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Kaylis [27]
3 years ago
11

You are going to make an investment of $1000, and are considering 2 options: Option one is a zero-coupon 5-year bond of a compan

y that just declared bankruptcy. Its face value is $1000 and its current price is $250 (so you would purchase 4 of them). You believe that at the time of bond maturity, there is a 50% chance that bond holders will end up receiving 20% of face value, and a 50% chance that bond-holders will receive 35% of face value (there is no chance the bond-holders will receive the full $1000 of face value).
a. What is the expected return of the risky corporate bond over the 5-year holding-period (in %)?
b. What is its effective annual return?
c. Which one of these statements is true?

1. The risky corporate bond is the superior investment
2. The government bond is the superior investment
Business
1 answer:
Andrei [34K]3 years ago
8 0

Answer:

a. What is the expected return of the risky corporate bond over the 5-year holding-period (in %)?

expected return in $ = (50% x 20% x $1,000 x 4) + (50% x 35% x $1,000 x 4) = $400 + $700 = $1,100

holding period return = ($1,100 - $1,000) / $1,000 = 10%

b. What is its effective annual return?

(1 + 10%)⁰°² - 1 = 1.92%

b. What is its effective annual return?

  • 2. The government bond is the superior investment

The yield of he corporate bond is very low and the risk is too high.

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Answer:

The answer is B. is designed to match revenues and expenses.

Explanation:

Accrual Accounting method records revenues and expenses when they are incurred, regardless of when cash is received or paid.

5 0
2 years ago
Ordinary repairs meet all of the following criteria except: Multiple Choice Are expenditures to keep an asset in good operating
spin [16.1K]

Answer:

The correct answer is letter "B": Extend the useful life of an asset beyond its original estimate by several years.

Explanation:

Ordinary repairs refer to routine maintenance that equipment and machinery need to work over its estimated useful life. <em>It does not aim to extend the life of the equipment but helps meeting the estimated time a company plans to use those assets.</em> In accounting terms, ordinary repairs demand to record a debit to an expense account and a credit to a cash account.

7 0
3 years ago
Ellen purchased a dishwasher, which cost $315 before the 9. 22% sales tax. She used the machine an average of 10 times per week
antiseptic1488 [7]

Cost is the amount of spending on a product or service. The lifetime cost of the dishwasher was $1029.8 which is $1030 approximately.

<h3>What is the cost?</h3>

Cost is the amount incurred on acquiring a product or using a service. Cost is the value of the product or service.

The lifetime value of an asset is the total expense incurred on the asset from acquisition till disposal.

The lifetime cost of the dishwasher will be the sum of its cost, sales tax, and water and electricity charges for 6 years.

The water and electricity charges are $0.09 and $0.13 per use. The total number of times the dishwasher is used can be calculated as:

The number of use per week are 10, number of weeks in a year are 52, and number of years of use are 6.

\rm Number\:of\:uses = 10\:times\times 52\:weeks\:\times6\:years\\\\\rm Number\:of\:uses = 3120\:times

Therefore, the water and electricity charges will be:

\rm Water\:charges = 3,120 \times \$0.09\\\\\rm Water\:charges = \$280.08\\\\\rm Electricity \:charges = 3,120\times \$0.13\\\\\rm Electricity \:charges = \$405.60

The cost of the dishwasher will be a combination of its purchase price and sales tax. Therefore:

\rm Cost\:of\:dishwasher = \$315 + 9.22\%\\\\\rm Cost\:of\:dishwasher = \$344.043

The lifetime cost of the dishwasher will be:

\rm Lifetime\:cost\:of\:dishwasher = \$344.043 + \$280.08 +\$405.60\\\\\rm Lifetime\:cost\:of\:dishwasher = \$1029.7\\\\\rm Lifetime\:cost\:of\:dishwasher = \$1030 (approximately)

Therefore the correct option is A.

Learn more about cost here:

brainly.com/question/4557688

8 0
2 years ago
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Answer:

$454,000

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Ending inventory is the value of the inventory in the store at the end of the year.

Goods are purchased and added to the the beginning inventory, the sale for the period is deducted from it. the residual value is the value of ending Inventory.

In This question it is assumed that there is $26,000 of beginning inventory of the goods. $470,000 of the purchases were made and at the end of the year there was $42,000 balance of inventory.

We can calculate the deduction value as follow

Ending Inventory = Beginning Inventory + Purchases - deduction

$42000 = $26,000 + $470,000 - deduction

$42000 = $496,000 - deduction

Deduction = $496,000 - $42,000 = $454,000

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