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Mice21 [21]
2 years ago
10

Ric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of hol

ding the security is 6.80%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options is priced lower?
An investment that matures in four years
An investment that matures in five years
Business
1 answer:
lutik1710 [3]2 years ago
4 0

Answer: An investment that matures in five years

Explanation:

Both investments may be of equal risks, but by virtue of having different maturity dates, they will not be priced the same.

This is because the discount rate (opportunity cost) will discount the maturity value more the longer the investment is such that the present value is lower.

4 year investment

= 1,000 / (1.068)^4

= $768.63

5 year investment

= 1,000 / (1.068)^5

= $719.69

The 5 year investment will have a lower present value and will be charged lower.

You might be interested in
Testbank Multiple Choice Question 81 At the beginning of 2020, Sunland Company issued 8% bonds with a face value of $5700000. Th
laila [671]

Answer:

$527,737

Explanation:

The Bond Payment or Coupon always includes the Interest Portion and the the Capital Potion. The question only requires the Interest Portion of the Bond.

The Bond Parameters can be set as :

<em>PV = - $5,259,870</em>

<em>FV = $5,700,000</em>

<em>PMT = ($5,700,000 x 8%) ÷ 2 = $228,000</em>

<em>N = 5 x 2 = 10</em>

<em>YTM = 10 %</em>

<em>P/YR = 2</em>

Constructing an amortization schedule for 2020 gives :

Date            Capital Portion         Interest              Balance

June 30           $34,994              $262,994        $5,294,864

Dec 30             $36,743               $264,743         $5,331,607

Total                  $71,737                $527,737         $5,331,607

therefore,

The amount of interest expense to be reported for 2020 is $527,737

7 0
3 years ago
When a company does not have any convertible securities or options or warrants outstanding, the company has:
WITCHER [35]

Answer: Simple capital structure

Explanation: A company that does not have potentially dilutive or convertible securities in its capital structure, is said to have a simple capital structure. In a simple capital structure, the corporation finance its operation with common stock or non convertible preferred stock.

Hence , from the above we can conclude the right option is C.

6 0
2 years ago
The ledger of Shamrock, Inc. on March 31, 2017, includes the following selected accounts before adjusting entries.
romanna [79]

Answer and Explanation:

The adjusting entries are as follows:

1 Insurance expense Dr $310

           To Prepaid Insurance  $310

(Being insurance expense is recorded)  

2 Supplies expense Dr $1,650 ($2,610 - $960)

           To Supplies $1,650

(Being supplies expense is recorded)  

3 Depreciation expense Dr $150

           To Accumulated Depreciation - Equipment $150

(Being depreciation expense is recorded)  

4 Unearned service revenue Dr (two-fifth of $12,000) $4,800

           To Service Revenue $4,800

(Being service revenue is recorded)

3 0
2 years ago
Company's comparative balance sheet E(Click the icon to view the comparative balance sheet.) t January 31, 2019, and 2018, repor
frozen [14]

Answer:

Bosley Company

Calculation of Net Income or Net Loss during the year ended January 31, 2019, under three independent situations:

Situation 1. Bosley issued $5 million of stock and declared no dividends.  

Net Loss = stockholders' equity, January 31, 2018 plus new issue of stock less stockholders' equity, January 31, 2019

= $51 + 5 - 31 = $25 million

Situation 2. Bosley issued no stock but declared dividends of $8 million.

Net loss = stockholders' equity, January 31, 2018 less (dividends + stockholders' equity, January 31, 2019)

= $51 - (8 + 31) = $12 million

Situation 3. Bosley issued $10 million of stock and declared dividends of $50 million :

Net income = (stockholders' equity, January 31, 2019 plus dividends) minus (stockholders' equity, January 31, 2018 plus Issuance of stock)

= ($31 + 50) - ($51 + 10) = $20 million

Explanation:

a) Data and Calculations:

                                         2018    2019

Total assets                         74       48  

Total liabilities                     23       17  

Total stockholders' equity  51       31

Stockholders' equity according to the accounting equation = Assets minus Liabilities for each year.

b) Situation 1. Bosley issued $5 million of stock and declared no dividends.  

                                                                       ($' million)

Total stockholders' equity, January 31, 2018   51

Add: Issuance of stock                                       5

Net income                                                           0

Less: Dividends declared                                   0

Net loss                                                            (25 )

Total stockholders' equity, January 31, 2019   31

Net Loss = stockholders' equity, January 31, 2018 plus new issue of stock less stockholders' equity, January 31, 2019

= $51 + 5 - 31 = $25 million

c) Situation 2. Bosley issued no stock but declared dividends of $8 million.  

                                                                       ($' million)

Total stockholders' equity, January 31, 2018   51

Add: Issuance of stock                                       0

Net income                                                          0

Less: Dividends declared                                 (8 )

Net loss                                                             (12 )

Total stockholders' equity, January 31, 2019  31

Net loss = stockholders' equity, January 31, 2018 less (dividends + stockholders' equity, January 31, 2019)

= $51 - (8 + 31) = $12 million

d) Situation 3. Bosley issued $10 million of stock and declared dividends of $50 million

                                                                    ($' million)

Total stockholders' equity, January 31, 2018  51

Add: Issuance of stock                                     10

Net income                                                       20

Less: Dividends declared                               (50 )

Net loss                                                              0

Total stockholders' equity, January 31, 2019 31

Net income = (stockholders' equity, January 31, 2019 plus dividends) minus (stockholders' equity, January 31, 2018 plus Issuance of stock)

= ($31 + 50) - ($51 + 10) = $20 million

4 0
2 years ago
One of the principles of hierarchy is a clear ______ chain of command.
Genrish500 [490]

Answer: One of the principles of hierarchy is a clear <u>vertical </u>chain of command.

Hope this helps!

4 0
2 years ago
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