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3 years ago

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True or False: Theoretically, a country in which price inflation is very high should expect to see its currency depreciate again

st that of countries in which inflation rates are lower.

1 answer:

sveticcg [70]3 years ago

6 0

Answer: <u>The correct answer is TRUE.</u>

Explanation:

Inflation: sustained and widespread increase in the price level. This means that inflation reflects the loss of the purchasing power of the currency. Therefore the currency is devalued against that of the countries in which the inflation rate is lower or zero.

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Premium Amortization On the first day of the fiscal year, a company issues a $5,000,000, 7%, five-year bond that pays semiannual

larisa [96]

Answer:

Interest expense ($175,000 - $40,000) $135,000

Bond premium $40,000

To Cash $175,000

(Being the interest payment is recorded)

Explanation:

The journal entry is shown below:

Interest expense ($175,000 - $40,000) $135,000

Bond premium $40,000

To Cash $175,000

(Being the interest payment is recorded)

For recording this we debited the interest expense and bond premium and credited the cash as it reduced the assets

The computation is shown below:

For premium

= Cash proceeds - face value

= $5,400,000 - $5,000,000

= $400,000

And,

The number of periods is:

= 5 years × 2

= 10 years

And,

The amortization amount

= $400,000 ÷ 10 years

= $40,000

We assumed the straight-line method is followed

6 0

3 years ago

Prepare supply club's journal entry to record july and august sales. during august, customers redeem loyalty points on $60,000 o

mel-nik [20]

Answer: This question is not complete.

Explanation:

The full question can be seen in the picture while the solution is in the file attached below

8 0

3 years ago

Listed below are several statements that relate to financial accounting and reporting. Identify the basic assumption, broad acco

larisa [96]

Answer:

1. Jim Marley is the sole owner of Marley's Appliances. Jim borrowed $100,000 to buy a new home to be used as his personal residence This liability was not recorded in the records of Marley's Appliances

ECONOMIC ENTITY PRINCIPLE: the activities of a business must be kept separate form the activities of its owners

2. Apple Inc. distributes an annual report to its shareholders

TIME PERIOD PRINCIPLE: companies must report their financial statements over standard or fixed periods of time, e.g. monthly, quarterly or annually

3. Hewlett-Packard Corporation depreciates machinery and equipment over their useful lives

EXPENSE RECOGNITION: expenses must be recorded during the time periods that they actually occur

4. Crosby Company lists land on its balance sheet at $120,000, its original purchase price, even though the land has a current fair value

HISTORICAL COST PRINCIPLE: assets must be recorded at purchase cost and the only adjustment can be accumulated depreciation

5. delivered to customers, even though the cash has not yet been

THIS PART IS INCOMPLETE, BUT I BELIEVE IT REFERS TO THE REVENUE RECOGNITION PRINCIPLE: revenue must be recognized once the earning process has been completed and not necessarily when the cash is received.

6. Liquidation values are not normally reported in financial statements of $200,000 Honeywell International Inc. records revenue when products are received even though many companies do go out of business

GOING CONCERN PRINCIPLE: this principle assumes that the business will continue to operate in the foreseeable future

7. IBM Corporation, a multibillion dollar company, purchased some small tools at a cost of $800. Even though the tools will be used for a number of years, the company recorded the purchase as an expense

MATERIALITY: a company must record all the transactions that may affect the decision making processes. In this case, a tool will not make any difference on a multibillion dollar company.

5 0

3 years ago

Noah drinks Dr. Pepper. He can buy as many cans of Dr. Pepper as he wishes at a price of $0.50 per can. On a particular day, he

Nadusha1986 [10]

Answer:

$0.85 and three cans

Explanation:

Data given in the question

Price per can = $0.50

First can paying price = $0.95

Second can paying price = $0.80

Third can paying price = $0.60

Fourth can paying price = $0.40

So by considering the above information, the noah can buy three cans as the prices are high

So, the consumer surplus is

= First can + second can + third can

where,

First can = $0.95 - $0.50 = $0.45

Second can = $0.80 - $0.50 = $0.30

Third can = $0.60 - $0.50 = $0.10

So, the total consumer surplus is

= $0.45 + $0.30 + $0.10

= $0.85

7 0

3 years ago

We observe the following annualized yields on four Treasury securities: (75%)

Anon25 [30]

Answer:

Explanation:

1.

