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gavmur [86]
2 years ago
15

A U.S. treasury bond (selling at a par value of $1,000) that matures at the end of five years is said to have a coupon rate of 6

% if, after paying $1,000, the purchaser receives $30 at the end of each of the following nine six-month periods and then receives $1,030 at the end of the the tenth period. That is, the bond pays a simple interest rate of 3% per six-month period, with the principal repaid at the end of five years. Assuming a continuously compounded interest rate of 5%, find the present value of such a stream of cash payments.
Business
1 answer:
pav-90 [236]2 years ago
7 0

Answer:

$1,042.04

Explanation:

to calculate the present value using a continuously compounded interest rate, we can use the following 2 formulas:

1) present value = cash flow / eⁿˣ

  • e = 2.71828
  • x = 5% / 2 = 2.5%
  • n = 10
  • cash flow = $1,030

present value = $1,030 / 2.71828¹⁰ˣ⁰°⁰²⁵ = $1,030 / 1.284 = $802.16

2) present value of an annuity = payment [(1 - e⁻ⁿˣ) / (eˣ - 1)]

  • payment = $30
  • x = 2.5%
  • n = 9
  • e = 2.71828

present value = $30 [(1 - 2.71828⁻⁹ˣ⁰°⁰²⁵) / (2.71828⁰°⁰²⁵ - 1)] = $30 [(1 - 2.71828⁻⁹ˣ⁰°⁰²⁵) / (2.71828⁰°⁰²⁵ - 1)] = $30(0.2015 / 0.0252) = $239.88

present value of the stream of cash flows = $802.16 + $239.88 = $1,042.04

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Benjamin Addai determined the following tax information: gross salary, $87,000; interest earned, $80; deductible IRA contributio
Lelechka [254]
<span>Benjamin Addai determined the following tax information: gross salary, $41,000; interest earned, $80; deductible IRA contribution, $1,075; personal exemption, $3,950; and itemized deductions, $6,200. Calculate Benjamin’s taxable income and tax liability filing single.</span>
6 0
3 years ago
A marketing consultant uses the job costing system and has a pre-determined overhead rate of $15 per direct labor hour. This amo
monitta

Answer:

D. $590

Explanation:

Predetermined overhead rate = $15 per labour hour

Direct Material cost = $50

Labor rate = $75 per hour

Number of Direct labor hour = 6

Direct labor cost = 6 x 75 = $450

Overhead applied cost = Predetermined overhead rate x Direct labor hours

Overhead applied cost = 15 x 6 = $90

Total cost = $50 + $450 + $90

Total cost = $590

So, the correct answer is D. $590

7 0
3 years ago
The Dow Jones is currently valued at $24,000 and the 1-year Dow Jones Mini Future contract has a price of $24,750. Note Dow Jone
Svetllana [295]

Answer:

a) 152

b) <em>$15,310,562.50</em>

Explanation:

<u>A) What position in futures contracts on the S & P 500 is it necessary to hedge the portfolio</u>

The position is to short

The number to be shorted  can be calculated using the formula below:

= ( β *  value of portfolio) / (one futures contract size * number of times the value of the contract price)

where ; value of portfolio = $15 million , Beta = 1.25 , one future contract size = $24750,  number of times = 5

= (  1.25 * 15,000,000)   / ( 24,750 * 5)  = 151.5 ≈ 152 contracts

<u>b) What is our portfolio value of your portfolio with the hedge from part a</u>

Given that 6 months has passed

Dow Jones now valued at $24720

Future price now $25,100  

first step : calculate loss from position in part a

= 152 * 5 * ( 24,750 - 25,100 ) = - $266,000

next : calculate Gain on index

=  24,720 - 24,000 / 24,000 = 0.03 = 3.00%

Total gain = Gain on index +  annual dividend / 2

                 = 3% + 0.75 / 2 = 3.375%

where risk free rate ( 6 months ) = gain on index / 2 = 1.5%

Calculate Return with the use of CAPM

= 1.5% + 1.25* ( 3.375% - 1.5% ) = 3.8438%

Hence value of portfolio after 6 months will be calculated as

= Current portfolio value * ( 1 + return )

= 15,576,562.50

Therefore the

Net value = portfolio value - loss from futures position

=<em>$15,310,562.50</em>

6 0
2 years ago
Orange co. sells merchandise on credit to zea co. in the amount of $9,000. the invoice is dated on september 15 with terms of 1/
Juli2301 [7.4K]

I guess the correct answer is $90, September 30

Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on September 15 with terms of 1/15, net 45. The amount of the discount is $90 and the date must the invoice be paid in order for the buyer to take advantage of the discount is September 30.

3 0
2 years ago
Three basic decisions must be made by all economies. What are they?
KiRa [710]

Answer:

3 basics decision that need to made or taken by all the economies are

1. What to produce

2. For whom to produce

3. How to produce

Explanation:

The 3 basic decisions which should be made by the all economies are:

1. What to produce - Under this, the economies need to decide that what product or service they need to produce, which is liked by the consumers or purchased by the consumers so that they could sell their product in the market and earn profit out of it. In this, the economy need to take care of the needs or demand of the consumers and produce accordingly.

2. How to produce - Then the second decision is regarding how to the produce the goods or services, which the customers or consumers want as they have the limited resources available with them and from that they cannot produce all the products. So, they need to choose or decide.

3. For whom to produce or who consumes it - Under this, they required to take the decision regarding that for whom they are producing the goods or services whether it is a company or a consumer or economy.

5 0
3 years ago
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