Answer:
2.88%
Explanation:
Use the following formula to calculate the real rate of return
Real rate of return =
Where
Nominal Interest rate = 7% = 0.07
Inflation rate = 4% = 0.04
Placing values in the formula
Real rate of return =
Real rate of return =
Real rate of return = 1.0288 - 1
Real rate of return = 0.0288
Real rate of return = 2.88%
Answer:
Real return on investment: 22.9465%
Explanation:
Okay let's explain each concept we have given:
<em>Face Value</em> $1,000
This is the ammount Lambert will pay at maturity
Purchase Value $ 960
This is the Ammount we pay for the bond
<em>Market Value of the bond today $ ???</em>
This is what we need to determinate to see the return we got
Once we got the market Value we will do:
Market Value / Purchase Value - 1 = rate of return
Now the <em>market value today will be the present value of the bond,</em> and the bond has the following data:
So each year we receive the 7% of the face value ($1,000) = $70
And at the end of the bond life we receive 1,000
We need to bring this numbers at present day using the real market rate, because the economy is having inflation:
market rate 8%
inflation rate 2.7%
real rate:
(1+rate)/(1+inflation) -1 = real rate
real rate = 5.16%
To know the present value of the bond we will have to consider:
<em>The annuity will be </em>
$685,87
<em>The present value of the 1,000 will be</em>
face value/(1+rate)^time
1,000/(1+0.0516)^14 = $494,42
for a total of $1.180,29
Now we will calculate the real return on the investment:
we receive 1.180,29 for 960 so the rate is
1.180,29 /960 - 1 = 0.229465 = 22.9465%
Answer: 18,000
Explanation:
Liability policy:
= 2,000
Insurance expense 2018:
= No. of months from 1 Jan 2018 to 31 Dec 2018 × Insurance expense per month
= 12 × 2,000
= 24,000
Prepaid insurance balance for liability policy on 31 Dec, 2018:
= Prepaid Insurance for liability policy - Insurance expense 2018
= 36,000 - 24,000
= 12,000
Crop damage policy:
= 500
Insurance expense 2018:
= No. of months from 1 Jan 2018 to 31 Dec 2018 × Insurance expense per month
= 12 × 500
= 6,000
Prepaid insurance balance for crop damage policy on 31 Dec, 2018:
= Prepaid Insurance for crop damage policy - Insurance expense 2018
= 12,000 - 6,000
= 6,000
Therefore,
Total prepaid insurance balance on 31 Dec 2018:
= Prepaid insurance balance for liability policy on 31 Dec, 2018 + Prepaid insurance balance for crop damage policy on 31 Dec, 2018
= 12,000 + 6,000
= 18,000