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3 years ago

A higher interest rate (discount rate) would:________

Business

1 answer:

DIA [1.3K]3 years ago

4 0

Answer: C) Reduce the price of common stock.

Explanation:

A Rise in interest rates would tend to contradict the economy. Because Everyone cuts back on thier spending because there is less money to spend. This results in earnings falling or dropping, next affected are stock prices. Conversely, when rates drops everyone has more money to spend and earnings tend to rise along with prices.

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Find the present value of $600 due in the future under each of these conditions: 6% nominal rate, semiannual compounding, discou

MA_775_DIABLO [31]

Answer and Explanation:

For computing the present value we need to apply the present value formula i.e to be shown in the attachment

For the first case i.e semi annual compounding

Given that,

Future value = $600

Rate of interest = 6% ÷ 2 = 3%

NPER = 9 years × 2 = 18 years

PMT = $0

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the present value is $352.44

For the second case i.e quarterly compounding

Given that,

Future value = $600

Rate of interest = 6% ÷ 4 = 1.5%

NPER = 9 years × 4 = 36 years

PMT = $0

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the present value is $351.05

For the third case i.e monthly compounding

Given that,

Future value = $600

Rate of interest = 6% ÷ 12 = 0.5%

NPER = 1 years × 12 = 12 years

PMT = $0

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the present value is $565.14

Based on the various compounding i.e semi annual, quarterly and yearly the present value would be different in each case

8 0

3 years ago

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Basile [38]

I’m so confused????? Do you need help on anything???

6 0

3 years ago

Read 2 more answers

The quantity demanded x for a product is inversely proportional to the cube of the price p for p > 1. When the price is $10 p

Delvig [45]

Answer:

$6.00

Explanation:

Given data

quantity demanded ( x ) ∝ 1 / p^3 for p > 1

when p = $10/unit , x = 64

initial cost = $140, cost per unit = $4

<u>Determine the price that will yield a maximum profit </u>

x = k/p^3 ----- ( 1 ). when x = 64 , p = $10 , k = constant

64 = k/10^3

k = 64 * ( 10^3 )

= 64000

back to equation 1

x = 64000 / p^3

∴ p = 40 / ∛x

next calculate the value of revenue generated

Revenue(Rx) = P(price ) * x ( quantity )

= 40 / ∛x * x = 40 x^2/3

next calculate Total cost of product

C(x) = 140 + 4x

Maximum Profit generated = R(x) - C(x) = 0

= 40x^2/3 - 140 + 4x = 0

= 40(2/3) x^(2/3 -1) - 0 - 4 = 0

∴ ∛x = 20/3 ∴ x = (20/3 ) ^3 = 296

profit is maximum at x(quantity demanded ) = 296 units

hence the price that will yield a maximum profit

P = 40 / ∛x

= ( 40 / (20/3) ) = $6

4 0

3 years ago

Douglas has a credit card with an interest rate of 11. 05%, compounded monthly. He used his credit card to buy a new sofa, which

s344n2d4d5 [400]

Answer:

The answer is the last option. Option D $852.84

4 0

3 years ago

Wool Express (WE) has a capital structure of 30% debt and 70% equity. WE is considering a project that requires an investment of

KiRa [710]

Answer:

13.41%

Explanation:

Given:

Weight of debt =30% ; Weight of equity =70%; Coupon rate =12%

Risk-free rate, $R_{f}$ =7% ; Expected market rate, $R_{m}$ =14.5% ; Beta, $\beta$ = 1.20; Tax-Rate, $T_{r}$ =40%

We can calculate the following thus;

Return on bond = $\frac{Coupon Interest}{Sales price of the bond} =\frac{0.12*1000}{980}=\frac{120}{980} = 12.24$ %

Cost of debt =Return on bond *(1- $T_{r}$ )=12.24% *(1-0.4)

=12.24%*0.6 = 7.35%

To compute the cost of equity capital $K_{e}$ , we shall use the CAPM formula below

$K_{e} =R_{f} +\beta (R_{m} - R_{f} )$

= 7% + 1.2(14.5%-7.0%)

= 7% +1.20( 7.5%) = 7% + 9% = 16%

The Weighted Average Cost of Capital, WACC is worked out as

WACC= (Weight of debt*Cost of debt) + (Weight of equity *Cost of equity)

= (30% *7.35) +(70% *16)

= 13.405

= 13.41%

7 0

4 years ago