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V125BC [204]
3 years ago
15

Knowledge Check 01 Zeta Corporation issues $100,000 of 8% bonds maturing in 10 years on January 1, Year 1, when the market rate

of interest is 9%. The bonds were issued at a discount, Market interest rates drop to 7% by December 31, Year 1. The company retires these bonds on December 31, Year 1. How much did it cost the company to retire them? Multiple Choice $106,595 $100,000 o oo $93,496
Business
1 answer:
alexandr1967 [171]3 years ago
8 0

Answer:

$106,595

Explanation:

Given:

Initial market rate = 9%

Dropped market interest rate, r = 7% per year

or

= 7% × [6 ÷ 12]

= 3.5% = 0.035

Remaining time, n = 9 years = 18 semi annual periods

Now,

Value of the bond at the retirement

= [ PVAF × Interest payment] + [ PVF × face value]

here,

Present value of annuity factor, PVAF = \frac{1 -(1+r) ^{-n}}{r}

or

PVAF = \frac{1 -(1+0.035) ^{-18}}{0.035}

or

PVAF = 13.189

And,

Interest payment = $100,000 × 8% × [6 ÷ 12 ]              [since, 8% bonds]

= $4000

Present value factor = \frac{1}{1.035^{18}}

= 0.538

par value = $100,000

= [13.189 × $40] + [0.538 × 100,000]

= 52,758.7316 + 53,836.114

= $106,595

Hence,

The correct answer is option $106,595

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The interest rate on short-term U.S. government bonds is 4 percent. The risk premium for any asset with a beta = 1.0 is 6 percen
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Answer:

The average expected rate of return on the market portfolio is 10 percent.

Explanation:

The CAPM (fixed asset pricing) model describes the relationship between systematic risk and expected return on assets, especially stocks. CAPM is widely used throughout the financial community to value high-risk securities and achieve the expected returns on assets when taking into account the risk of those assets and the cost of capital.

The formula for calculating the expected return on an asset taking into account its risk is as follows:

ERi = Rf + βi (ERm - Rf)

where:

ERi = expected return on investment

Rf = risk-free interest rate = 4 percent.

βi = beta inversion =1.0

(ERm −Rf) = market risk premium = 6 percent.

ERi = 4 + 1 ×(6) =10

The average expected rate of return on the market portfolio is 10 percent.

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3 years ago
Diminishing returns are a reason that fixed costs remain constant. the marginal cost curve is upward sloping. the average fixed
Molodets [167]

Answer:

the marginal cost curve is upward sloping.

Explanation:

Utility can be defined as any satisfaction or benefits a customer derives from the use of a product or service.

This ultimately implies that, any satisfaction or benefits a customer derives from the use of a product or service is generally referred to as a utility.

Basically, the marginal utility of goods and services is the additional satisfaction that a consumer derives from consuming or buying an additional unit of a good or service.

For example, buying a candy stick and eating it may satisfy your cravings but eating another one (an additional or extra unit) wouldn't give you as much satisfaction as the first due to diminishing marginal utility.

In Economics, the law of diminishing marginal utility states that as the unit of a good or service consumed by an individual increases, the additional satisfaction he or she derives from consuming additional units would start decreasing or diminishing as the units of good or service consumed increases.

Marginal cost can be defined as the additional or extra cost that is being incurred by a company as a result of the production of an additional unit of a product or service.

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When a manager identifies an opportunity, he or she generates alternatives to pursue the opportunity, selects one of them, imple
Svet_ta [14]

Answer:

The correct answer is (A)

Explanation:

Managers are frequently called upon to make decisions. Making a decision is critically important for the success of a business; that is why it is crucial to evaluate the choices in detail. Examining the pro and cons of a decision leads towards a better conclusion. Decision-making process involves various steps, such as identifying, gathering information, choosing from alternatives, implementing the decision, and lastly to analyse the results.

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3 years ago
Assume that a radiology group practice has the following cost structure: Fixed costs = $500,000 Variable cost per procedure = $2
solniwko [45]

Answer:

(a) $91.67

(b) $687,500

(c) $625,000; $750,000

(d) $125; $91.67; $75

Explanation:

(a) Underlying cost structure:

= [($25 × 7,500) + $500,000] ÷ 7,500

= $91.67

(b) Expected total cost:

= $500,000 + ($25 × 7,500)

= $687,500

(c) Estimated total cost at 5,000:

= $500,000 + ($25 × 5,000)

= $625,000

Estimated total cost at 10,000:

= $500,000 + ($25 × 10,000)  

= $750,000

(d) Average cost per procedure at 5,000:

= [($25 × 5,000) + $500,000] ÷ 5,000

= $125

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= [($25 × 7,500) + $500,000] ÷ 7,500

= $91.67

Average cost per procedure at 10,000:

[($25 × 10,000) + $500,000] ÷ 10,000

= $75

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3 years ago
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