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AURORKA [14]
3 years ago
14

A one-year bond has an interest rate of 5% today. Investors expect that in one year, a one-year bond will have an interest rate

equal to 7%. Investors expect that in two years, a one-year bond will have an interest rate equal to 9%. According to the expectations theory of the term structure of interest rates, in equilibrium, a three-year bond today will have an interest rate equal to
Business
2 answers:
Amanda [17]3 years ago
3 0

Answer:

6%

Explanation:

Current interest rate on one year bond = 5%

Forward interest rate on one year bond = 7%

To Calculate the interest rate on two year bond we use this:

Interest rate = [Current interest rate on one year bond + Forward interest rate on one year bond]/2

Interest rate = [5 + 7]/2 = 12/2 = 6%

Therefore,

The interest rate on two-year bond is equal to 6%.

anygoal [31]3 years ago
3 0

Answer:

A one-year bond has an interest rate of 5% today. Investors expect that in one year, a one-year bond will have an interest rate equal to 7%. Investors expect that in two years, a one-year bond will have an interest rate equal to 9%. According to the expectations theory of the term structure of interest rates, in equilibrium, a three-year bond today will have an interest rate equal to 7%.

Explanation:

The current interest rate on one year bond = 5%

The forward interest rate on one year bond = 7%

The forward interest rate on one year bond = 9%

We can now calculate the interest rate on a three-year bond as below:

Interest rate = [Current interest rate on one year bond + Forward interest rate (7%) on one year bond + Forward interest rate (9%) ]/3

Interest rate = [5 +7+9]/3 = 21/3 = 7%

Therefore,

The interest rate on a three-year bond is equal to 7%.

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If $525,000 of bonds are issued during the year but $210,000 of old bonds are retired during the year, the statement of cash flo
geniusboy [140]

Answer and Explanation:

Given:

Issue of new bonds price = $525,000

Retired price of  bonds = $210,000

It is given that new bonds price a $525,000 issue and the value of retire Bond price will $210,000.

Issue of new bonds will increase cash by $525,000 because business gets cash from the issue of bonds and retire off the old bond will decrease cash by $210,000.

7 0
3 years ago
National Home Rentals has a beta of 1.06, a stock price of $17, and recently paid an annual dividend of $.92 a share. The divide
ANEK [815]

Answer:

9.6845%

Explanation:

Market risk premium = Market return - Risk free rate

                             7.3 = 11.2 - Risk free rate

Risk free rate = 3.9%

(1) Use CAPM:

Cost of equity = Risk free rate + Beta × Market risk premium

                        = 3.9% + 1.06(7.3)

                        = 11.638%

(2) Use DDM :

Stock price = [Latest dividend × (1 + dividend growth rate)] ÷ (Cost of equity-dividend growth rate)

$17 = [0.92 (1 + 0.022)] ÷ (Cost of equity - 0.022)

Cost of equity = 7.731%

Cost of equity = average value from using DDM and CAPM

Cost of equity = 0.5 (7.731 + 11.638)

                        = 9.6845%

4 0
3 years ago
Lagle Corporation has provided the following information: Cost per Unit Cost per Period Direct materials$5.25 Direct labor$3.90
Vikentia [17]

Answer:

$16,050

Explanation:

The computation of the total amount of the period cost is shown below:

= Sales commission per unit × number of units sold + Fixed selling and administrative expense + Variable administrative expense per unit  × number of units sold

= $1.80 × 4,500 units + $6,600 + $0.30 × 4,500 units

= $8,100 + $6,600 + $1,350

= $16,050

7 0
3 years ago
Seller Vaughn is very pleased with the way his home sale was handled by agent Brad. He decides to pay a bonus to Brad. On what c
Vladimir [108]

Answer:

d. Vaughn May pay the bonus to Brad's broker, who may then pay Brad.

Explanation:

Generally bonuses are included in the sales contract. If an owner believes that the agent made a great job and deserves an additional bonus, the bonus should be paid to the agent's broker. When the seller is paying the additional money to the broker, they should specify that it belongs to the agent. If the bonus is actually paid to Brad and in what percentage depends on the agreement that he has with his broker.  

3 0
2 years ago
Use the chart to answer the questions. Year Potential GDP Real GDP 2017 $18.17 trillion $18.05 trillion 2018 $18.51 trillion $18
sineoko [7]

Answer:

a. Output gap for 2017 = –0.66%

b. Output gap for 2018 = 0.27%

c. From 2017 to 2018, the output gap became more positive.

Explanation:

The following are given in the question:

Year             Potential GDP                Real GDP

2017               $18.17 trillion               $18.05 trillion

2018               $18.51 trillion              $18.56 trillion

To calculate output gap in percentage form, the following formula is used:

Output gap = ((Real GDP -  Potential GDP) / Potential GDP) * 100 ......... (1)

Therefore, we have:

a. Calculate the output gap for 2017. %

Using equation (1), we have:

Output gap for 2017 = ((18.05 - 18.17) / 18.17) * 100 = –0.66%

b. Calculate the output gap for 2018. %

Using equation (1), we have:

Output gap for 2018 = ((18.56 - 18.51) / 18.51) * 100 = 0.27%

c. From 2017 to 2018, the output gap became more .

Since the output gap in 2017 is negative while the output gap in 2018 is positive; this implies that from 2017 to 2018, the output gap became more positive.

8 0
3 years ago
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