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erastova [34]
3 years ago
8

Suppose that you enter into a three-month forward contract on a non-dividend-paying stock when the stock price is $60 and the ri

sk-free interest rate (with quarterly compounding) is 8% per annum.
What is equivalent continuously compounding rate?
Business
1 answer:
mamaluj [8]3 years ago
7 0

Answer:

The equivalent continuously compounding rate is 0.02%

Explanation:

Forward price of the contract in 3 months:

F = S x e^(r*t)

Expected equity market return of the stock in 3 months:

E(r) = F/S -1 = e^(r*t) -1 = e^(8%*1/4) - 1 = 0.0202 or 2.02%

Annual market rate or Annual market rate premium with rf as the risk-free interest rate per annum with quarterly compounding.

r = E(r) - rf = 2.02% - 8%/4 = 0.02%

The quarterly compounded rate (rq) is given by:

rq= 4 x [(r/2 + 1)^(1/2) - 1]

where r as the annual market risk rate.

Apply the above formula to the question:

rq=4 x [(0.02%/2 + 1)^(1/2) -1] = 0.0002 or 0.02%

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Answer:

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Use the table to indicate which description characterizes economies of scale and which characterizes economies of scope.
kenny6666 [7]

Answer and Explanation:

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Based on this, the classification is as follows

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3 0
3 years ago
On January 1, 2017, MM Co. borrows $350,000 cash from a bank and in return signs an 4% installment note for five annual payments
frez [133]

Answer:

a. Journal entry to record the issue of notes

Date           Account Title & Explanation   Debit $        Credit $

Jan 1          Cash                                           350,000

                 Notes Payable                                                350,000

                  (To record the issue of notes payable)

b. Calculation of Interest Expenses

                      Particulars                           Amount $

Beginning balance of loan payment         350,000

Annual interest rate                                          4%

Interest expenses                                         14,000

Hence the interest expenses = $14,000

Principal amount is calculated as the difference between the annual payment and the interest expenses as seen below

                   Particulars                           Amount $

Annual payment                                      96,590

Less: Interest expenses                          14,000

Principal Payment                                  82,590

Hence, the principal payment =$82,590

6 0
3 years ago
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Answer:

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8 0
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