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riadik2000 [5.3K]
3 years ago
8

Short Term Inc. has issued zero-coupon bonds that mature in one year. The returns from holding these bonds have a beta of 0.25.

There is a chance of 70% that the bonds will pay full value, and a chance of 30% that they will only be worth 60 cents for each dollar of face value.Assume that the CAPM holds, that the riskless rate is 5% and that the expected return on the market is 15%.1) What is the current price of the bonds, per $100 face value?2) What is the yield to maturity on the bonds?3) What is the expected return on the bonds?
Business
1 answer:
Nataly [62]3 years ago
6 0

Answer:

1. Current bonds price = $81.86.

2. Yield to maturity  = 22.16%.

3. 3.  Expected Return = 7.5%.

Explanation:

Required Rate = Rf + beta*MRP

          = 5% + 0.25*(15% - 5%)

       = 5% +0.25*10%

              = 5% + 2.5% = 7.5%

 Required Rate = 7.5%

  Expected Future Value = 70% x $100 + 30% x $60

       = (0.7*$100) + (0.3*$60)

       = $(70+18) = $88

    Expected Future Value = $88

1.  Current bonds price = 88/1.075 = $81.86

2.  Yield to maturity = 100/81.86 - 1 = 1.22159785-1 = 0.22159785 =   22.159785% = 22.16%

3.  Expected Return = 7.5%

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This leads to a reduction in net income

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Manufacturing overheads refer to those costs which indirectly relate to a good's production. Examples of manufacturing overheads would include depreciation charged on equipments used for production, rent of the factory wherein production takes place.

The effect of recognition of $400 of estimated manufacturing overheads would be reduction in net income since their recognition raises the cost of production which reduces gross profit. Consequently this would reduce the net income.

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Answer:

Option b seems to be the correct approach.

Explanation:

  • Liaison seems to be collaboration as well as the communication of knowledge among various organizations as well as between multiple portions of the institution.
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8 0
3 years ago
EB15.
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Answer:

Instructions are listed below.

Explanation:

Giving the following information:

flexible budget:

direct materials of $3 per unit

direct labor of $2.50 per unit

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Fixed costs are $49,000.

33,000 units:

Flexible budget:

Total direct marerial= 3*33,000= $99,000

Direct labor= 2.5*33,000= $82,500

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Total manufacturing costs= $222,750

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Total production costs= $271,750

35,000 units:

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The answer is <u>"a. 8.13%".</u>

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Given that;

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By using the formula;

Price of the stock = (Dividend this year)(1+g) ÷ (r - g)  

By putting the values;

40 = (1.75)(1+0.036) ÷ (r - 0.036)

r - 0.036 = (1.75)(1.036) ÷ 40

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