Answer:
(a) The arbitrage strategy is to buy zeros with face values of $140 and $1,140 and respective maturities of one and two years, and simultaneously sell the coupon bond.
(b) The profit on the activity equals $0.72 on each bond.
Explanation:
The price of the coupon bond = 140 × PV(7.9%, 2) + 1000 × PV(7.9%, 2)
= 140 × (1-(1/1.079)^2)/0.079 + 1,000/1.079^2
= $1,108.93
If the coupons were withdrawn and sold as zeros individually, then the coupon payments could be sold separately on the basis of the zero maturity yield for maturities of one and two years.
[140/1.07] + [1,140/1.08^2] = $1,108.21.
The arbitrage strategy is to buy zeros with face values of $140 and $1,140 and respective maturities of one and two years, and simultaneously sell the coupon bond.
The profit on the activity equals $0.72 on each bond.
Answer:
If linen department is dropped operating income of the company will decrease.
Explanation:
That is because the cotrollable margin of the department is positive:
controllable margin = contribution margin - controllable fixed costs
$605,000-($800,000-380,000) = 185,000
That means that the Linen department helps to reduced fixed cost that are not generated by this department and that will keep existing wether the department is closed or not.
In addittion the Hardware department will loose 19% of its sales if the Linen department is closed. Thus will result in a reduction of the cntribution margin of the hardware deparment too.
D) Both A & B
<span>a)Credit unions are typically owned and run by their members
</span><span>b)Credit unions limit membership to certain people or groups</span>
Answer:
The answer is 14.87%
Explanation:
Solution
Given that:
A large company stock had an average return of =12.59%
The average risk free rate = 2.58%
A small company stocks average is =17.45
The next step is to find the risk premium on small-company stocks for this period
Thus,
The risk premium on small-company stocks = Average return on small-company stocks - average risk-free rate
So,
Risk premium on small-company stocks = .1745 - 0.258
=0.1487
Therefore the risk premium on small company stocks for the period was 14.87%
