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3 years ago

1) Why might investors prefer floating rate notes over a fixed rate bond?

Business

1 answer:

sladkih [1.3K]3 years ago

8 0

Answer:

These questions are incomplete since the article relating to Hologen company is not attached. However, I would answer them this way.

Explanation:

1) A floating rate bond has a shorter duration; almost zero and it has lower sensitivity to interest rates compared to a fixed rate bond.This means that the former has a lower interest rate risk. Investors tend to demand floating rate bonds when they expect future interest rates to rise because their prices would be close to their par values as their interest rates would also increase. On the other hand, fixed bond's interest rates are inversely related to their prices.

For an issuing company, borrowing money floating rates terms could be riskier for cashflow management purposes . Every time interest rates increases, it means that the company would pay higher interests to lenders which could hurt its profitability. The fluctuations could also negatively affect future financial planning unlike issuing fixed rate bonds whose coupon payments are constant hence decreasing the volatility of earnings.

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The assumption that in the absence of contrary information a business entity will continue indefinitely is the:

const2013 [10]

Answer:

(D) Going concern assumption.

8 0

3 years ago

Give the formulas for and plot average fixed cost, AFC, marginal cost, MC, average variable cost, AVC, and average cost, AC,

zloy xaker [14]

Answer:

AFC = $\frac{TFC}{q}$

MC = $\frac{d}{dq}$ TC

AVC = $\frac{TVC}{q}$

AC = $\frac{TC}{q}$

Explanation:

The cost function is given as $C=9+q^{2}$ .

The fixed cost here is 9, it will not be affected by the level of output.

The variable cost is $q^{2}$ .

AFC = $\frac{9}{q}$

MC = $\frac{d}{dq}$ TC

MC = $\frac{d}{dq}$ $C=9+q^{2}$

MC = 2q

AVC = $\frac{TVC}{q}$

AVC = $\frac{q^2}{q}$

AVC = q

AC = $\frac{TC}{q}$

AC = $\frac{[tex]C=9+q^{2}$ }{q}[/tex]

AC = $\frac{9}{q} +q$

3 0

3 years ago

Veronica Mars, a recent graduate of Bell's accounting program, evaluated the operating performance of Dunn Company's six divisio

anygoal [31]

Answer:

Effect on income= -$49,500

They lost the positive contribution margin increased by the fixed costs. Veronica is wrong.

Explanation:

Giving the following information:

Veronica made the following presentation to Dunn's board of directors and suggested the Percy Division be eliminated. "If the Percy Division is eliminated," she said, "our total profits would increase by $25,500.

Percy Division

Sales= $100,000

Cost of goods sold= 76,000

Gross profit= 24,000

Operating expenses= 49,500

Net income= (25,500)

In the Percy Division, the cost of goods sold is $59,000 variable and $17,000 fixed, and operating expenses are $29,000 variable and $20,500 fixed.

None of the Percy Division's fixed costs are avoidable.

Effect on income= -contribution margin - fixed costs

Effect on income= -(100,000 - 88,000) - 37,500= -$49,500

They lost the positive contribution margin increased by the fixed costs.

4 0

3 years ago

If the midwest experiences a severe drought that damages the corn crops, we should expect the:_________.

kozerog [31]

Answer:

B) The Supply of corn will decrease and the price of corn will rise.

Explanation:

Option B is correct because the drought has damaged the corn crops. Therefore, this will affect the supply of corn in the market. Moreover, the damage of corn crops will shift the supply curve leftwards and this shift in the supply curve will push the prices upwards. Thus, the damage of corn crops will increase the prices due to a decrease in its supply.

4 0

3 years ago

Moon Software Inc. is planning to issue two types of 25-year, noncallable bonds to raise a total of $6 million, $3 million from

defon

Answer:

It will issue 34,407 bonds

Explanation:

The Original Issue Discount state that the interest are accrued during the life of the bond and included in the face value.

This means in 25 years, it will receive 1,000 dollars, how much will it pay for that now ?

we have to find the present value which makes the YTM equal to 10%

$\frac{Face \: Value }{(1 + rate/m)^{time \times m} } = PV$

where m are the times it compound per year

in this case a semiannualy rate is compounding 2 times per year

the rate will be 0,10 percent

the face value will be 1,000

and time equal to 25 years

$\frac{1,000}{(1 + 0.1/2)^{25\times2} } = 87.20$

If it needs to raise 3,000,000 It will issue:

3,000,000/87.20 = 34406.669 = 34,407 OID bonds

6 0

3 years ago