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gulaghasi [49]
2 years ago
14

Prior, Inc. has decided to raise additional capital by issuing $175,000 face value of bonds with a coupon rate of 10%. In discus

sions with investment bankers, it was determined that to help the sale of bonds, detachable stock warrants should be issued at a rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $150,000.
a) What entry should be made at the time of the issuance of the bonds and warrants?

b) If the warrants were nondetachable, would the entries be different? Discuss.
Business
1 answer:
bogdanovich [222]2 years ago
8 0

Answer:

cash                 150,000 debit

discount on BP 47,500 debit

    bonds payable          175,000 credit

    warrants                      22,500 credit

If the warrants were undetachabel they wouln't be able to be transfer in a secondary market thus, they will not be traded the accounting will only the 150,000 as bonds an dthe diffrence with the 175,000 as discount.

cash                 150,000 debit

discount on BP 25,000 debit

       bonds payables      175,000 credit

Explanation:

136,000  bonds  136,000/160,000 = 0.85

<u>  24,000 </u>warrant 24,000 /160,000 = 0.15

160,000

bonds 150,000 x 0.85 = 127,500

discount on bonds: 175,000 - 127,500 = 47,500

warrants 150,000 x 0.15 = 22,500

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Here are returns and standard deviations for four investments. Return (%) Standard Deviation (%) Treasury bills 4.5 0 Stock P 8.
Jlenok [28]

Answer:

a. Standard deviation of the portfolio = 7.00%

b(i) Standard deviation of the portfolio = 30.00%

b(ii) Standard deviation of the portfolio = 4.00%

b(iii) Standard deviation of the portfolio = 21.40%

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

Here are returns and standard deviations for four investments.

                                  Return (%)           Standard Deviation (%)

Treasury bills                4.5                                    0

Stock P                          8.0                                   14

Stock Q                        17.0                                  34

Stock R                       21.5                                    26

Calculate the standard deviations of the following portfolios.

a. 50% in Treasury bills, 50% in stock P. (Enter your answer as a percent rounded to 2 decimal places.)

b. 50% each in Q and R, assuming the shares have:

i. perfect positive correlation

ii. perfect negative correlation

iii. no correlation

(Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

The explanation to the answer is now provided as follows:

a. Calculate the standard deviations of 50% in Treasury bills, 50% in stock P. (Enter your answer as a percent rounded to 2 decimal places.)

Since there is no correlation between Treasury bills and stocks, it therefore implies that the correlation coefficient between the Treasury bills and stock P is zero.

The standard deviation between the Treasury bills and stock P can be calculated by first estimating the variance of their returns using the following formula:

Portfolio return variance = (WT^2 * SDT^2) + (WP^2 * SDP^2) + (2 * WT * SDT * WP * SDP * CFtp) ......................... (1)

Where;

WT = Weight of Stock Treasury bills = 50%

WP = Weight of Stock P = 50%

SDT = Standard deviation of Treasury bills = 0

SDP = Standard deviation of stock P = 14%

CFtp = The correlation coefficient between Treasury bills and stock P = 0.45

Substituting all the values into equation (1), we have:

Portfolio return variance = (50%^2 * 0^2) + (50%^2 * 14%^2) + (2 * 50% * 0 * 50% * 14% * 0) = 0.49%

Standard deviation of the portfolio = (Portfolio return variance)^(1/2) = (0.49%)^(1/2) = (0.49)^0.5 = 7.00%

b. 50% each in Q and R

To calculated the standard deviation 50% each in Q and R, we first estimate the variance using the following formula:

Portfolio return variance = (WQ^2 * SDQ^2) + (WR^2 * SDR^2) + (2 * WQ * SDQ * WR * SDR * CFqr) ......................... (2)

Where;

WQ = Weight of Stock Q = 50%

WR = Weight of Stock R = 50%

SDQ = Standard deviation of stock Q = 34%

SDR = Standard deviation of stock R = 26%

b(i). assuming the shares have perfect positive correlation

This implies that:

CFqr = The correlation coefficient between stocks Q and = 1

Substituting all the values into equation (2), we have:

Portfolio return variance = (50%^2 * 34%^2) + (50%^2 * 26%^2) + (2 * 50% * 34% * 50% * 26% * 1) = 9.00%

Standard deviation of the portfolio = (Portfolio return variance)^(1/2) = (9.00%)^(1/2) = (9.00%)^0.5 = 30.00%

b(ii). assuming the shares have perfect negative correlation

This implies that:

CFqr = The correlation coefficient between stocks Q and = -1

Substituting all the values into equation (2), we have:

Portfolio return variance = (50%^2 * 34%^2) + (50%^2 * 26%^2) + (2 * 50% * 34% * 50% * 26% * (-1)) = 0.16%

Standard deviation of the portfolio = (Portfolio return variance)^(1/2) = (0.16%)^(1/2) = (0.16%)^0.5 = 4.00%

b(iii). assuming the shares have no correlation

This implies that:

CFqr = The correlation coefficient between stocks Q and = 0

Substituting all the values into equation (2), we have:

Portfolio return variance = (50%^2 * 34%^2) + (50%^2 * 26%^2) + (2 * 50% * 34% * 50% * 26% * 0) = 4.58%

Standard deviation of the portfolio = (Portfolio return variance)^(1/2) = (4.58%)^(1/2) = (4.58%)^0.5 = 21.40%

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Answer:

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Explanation:

Horizontally organised companies function very differently from traditional companies as the traditional structure is a pyramidal vertical structure.

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Robert works in the import-export department of Bank of America and he has noticed the following spot currency quotes: 1 U.S. do
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2.3925

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If Jamal is using a security classification guide (SCG) to assist in marking information from a source document. What describes Jamal's work is: Derivative Classification.

<h3>What is Derivative Classification?</h3>

Derivative Classification can be defined as the process of classifying security information or data so as to enable easy marking of information from the source document or source information.

Based on the information given jamal is making use of Derivative Classification as this will enable him to know whether the information in the document has been classified.

Therefore what describes Jamal's work is: Derivative Classification.

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