Answer:
actual inflation rate will be equal to the expected inflation rate in the long term.
Explanation:
Since in the given instance, both companies sign the long term contract rather than the short term contract, because they believe that the expected inflation rate for each year cannot be accurately expected, but that the inflation rate for a long term period can be more accurately expected.
This is based on the concept of trend analysis, a trend analysis can help find long term results with more close to reality.
Thus, both the companies here believe that the long term rate can be expected properly of inflation.
Answer:
See explanation section
Explanation:
December 31 Interest receivable Debit $4,000
Interest revenue Credit $4,000
Calculation: $600,000 × 8% × (1 ÷ 12) = $48,000 × (1 ÷ 12) = $4,000. Therefore, the monthly interest revenue = $4,000.
<em>As Starr corporation provided a loan on December 1, they received interest revenue for 3 months. However, as the fiscal year closes on December 31, the interest revenue is owed for one month only. </em>
Answer:
PV= $393.65
Explanation:
Giving the following information:
Cash flow= $150
Number of periods= 3 years
Interest rate= 7%
<u>To calculate the present value of the annuity, first, we need to determine the future value:</u>
FV= {A*[(1+i)^n-1]}/i
A= annual cash flow
FV= {150*[(1.07^3) - 1]} / 0.07
FV= $482.24
<u>Now, the present value:</u>
PV= FV/(1+i)^n
PV= 482.24/1.07^3
PV= $393.65