Answer:
Explanation:
arithmetic average growth rate = {[(1.33 - 1.25)/1.25] + [(1.40 - 1.33)/1.33] + [(1.51 - 1.40)/1.40] + [(1.59 - 1.51)/1.51]} / 4 = {0.064 + 0.053 + 0.079 + 0.053} / 4 = 0.06225 x 100 = 6.225%
geometric growth rate = ⁴√{0.064 x 0.053 x 0.079 x 0.053} = 0.061%
a) using arithmetic average growth rate
Div₁ = $1.59 x 1.06225 = $1.689
P₀ = $40
g = 6.225%
40 = 1.689 / (Re - 0.06225)
Re - 0.06225 = 1.689 / 40 = 0.04222
Re = 0.04222 + 0.06225 = 0.10447 = 10.45%
b) using geometric average growth rate
Div₁ = $1.59 x 1.061 = $1.68699
P₀ = $40
g = 0.061%
40 = 1.68699 / (Re - 0.061)
Re - 0.061 = 1.68699 / 40 = 0.04217
Re = 0.04217 + 0.061 = 0.103174 = 10.32%
Answer:
Value of bond = $1,101.59
Explanation:
We know,
Value of bond = [I × 
] + 
Given,
Face value (FV) = $1,000.
Semiannual Coupon, I = FV x semiannual coupon rate = $(1,000 × 7.25%) ÷ 2 = 72.5 ÷ 2 = $36.25
Interest rate, r = 6.20% ÷ 2 = 3.10% = 0.031
Maturity, n = 15 years = 30 periods (As it is semi annual).
Therefore,
Value of bond = [$36.25 × 
] + ($1,000 ÷ 
)
or, value of bond = ($36.25 × 19.3495) + $400.17
value of bond = $701.42 + $400.17
value of bond = $1,101.59
Answer:
b. Lower Higher
Explanation:
As non interest bearing notes are issued on deep discounted value. The face value of the note is discounted to calculate the cash receipt from the issuance. So, the cash received will be higher than the face value of the note.
If the non interest bearing note is issued on a discounted value the effective interest rate will be higher than the discount rate of the bond because the investor demands the required rate of return which is used to discount and calculating effective rate using discounted value will result the higher rate.
It is B: what to do in case of a fire
