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Luba_88 [7]
3 years ago
9

Bond X is noncallable and has 20 years to maturity, an 11% annual coupon, and a $1,000 par value. Your required return on Bond X

is 12%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Do not round intermediate calculations. Round your answer to the nearest cent.
Business
1 answer:
stira [4]3 years ago
5 0

Answer:

You should be willing to pay $984.93 for Bond X

Explanation:

The price of a bond is equivalent to the present value of all the cash flows that are likely to accrue to an investor once the bond is bought. These cash-flows are the periodic coupon payments that are to be paid annually and the proceeds from the sale of the bond at the end of year 5.

During the 5 years, there are 5 equal periodic coupon payments that will be made. Given a par value equal to $1,000 and a coupon rate equal to 11% the annual coupon paid will be 1,000*0.11 = $110. This stream of cash-flows is an ordinary annuity.

The  PV of the cash-flows = PV of the coupon payments + PV of the value of the bond at the end of year 5

Assuming that at the end of year 5 the yield to maturity on a 15-year bond with similar risk will be 10.5%, the price of the bond will be equal to :

 110*PV Annuity Factor for 15 periods at 10.5%+ $1,000* PV Interest factor with i=10.5% and n =15

= 110*\frac{[1-(1+0.105)^-^1^5]}{0.105}+ \frac{1,000}{(1+0.105)^1^5}=$1,036.969123

therefore, the value of the bond today equals

110*PV Annuity Factor for 5 periods at 12%+ $1,036.969123* PV Interest factor with i=12% and n =5

= 110*\frac{[1-(1+0.12)^-^5]}{0.105}+ \frac{1,036.969123}{(1+0.12)^5}=$984.93

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A method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see
bazaltina [42]

Answer:

The statement is True as well as correct

Explanation:

Allowance method is the financial term which is defined as the uncollectible accounts receivable procedure that reports the estimate of the bad debt expense in the same accounting or fiscal year as the sale.

Under this method, it is used to adjust the accounts receivable which appears on the balance sheet.

For example,

If the company has the credit sales of $800,000 in December and estimate that the 4% will be uncollectible. Then using this method, computing the uncollectible as:

Bad debt expense = Sales × Estimate uncollectible

= $800,000 × 4%

= $32,000

So, this estimate the bad debt expense rather than wait to see which customer will not able to collect.

5 0
3 years ago
Three individuals, Mary, Jack and Helen, make up the total demand for donuts per month in a particular market.
Paraphin [41]

The market demand curve would be 1000 - 0.125Q.

<h3>How to calculate the demand curve?</h3>

It should be noted that the market demand curve will be the sum of the individual demand curve.

The market demand curve will be calculated thus. Mary’s demand curve is 5P = 5000 – 1.25QM. Here, p = 1000 - 0.25QM

Jack’s demand curve for donuts is given by P = 1000 – 0.5QJ. Helen’s demand curve is given by QH = 2000 – 2P. This will be P = 1000 - 0.5QH.

The slope will be:

= 0.5 × 0.25

= 0.15

The demand function of Jack and Helen are the same. The demand curve will be 1000 - 0.125Q.

Learn more about demand on:

brainly.com/question/1245771

#SPJ1

5 0
2 years ago
George owns four dry cleaning stores in the suburbs of Orlando, Florida. He recently updated his STP analysis and has finished a
Alik [6]

Answer:

how to allocate resources among his four stores.

Explanation:

Factors of production can be defined as the fundamental building blocks used by individuals or business firms for the manufacturing of finished goods and services in order to meet the unending needs and requirements of their customers.

The four factors of production are;

I. Land: this refers to the natural resources and raw materials extracted from the ground or grown in the soil e.g oil, gold, rubber, cocoa, etc.

II. Labor (working): this is the human capital or workers who are saddled with the responsibility of overseeing and managing all the aspects of production.

III. Capital resources: it includes the physical assets used for production of goods and services such as equipment, money, plant, etc.

IV. Entrepreneurship: it is intellectual capacity required to drive a business and the skills to develop an idea into a money making venture (business).

In this scenario, George owns four dry cleaning stores in the suburbs of Orlando, Florida. He recently updated his STP analysis and has finished adjusting his marketing mix based on the STP results. His next strategic marketing decision will most likely involve determining how to allocate resources among his four stores.

5 0
3 years ago
The corporate charter of Martin Corporation allows the issuance of a maximum of 4,000,000 shares of $1 par value common stock. D
Mrrafil [7]

The question is incomplete. Here is the complete question

The corporate charter of Martin Corporation allows the issuance of a maximum of 4,000,000 shares of $1 par value common stock. During its first three years of operation, Martin issued 3,200,000 shares at $15 per share. It later acquired 30,000 of these shares as treasury stock for $25 per share. Based on the above information, answer the following questions:

a. How many shares authorized?

b. How many shares were issued?

c. How many shares are outstanding?

d. What is the balance of the Common Stock account?

e. What is the balance of the Treasury Stock account?

Answer:

(a) 4,000,000 shares

(b) 3,200,000 shares

(c) 3,170,000 shares

(d) $3,200,000

(e) $750,000

Explanation:

(A) Number of shares that was authorized is 4,000,000

(B) Number of shares that was issued is 3,200,000

(C) The number of shares outstanding can be calculated as follows

= number of shares issued-acquired shares in the treasury stock

= 3,200,000-30,000

= 3,170,000

(D) The balance of common stock account can be calculated as follows

= number of shares that was issued-per value

= 3,200,000×$1

= $3,200,000

(E) The balance of the treasury stock account can be calculated as follows

= acquired shares in the treasury stock×price per share

= 30,000×$25

= $750,000

6 0
3 years ago
Last year, Bad Tattoo Co. had additions to retained earnings of $4,865 on sales of $95,805. The company had costs of $75,885, di
Dahasolnce [82]

Answer:

The depreciation expense is $5638.46 and the Addition to retained earnings is 4865

Explanation:

Solution

Given that:

Sales  = $95805

Less: Costs = $75885

Less depreciation expense ($95805 - $75,885 - 14281.54) = $5638.46

EBIT (12161.54 + 2120) = 14281.54

Less: Interest expense =2120

EBT (100%)(7905/0.65) = 12161.54

Less: tax at 35%(12161.54*35%) =4256.54

The Net income(65%) = 7905

The Less:dividends = 3040

Addition to retained earnings =4865

6 0
3 years ago
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