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Anit [1.1K]
3 years ago
12

Assuming the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure

for maturities of one to five years, and plot the resulting yield curves for the following paths of one-year interest rates over the next five years: a. 5%, 7%, 7%, 7%, 7% b. 5%, 4%, 4%, 4%, 4% Mishkin, Frederic S.. Economics of Money, Banking and Financial Markets, The (What's New in Economics) (p. 139). Pearson Education. Kindle Edition.

Business
1 answer:
Trava [24]3 years ago
3 0

Answer:

The plot of the yields is attached.

Explanation:

i) 6%, 7%, 8%, 7%, 6%

Interest rate on 1 year maturity = 6%/1 = 6%

Interest rate on2 year maturity = (6%+7%)/2 = 6.5%

Interest rate on 3 year maturity = (6%+7%+8%)/3 = 7%

Interest rate on 4 year maturity = (6% + 7% + 8% + 7%)/4 = 7%

Interest rate on 5 year maturity = (6% + 7% + 8% + 7% + 6%)/7 = 6.8%

ii)6%, 5%, 4%, 5%, 6%

Interest rate on 1 year maturity = 6%/1 = 6%

Interest rate on 2 year maturity = (6% + 5%)/2 = 5.5%

Interest rate on 3 year maturity = (6% + 5% + 4%)/3 = 5%

Interest rate on 4 year maturity = (6% + 5% + 4% + 5%)/4 = 5%

Interest rate on 5 year maturity =   (6% + 5% + 4% + 5% + 6%)/5 = 5.2%

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Suppose Hoosiers, a specialty clothing store, rents space at a local mall for one year, paying $13,800 ($1,150/month) in advance
tigry1 [53]

Answer:

1.

Dec 31    Rent expense                   $3450 Dr

                  Prepaid Rent                       $3450 Cr

2.

Oct 1     Prepaid Rent                        $13800 Dr

                  Cash                                       $13800 Cr

3.

Year end balances at 31 December:

Rent Expense = $3450

Prepaid Rent = $10350

Explanation:

Assumption: The year end for the business in on 31 December.

1.

The rent is paid in advance thus it is an asset. On 31 December the adjusting entry will be made under the accrual principle to match the current period's rent expense and record it in the period to which it belongs to. Thus we will credit the rent expense for 3 months i.e. October, November and December. We will credit the asset account that is Prepaid Rent.

2.

The prepayment of rent is creating an asset account in the title of prepaid rent. The entry would be to record the asset prepaid rent by the full amount of the rent prepaid and credit the other asset account through which the payment is being made.

3.

The adjusted year end balance for rent expense will be the rent expense paid for this period that is $1150 * 3 = 3450

The balance in the prepaid rent account after adjusting the rent expense will be,

Prepaid rent = 13800 - 3450 = $10350

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3 years ago
During step 3 of activity-based costing, activity overhead cost pool rates are used to assign overhead costs to final cost objec
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Answer:

HEY

Explanation:

6 0
3 years ago
"you are borrowing $1,000 with an apr of 10% and a loan maturity of one year. total interest charges will be the highest when __
maks197457 [2]

When you make one payment in full at the end of the year.

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Which government action is used to limit the amount of scarce goods citizens can buy during wartime?
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3 years ago
Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by co
KATRIN_1 [288]

Answer:

$58,500

Explanation:

The outside basis is defined as the tax basis that a partner has on the partnership. To find it, the value of all the resources contributed by the partner is taken and the debt relief and any debt assigned is subtracted. To solve this exercise, we should follow these steps:

1. Determine the contributed capital.

According to the problem statement, Brett provided cash ($ 9,500) and a building (here the value of the adjusted base, $ 39,000, is taken). Therefore, the total contributions are $48,500.

2. Calculate capital increases.

The partnership obtained a loan for $59,000, which was shared equally among the partners. Therefore, Brett received 50%, that is, $29,500.

Now, we must add the contributed capital plus capital increases:

48,500+29,500=78,000

3. Calculate mortgage debt issues.

The nonresource mortgage is 44,000, a value that exceeds the basis of the contributed property. In that case, the surplus is taxed to the contributing partner. To determine it, simply subtract the nonresource mortgage less adjusted basis of the building:

44,000-39,000=5,000

On the other hand, the remaining mortgage on the building is calculated, by dividing the value of the adjusted base of the property, in this case, 39,000 by 2, which results in 19,500.

Therefore, mortgage debt issues are equivalent to:

5,000+19,500=24,500

We add the contributed capital plus capital increases plus mortgage debt issues:

78,000+24,500=102,500

4. Subtract debts.

The partnership assumes the nonrecourse mortgage (which is computed as a debt) for 44,000. Because this component is not covered entirely by Brett, then this amount must be deducted from his individual tax base.

Therefore:

102,500-44,000=58,500

58,500 is Brett´s outside tax basis in his LLC interest.

On a balance sheet, we can see it as follows:

Particulars                                Amount in $

Cash                                                9,500

+Adjusted basis of the                39,000

building

+50% profit sharing ratio            29,500

+Nonrecourse mortgage               5,000

less adjusted basis

+Remaining mortgage on            19,500

building

TOTAL                                             102,500

-Debt on building                          (44,000)

Outside tax basis                          58,500

7 0
3 years ago
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