Compare the cost price of the future contract at higher price with the spot price of bonds prior to the maturity.

Introduction: Vanhusen suggested that carry price of the future bonds are higher than the spot prices of the prior bonds. Future contract is an agreement between buyer and seller for the future time to exchange commodities at specific price.

Expert Solution & Answer

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Answer 5

Chapter 22, Problem 5CP

A

Summary Introduction

To explain: The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract.

Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

B

Summary Introduction

To explain: Compare the cost price of the future contract at higher price with the spot price of bonds prior to the maturity.

Introduction: Vanhusen suggested that carry price of the future bonds are higher than the spot prices of the prior bonds. Future contract is an agreement between buyer and seller for the future time to exchange commodities at specific price.

Answer 6

Chapter 22, Problem 5CP

A

Summary Introduction

To explain: The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract.

Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

Answer 7

Chapter 22, Problem 5CP

A

Summary Introduction

To explain: The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract.

Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

Answer 8

B

Summary Introduction

To explain: Compare the cost price of the future contract at higher price with the spot price of bonds prior to the maturity.

Introduction: Vanhusen suggested that carry price of the future bonds are higher than the spot prices of the prior bonds. Future contract is an agreement between buyer and seller for the future time to exchange commodities at specific price.

Answer 9

B

Summary Introduction

To explain: Compare the cost price of the future contract at higher price with the spot price of bonds prior to the maturity.

Introduction: Vanhusen suggested that carry price of the future bonds are higher than the spot prices of the prior bonds. Future contract is an agreement between buyer and seller for the future time to exchange commodities at specific price.

Answer 10

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Answer 12

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Answer 13

Ch. 22 - Prob. 1PS Ch. 22 - Prob. 2PS Ch. 22 - Prob. 3PS Ch. 22 - Prob. 4PS Ch. 22 - Prob. 5PS Ch. 22 - Prob. 6PS Ch. 22 - Prob. 7PS Ch. 22 - Prob. 8PS Ch. 22 - Prob. 9PS Ch. 22 - Prob. 10PS

The generation of positive cash flow by selling futures bonds in a rising rate of interest prior to the maturity of the futures contract. Introduction: The future trading is performed between two parties like buyer and seller. The commodities are exchanged in future at predetermined price.

Solution Summary: The author explains that Vanhusen's statement about the future contracts is wrong, since the carry price of the bonds is dependent on future prices.

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Chapter 22 Solutions