From the given information;

The spot rate for maturity at 0.5 year $(X_1) = 4\%/2 = 2\%$

The spot rate for maturity at 1 year is:

= $\dfrac{22.5}{(1+X_1)}+ \dfrac{1000 + 22.5}{(1+X_2)^2}=1000$

= $\dfrac{22.5}{(1+0.02)}+ \dfrac{1000 + 22.5}{(1+X_2)^2}=1000$

= $\dfrac{22.5}{(1+0.02)}+ \dfrac{1022.5}{(1+X_2)^2}=1000$

By solving for $X_2$ ;

$X_2$ = 2.253%

The spot rate for maturity at 1.5 years is:

$= \dfrac{25}{(1+X_1)}+ \dfrac{25}{(1+X_2)^2}+ \dfrac{1000 + 25}{(1+X_3)^3}=1000$

Solving for $X_3$

$X_3$ = 2.510%

The spot rate for maturity at 2 years is:

$= \dfrac{27.5}{(1+X_1)}+ \dfrac{27.5}{(1+X_2)^2}+ \dfrac{27.5}{(1+X_3)^3} +\dfrac{1000+27.5}{(1+X_4)^4} =1000$

By solving for $X_4$ ;

$X_4$ = 2.770%

Recall that:

Coupon rate = yield to maturity for par bond.

Thus, the annual coupon rates are 4%, 4.5%, 5%, and 5.5% for 0.5, 1, 1.5, 2 years respectively.

2.

For n years, the price of n-bond is:

$= \dfrac{cash \ flow \ at \ year \ 1}{1+X_1}+ \dfrac{cash \ flow \ at \ year \ 2}{(1+X_2)^2}+... + \dfrac{cash \ flow \ at \ year \ b}{(1+X_n)^n}$

Thus, for 2 years bond implies 4 periods;

∴

$= \dfrac{40}{1+0.02}+ \dfrac{40}{(1+0.02253)^2} + \dfrac{40}{(1+0.0252)^3}+ \dfrac{40}{(1+0.0277)^4}$

= $1047.024

3.

Suppose there exist no-arbitrage, then the price is:

$= \dfrac{0}{(1+0.02)}+\dfrac{1000}{(1+0.02253)^2}$

= 956.4183

Since the market price < arbitrage price.

We then consider 0.5, 1-year bonds from the portfolio

Now;

weight 2 × 1000 + weight 2 × 22.5 = 1000

weight 2 × 1022.5 = 1000

weight 2 = 1022.5/1000

weight 2 = 0.976

weight 1 + weight 2 = 1

weight 1 = 1 - weight 2

weight 1 = 1 - 0.976

weight 1 = 0.022

The price of a 0.5-year bond will be:

$= \dfrac{1000}{(1+0.02\%)} \\ \\ =\mathbf{980.39}$

The price of a 1-year bond will be = 1000

Market value on the bond portfolio = 0.022 × price of 0.5 bond + 0.978 × price 1-year bond = 956.42

= 0.022 × 980.39 + 0.978 × 1000

= 956.42

So, to have arbitrage profit, the investor needs to purchase 1 unit of the 1-year zero-coupon bond as well as 0.022 units of the 0.5-year bond. Then sell 0.978 unit of the 1-year bond.

Then will he be able to have an arbitrage profit of $56.42

4.

The one-period ahead forward rates can be computed as follows:

Foward rate from 0 to 0.5 $X_1$ = 2%

Foward rate from 0.5 to 1

$(1+X_2)^2 = (1+X_1) \times (1+ Foward \ rate \ from \ 0.5 \ to \ 1 )$

$(1+0.0225)^2 = (1+0.02) \times (1+ Foward \ rate \ from \ 0.5 \ to \ 1 )$

Foward rate from 0.5 to 1 = 2.5%

Foward rate from 1 to 1.5

$(1+X_3)^3 = (1+X_2)^2 \times (1+ Foward \ rate \ from \ 1 \ to \ 1.5 )$

$(1+0.0251)^3 = (1+0.0225)^3 \times (1+ Foward \ rate \ from \ 1 \ to \ 1.5 )$

Foward rate from 1 to 1.5 =3.021%

Foward rate from 1.5 to 2

$(1+X_4)^4 = (1+X_3)^3 \times (1+ Foward \ rate \ from \ 1.5 \ to \ 2 )$

$(1+0.0277)^4 = (1+0.0251)^3 \times (1+ Foward \ rate \ from \ 1.5 \ to \ 2 )$

Foward rate from 1.5 to 2 =3.021%

5.

The expected price of the bond if the hypothesis hold :

= $\dfrac{40}{1+ 0.03021}+ \dfrac{1000+40}{(1+0.03285)^2}$

$= \dfrac{40}{(1.03021)}+ \dfrac{1040}{(1.03285)^2}}$

= 1013.724254

= 1013.72

4 0

3 years ago