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alekssr [168]
3 years ago
11

You want to decide whether to invest in zero-coupon bonds or not. Currently, the yield to maturity of these zero-coupon bonds fo

r the one-year is 8% and for the two-year is 9%. Given this information what is the forward rate of interest for the second year?
a. 10.01%
b. 8%
c. 9.2%
d. 3.25%
Business
1 answer:
kirza4 [7]3 years ago
5 0

Answer:

The forward rate of interest for the second year is;

a. 10.01%

Explanation:

<em>Step 1: Determine the 1 year final value of the investment</em>

The formula for calculating the final value for the 1 year investment is;

F.V=P.V(1+r)

where;

F.V=final value

P.V=present value

r=yield to maturity

In our case;

F.V=unknown

P.V=x

r=8%=8/100=0.08

replacing;

F.V=x(1+0.08)=1.08 x

<em>Step 2: Determine the 2 year final value of the investment</em>

Using the formula;

F.V=P.V(1+r)²

where;

F.V=unknown

P.V=x

r=9%=9/100=0.09

replacing;

F.V=x(1+0.09)²=1.1881 x

<em>Step 3: Determine the forward rate of interest for the second year</em>

The forward rate of interest can be expressed as;

forward rate of interest=(2-year future value/1-year future value)-1

replacing;

forward rate of interest=(1.1881 x/1.08 x)-1=0.10009×100=10.01%

forward rate of interest=10.01%

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The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this
Paha777 [63]

Answer:

A) The price of a donut is $2.00 in 2012.B) Rina's wage is $14.00 per hour in 2012

Explanation:

Nominal value means face value or stated value.

Real value means nominal value adjusted for inflation. Real value of money can refer to the purchasing power of money. Rina's wage is 2 paperback novels per hour in 2012 is an example of real value.

I hope my answer helps you

3 0
2 years ago
The hotel chain Ritz-Carlton uses the phrase "Ladies and gentlemen taking care of ladies and gentlemen" to demonstrate the compa
denis23 [38]
<h2>The company is expressing its key corporate value with a slogan. (Option A)</h2>

Explanation:

The slogan is self explanatory that ladies and gentlemen taking care of ladies and gentlemen.

About the slogan:

  • So it adds values both to employees as well as the customer.
  • Slogan is more of customer-friendly
  • The slogan is always the right aspect to express the motto, culture of the organization and hotel chain Ritz-Carlton has smartly framed it.

Justification about the other options:

  • If the slogan is adding value to the employees alone, then it means that company is valuing the customer who is the king for business.
  • Even the last option stands invalid because, the focus of customer is lost, it feels like self-appraising the company itself.

6 0
2 years ago
Suppose that Greece and Switzerland both produce beer and olives. Greece's opportunity cost of producing a crate of olives is 5
Rama09 [41]

<u>Answer: </u>

Out of the following prices, the price of 7 barrels of beer per crate of olives would make the trade beneficial for both Greece and Switzerland.

<u>Explanation: </u>

  • As we know that in Greece, a single crate of olive costs five barrels of beer. Where on the other hand, in Switzerland, one crate of olive costs ten barrels of beer.
  • Hence, if Greece agrees on giving one crate of olives on every seven barrels (two barrels more than what it costs in Greece), the trade would be beneficial for Greece.
  • Similarly, if one crate of olives costs seven barrels of beer instead of ten barrels, the trade would be beneficial for Switzerland too.
3 0
3 years ago
Aerotron Electronics has just bought a used delivery truck for $15,000. The small business paid $1,000 down and financed the res
vladimir1956 [14]

Answer:

a) 12.23%

b)  12.94%

c) 14th month payment interest = $157.33

   14th month principal =  $369.50

d)  18th month payment interest = $142.04

    18th month payment interest = $384.79

e) 22nd month payment interest = $126.12

   22nd month payment interest = $400.71

Explanation:

price of truck = $15000

down payment = $1000

Loan amount = $14,000

assume monthly interest rate = r%

Loan amount after 1 year will be = 14000 * (1+r%)12

next we will determine the annuity factor = [  (1/r)-[(1/r)*(1/ (1+r)t)] ]

r = periodic interest rate , t = number of payments

monthly loan payment = $14000*(1+r%)12 / [  (1/r)-[(1/r)*(1/ (1+r)36)] ]

hence r = 1.019%

a) nominal interest rate

=  1.019% *12 = 12.23%

b) effective interest rate

= (1+1.019%)^12 -1 = 12.94%

attached below is the Amortization schedule

c) 14th month payment interest = $157.33

    14th month principal =  $369.50

d) 18th month payment interest = $142.04

    18th month payment interest = $384.79

e) 22nd month payment interest = $126.12

   22nd month payment interest = $400.71

3 0
2 years ago
Vangaurd Health System bonds have an annual coupon rate of 8 percent and a par value of $1,000 and will mature in 20 years. If y
Umnica [9.8K]

Answer:

Price willing to pay=$1105.94

Explanation:

Annual Coupon Payment=$1,000*0.08

Annual Coupon Payment=$80

Calculating Present Value (PV) of Par Value:

PV=\frac{FV}{(1+i)^{20}}

Where:

i is the rate of return.

FV is par value

PV=\frac{\$1000}{(1+0.07)^{20}}

PV= $258.419.

Calculating PV of annual Coupon Payment:

PV=A\frac{1-(1+i)^{-20}}{i}

i is the coupon rate

A is the annual Payment

PV=\$80\frac{1-(1+0.07)^{-20}}{0.07}

PV=$847.521

Price willing to pay= Present Value (PV) of Par Value+ PV of annual Coupon Payment

Price willing to pay=$258.419+$847.521

Price willing to pay=$1105.94

8 0
3 years ago
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