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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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Answer:

The proforma income statement and balance sheet are found in the attached

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Explanation:

The additional finance is necessary as the assets required for the additional growth of 20% is worth $27900 while debt plus equity(including the added profit of $1318) only gives $25918,there resulting in shortfall in finance of $1982.

Also, a different source of finance other than debt can be used depending the interest applicable since the amount involved is minute.

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6 0
3 years ago
7. You have saved $4,000 for a down payment on a new car. The largest monthly payment you can affort is $350. The loan will have
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Answer:

$13,290.89  and $15,734.26

Explanation:

In this question we have to use the Present value function which is shown on the attachment below:

In the first case

Provided that

Future value = $0

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= PV(Rate;NPER;PMT;FV;type)

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In the second case

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Future value = $0

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If The Limited Company relies on hiring a foreign textile manufacturer to produce a
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Answer: Contract manufacturing.

Explanation:

Contract manufacturing is the outsourcing of some production activities that were formerly done by the producer to a third party. An organization may outsource certain parts for a product.

Contract manufacturing is the practice of giving out part of a work to outside sources rather than completing all the work within the company. It results in lower expenses and costs.

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The current spot exchange rate is $1.55 = €1.00; the three-month U.S. dollar interest rate is 2 percent. Consider a three-month
Elan Coil [88]

Answer:

The least that this option should sell for is $3,125.

Explanation:

Acording to the data, we have the following:

The current spot exchange is $1.55=€1.00

The call option has a strike price of $1.50=€1.00 and spot price is €62,500

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$1.55-$1.50=$0.05

Hence, $0.05*62,500= $3,125.

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