With higher interest rates, can a bank borrow more or less money

Jallouk Corporation has two different bonds currently outstanding. Bond M has a face value of $20,000 and matures in 20 years. T

eduard

Answer:

The price of the bond is $ 21,541.53

Explanation:

The price of the bond is the present value of all cash inflows expected from the bond throughout the bond's life.

The cash inflows comprise of coupon interest interest payments as well as the repayment of the principal amount(the face value of $20,000) at redemption.

The present value is computed by multiplying the cash inflows by the discount factor.

The formula for discounting factor =1/(1+r/2)^t

r is the required yield of 5.4% divided by 2 since the coupon is payable twice a year.

Find attached.

Download xlsx

7 0

3 years ago

Advocates of the rational-expectations approach predict that a credible policy to lower inflation will result in a loss of outpu

lubasha [3.4K]

Answer:

The correct answer is lower.

Explanation:

The theory of rational expectations is a hypothesis of economic science that states that predictions about the future value of economically relevant variables made by agents are not systematically wrong and that errors are random (white noise). An alternative formulation is that rational expectations are "consistent expectations around a model," that is, in a model, agents assume that the predictions of the model are valid. The rational expectations hypothesis is used in many contemporary macroeconomic models, in game theory and in applications of rational choice theory.

Since most current macroeconomic models study decisions over several periods, the expectations of workers, consumers and companies about future economic conditions are an essential part of the model. There has been much discussion about how to model these expectations and the macroeconomic predictions of a model may differ depending on the assumptions about the expectations (see the web's theorem). To assume rational expectations is to assume that the expectations of economic agents can be individually wrong, but correct on average. In other words, although the future is not totally predictable, it is assumed that the agents' expectations are not systematically biased and that they use all the relevant information to form their expectations on economic variables.

3 0

3 years ago

During the period, Sanchez Company sold some excess equipment at a loss. The following information was collected from the compan

Mice21 [21]

Answer:

Part 1

Cost of Equipment Sold = $9300

Accumulated Depreciation of Equipment Sold = $ 1100

Cash received from Sale = $5300

Part 2

Net Cash Flows from Operating Activities

Add Back (Positive) to Operating Profit for the year : Loss on sale of equipment $ 2900

Part 3

Net Cash flows from Investing Activities

Add (Positive) Proceeds from Sale of Equipment $ 5300

Explanation:

Part 1

Cost of Equipment Sold:

The figure is obtained from Equipment At Cost Account.

Open the Account as follows:

Beginning Balance $ 20300 (debit), Ending Equipment $ 11000, Balancing figure $ 9300 (20300-11000) is the cost of equipment sold.

Accumulated Depreciation of Equipment Sold

The figure is obtained from Accumulated Depreciation.

Open the Account as follows:

Beginning Balance $ 1980 (credit), Profit and loss - Depreciation $ 870 (credit), Ending Balance $ 1750 (debit), Balancing figure $ 1100 (1980+870-1750) is the Accumulated Depreciation on Equipment Sold

Cash Received on Sale

This figure is figure is obtained from Equipment Disposal Account.

Open the Account as follows:

Cost of Equipment Sold $ 9300 (debit), Accumulated depreciation on equipment sold $1100(credit),Loss on Sale of Equipment $2900(credit),the Balancing figure $5300 (9300-1100-2900)

Part 2

Loss on sale of Equipment is the only Income Statement Item affecting the Operating Activity of the Cash Flow Statement.

Add back to Operating profit since this is a non-cash item and was initially deducted in the calculation of Operating Profit.

Part 3

Sale of Equipment results in Cash Inflow and affects the Cash Flows from Investing Activities Section of Cash Flow Statement.

Hence a positive amount should be added to reflect this inflow.

4 0

3 years ago

Under this kind of program, cities demolished poor neighborhoods in city centers that occupied potentially valuable real estate;

german

The description explained depicts urban renewal.

Urban renewal were the policies that were out in place to enable housing authorities and local governments to demolish the neighborhoods that were considered to be blighted and poor and then replace such neighborhoods with real estate that were more valuable and were usually reserved for the white people.

Houses that were seen to be slums were destroyed and newer and fascinating neighborhood were constructed.

In conclusion, the correct option is C "urban renewal".

Read related link on:

brainly.com/question/12979681

8 0

3 years ago

Jay's Bakery has a bond issue outstanding that matures in eight years. The bonds pay interest semiannually. Currently, the bonds

asambeis [7]

Answer:

Ans. The after tax cost of this debt is 4.8526% annual.

Explanation:

Hi, first we have to establish the amount to pay for each coupon. In our case, the coupon is paid semi-annually, so the coupon is:

$Coupon=\frac{CouponRate}{2} *100=\frac{0.057}{2} *100=2.85$

we also need to take into account that this is an eight years bond, we need to change years into semesters, so 8 years = 16 semesters.

We´re going to need MS Excel to find this value (Function "IRR"), Please see the attached excel sheet for further clarifications.

This is what it should look like

Price 97,8

Coupon 5,70% annual

Coupon 0,0285 semi-annual

taxes 21%

time 8 years

time 16 semesters

Period Cash Flow

0 97,8

1 -2,85

2 -2,85

3 -2,85

4 -2,85

5 -2,85

6 -2,85

7 -2,85

8 -2,85

9 -2,85

10 -2,85

11 -2,85

12 -2,85

13 -2,85

14 -2,85

15 -2,85

16 -102,85

Using the "IRR" function, we get 3.0255%, but this discount rate is semi-annual, and the answer we are looking for has to be effective annual, therefore, we need to use the followiong formula.

$r(Annual)=(1+0.030255)^{2 } -1=0.061425$

So our discount rate (cost of this debt) before taxes is 6.1425% annual. In order to find the after tax cost of this debt, we have to use the following formula.

$AfterTaxCost=Before TaxCost(1-Taxes)=0.061425*(1-0.21)=0.048526$

Therefore, the after tax cost of this debt is 4.8526% annual.

Best of luck.

3 0

3 years ago

With higher interest rates, can a bank borrow more or less money ​

With higher interest rates, can a bank borrow more or less money