If the company were to issue an annual zero-coupon bond with a maturity of 2 years and par value of $1,000, what would be the ar
1 answer:
Answer:
Note: <em>The complete question is attached as picture below</em>
1a. The one year spot rate can be calculated using the one year zero bond.
PV * (1 + S1) = FV
1 + S1 = 1000 / 900
S1 = 1.1111 - 1
S1 = 0.1111
S1 = 11.11%
1b. PV of the 2 year bond = $950
Annual coupon = 1000 * 5% = $50
950 = 50 / (1 + S1) + (50 + 1000) / (1 + S2)^2
950 = 50 / 1.1111 + 1,050 / (1 + S2)^2
1,050/ (1 + S2)^2 = 950 - 45 = 905
(1 + S2)^2 = 1050 / 905
1 + S2 = 1.160221/2
S2 = 7.714%
1c. Price of the 2 year zero bond = 1,000 / (1 + 0.07714)^2
Price of the 2 year zero bond = 1,000 / 1.1602
Price of the 2 year zero bond = 861.9203586
Price of the 2 year zero bond = $861.92
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Answer:
Please see the calculation explanation below and the depreciation expense chart for all methods is attached.
Explanation:
1. STRAIGHT-LINE DEPRECIATION METHOD:
<em>Depreciation Expense = (Total Cost - Residual Value) / Useful Life </em>
Depreciation Expense = ($70,000 - $10,000) / 3 years
Depreciation Expense = $60,000 / 3 years
Depreciation Expense = $20,000 per year
2. DOUBLE DECLINING BALANCE DEPRECIATION METHOD:
<em>Depreciation Expense Rate = (100% / Useful Life) x 2 </em>
Depreciation Expense Rate = (100% / 3) x 2
Depreciation Expense Rate = 66.67%
<em>2013: </em>
Depreciation Expense = $70,000 x 66.67% = $46,667
<em>2014: </em>
Depreciation Expense = ($70,000 - $46,667) x 66.67% = $15,556
Since the residual value is $10,000 and as per Double Declining Balance Method, the point at which Book Value is equal to the residual value, no depreciation is taken.
<em>Depreciation Expense = (Total Cost - Residual Value) - (Accumulated Depreciation) </em>
Depreciation Expense = ($70,000 - $10,000) - ($46,667)
Depreciation Expense = $13,333
<em>2015: </em>
No Depreciation Expense for year 3, as Book value is already equal to residual value in year 2.
3. PER HOUR DEPRECIATION METHOD:
<em>2013:</em><em> </em>
<em>Depreciation Cost per hour = (Engine Hours in 2013 / Total Engine Hours) x (Total Cost - Residual Value) </em>
Depreciation Cost per hour = (500 / 1,200) x ($70,000 - $10,000)
Depreciation Cost per hour = $25,000
<em>2014: </em>
<em>Depreciation Cost per hour = (Engine Hours in 2014 / Total Engine Hours) x (Total Cost - Residual Value) </em>
Depreciation Cost per hour = (400 / 1,200) x ($70,000 - $10,000)
Depreciation Cost per hour = $20,000
<em>2015: </em>
<em>Depreciation Cost per hour = (Engine Hours in 2015 / Total Engine Hours) x (Total Cost - Residual Value) </em>
Depreciation Cost per hour = (300 / 1,200) x ($70,000 - $10,000)
Depreciation Cost per hour = $15,000
