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.
1 answer:
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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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:
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:
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:
We add the contributed capital plus capital increases plus mortgage debt issues:
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:
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