Frank Barlowe is retiring soon, so he is concerned about his investments providing him steady income every year. He is aware tha
t if interest rates _____, the potential earnings power of the cash flow from his investments will icrease. In particular, he is concerned that a decline in interest rates might lead to _____ annual income from investments. What kind of risk is Frank most concerned about protecting against?a. interest rate riskb. reinvestment rate riskTrue or false: assuming all else is equal, short-term securities are exposed to higher reinvestment rate risk than long-term securities.a. trueb. falso
Answer: He is aware that if interest rates <u>increase</u>, the potential earnings power of the cash flow from his investments will increase. In particular, he is concerned that a decline in interest rates might lead to <u>less</u> annual income from investments.
Frank is most concerned about protecting agains the "b. reinvestment rate risk" because it is the risk that interest rates will fall and therefore the investor must reinvest the cash flows of current assets at a lower rate than he did at the beginning. And as a consequence there is a decrease in income.
True or false: TRUE. Because Cash flows receivable in the short term are closer to being reinvested than cash flows receivable in the long term.
The original statement does not include any assumption about what the companies are doing about this issue, it just proposes an idea of fair compensation.
maybe whoever wrote this statement believes that very few companies or none at all actually compensate homeowners for a reduction in the market value of their properties, but it doesn't state it. It is also possible that the statement assumes that companies are paying some compensations or were paying some compensations but are not willing to continue to do it since no legislation forces them to do so. The author's position is vague and not clear with respect to what the companies are currently doing.
The amount of cash received from the sale is calculated to be $336,300.
The amount of cash received from the sale of bonds can be calculated by using the following formula;
Cash received = Face value of bond × Bond quote
Since $354,000 of 10% bonds are issued at 95 in this case, therefore we substitute the values in the equation to determine the amount of cash received from the sale as follows;
Cash received = $354,000 × (95 / 100)
Cash received = $354,000 × 0.95
Cash received = $336,300
Therefore $336,300 cash is received from the sale if $354,000 of 10% bonds are issued at 95
If there's upward pressure on price, there would be an increase in the quantity supplied.
<h3>What the relationship between price and the quantity supplied?</h3>
There is a positive relationship between price and the quantity supplied. When there is an increase in price, the quantity supplied increases all things being equal.
The positive relationship between price and the quantity supplied is a result of the desires to earn more profit. So when price increases, in order to earn higher income, producers would increase the quantity supplied. This postulation is in line with the law of supply.
