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vodka [1.7K]
3 years ago
13

One Chicago has just introduced a new single stock futures contract on the stock of Brandex, a company that currently pays no di

vidends. Each contract calls for delivery of 1,000 shares of stock in one year. The T-bill rate is 6% per year.
a. If Brandex stock now sells at $120 per share, what should the futures price be?



b. If the Brandex stock price drops by 3%, what will be the change in the futures price and the change in the investor’s margin account?



c. If the margin on the contract is $12,000, what is the percentage return on the investor’s position?
Business
1 answer:
bekas [8.4K]3 years ago
5 0

Answer:

A: $127.2

B: $123.384, $3.816 per share and $3,816 per contract

C: 9.43%

Explanation:

A: Futures price

F° = S° (1 + rₙ) = $120 x 1.06

= $127.20

B: Change in Future Price and Investor Margin account:

New Spot = $120 (1 – 0.03)

= $120 x 0.97

= $116.40

New Futures = $116.40 (1.06)

= $123.384

The long investor loses = $127.20 - $123.384

= $3.816 per share

or $3.816 (1,000) = $3,816 per contract

C: Percentage return on the investor’s position:

Percentage return = $12,000 / $127,200

= 9.43%

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If a country were to place a limit on the number of cars that could be imported in a year, it would be an example of what kind o
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2 years ago
A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's una
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Answer:

D) Debit Bad Debts Expense $1,683; credit Allowance for Doubtful Accounts $1,683.

Explanation:

First thing to do is to complete the question as:

Based on past experience, the company estimates 0.3% of net credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Multiple Choice

A) Debit Bad Debts Expense $1,728; credit Allowance for Doubtful Accounts $1,728.

B)  Debit Bad Debts Expense $3,063; credit Allowance for Doubtful Accounts $3,063.

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Solution

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Part 2: Determine the total amount in the adjusting entry as follows

The calculation will be as follows:

The estimated uncollectible calculated in part 1 - the given allowance for the uncollectible account (allowance for doubtful accounts)

<u>Note we are subtracting the amount in the doubtful accounts because it is a credit and not a debit figure</u>

Therefore:

$2,373 - $690 = $1,683

Based on the figures we do the following

D) Debit Bad Debts Expense $1,683; credit Allowance for Doubtful Accounts $1,683.

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