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serg [7]
3 years ago
10

A bond has a face value of $1,000, a coupon of 4% paid annually, a maturity of 30 years, and a yield to maturity of 7%. What rat

e of return will be earned by an investor who purchases the bond for $627.73 and holds it for 1 year if the bond’s yield to maturity at the end of the year is 8%?
Business
1 answer:
Lelechka [254]3 years ago
4 0

Answer:

-11.8%

Explanation:

the key to answer this question is to remember that valuation of a bond depends basically of calculating the present value of a series of cash flows, so let´s think about a bond as if you were a lender so you will get interest by the money you lend (coupon) and at the end of n years you will get back the money you lend at the beginnin (principal), so applying math we have the bond value given by:

price=\frac{principal*coupon}{(1+i)^{1} }+ \frac{principal*coupon}{(1+i)^{2} } \frac{principal*coupon}{(1+i)^{3} }+...+\frac{principal+principal*coupon}{(1+i)^{n} }

so in this particular case that one year later there are 29 years to maturity so we have:

price=\frac{1,000*0.04}{(1+0.08)^{1} }+ \frac{1,000*0.04}{(1+0.08)^{2} } \frac{1000*0.04}{(1+0.08)^{3} }+...+\frac{1,000+1,000*0.04}{(1+0.08)^{30} }

price=553.6638

so as we have a higher rate the investment has the next return:

return=\frac{553.66}{627.73} -1

return=-11.8\%

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tiny-mole [99]

Answer:

real GDP

Explanation:

The above rule was proposed by Milton Friedman that the money supplied by the central bank be increased by constant percentage on annual basis. In other words, constant money growth rate rule suggested money supply growth rate be equal to GDP growth rate annually.

According to Friedman, monetary policy contributes to fluctuation in an economy. He suggested that the best way to stabilize a fluctuating economy is to allow the central bank increase money supply in the long run by a targeted amount annually irrespective of the situation of the economy.

6 0
3 years ago
Z Corp. can make three individual deliveries to three different customers at a cost of $500 each or can consolidate them into on
8_murik_8 [283]

Answer:

C. No, it will increase cost by $100.

Explanation:

Z Corp. can make three individual deliveries to three different customers at a cost of $500 each

Given that:

Cost of shipment = $1300

Cost of each delivery = $500

Stop of charge = $100 per stop

Total cost if for individual delivery to three different customers = 3($500) = $1500

Since they are three different customers, the total stop charge = 3($100)

cost for consolidating them into one shipment= $1300 + 3($100) = $1300 + $300 = $1600

Therefore there is an increase in cost of $1600 - $1500 = $100

7 0
3 years ago
Read 2 more answers
The firm negotiates a new agreement with its workers for lower wages. The ATC curve should be __________ and the AFC curve shoul
WINSTONCH [101]

Lower; unchanged

  • Average total cost (ATC) in economics is calculated as total fixed and variable costs divided by the number of units produced. The normal shape of the average total cost curve is a U, meaning it drops, bottoms out, and then rises. The total cost of an organization is the sum of its fixed and variable costs.
  • The vertical summation of AFC and AVC must be obtained in order to graph average total costs (ATC). Plot the points as shown on the left after adding the two at each output level. Because it is the result of adding the AFC and AVC curves, the ATC curve is higher than the other two. You can see that it is U-shaped, just like the AVC curve, on the left.

Thus this is the answer.

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4 0
2 years ago
A ticket to a concert costs $45. You have a ticket and can resell it for $75. Your opportunity cost of actually attending the co
Amanda [17]

Answer:

$75

Explanation:

7 0
2 years ago
C&A sells T-shirts for $20 that cost $5 to produce. The annual holding cost percentage is 10% and the T-shirts turn 25 times
Angelina_Jolie [31]

Answer:

B. $0.02

Explanation:

The computation is shown below:

Since the annual holding cost percentage is 10% and the cost of production is $5. So, the holding cost would be

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All other information which is given is not relevant. Hence, ignored it

8 0
3 years ago
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