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IrinaVladis [17]

3 years ago

6

Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of ho

lding the security is 13.80%. Assuming that both investments have equal risk and Ericâs investment time horizon is flexible, which of the following investment options will exhibit the lower price?
a. An investment that matures in four years
b. An investment that matures in five years

1 answer:

Scrat [10]3 years ago

7 0

Answer:

The second option which 5 years to maturity exhibited a lower price of

$523.95

Explanation:

In order to ascertain the option with lower, it is important we determine the price of each investment based on the fact the price of an investment opportunity today is the present value of its future cash flow is the maturity value of $1000 in both cases:

a.

PV=FV/(1+r)^n

PV=price of investment

FV=future value=$1000

r= 13.80%.

n=4 years

PV=$1000/(1+13.80%)^4

PV=$596.25

b.

PV=FV/(1+r)^n

PV=price of investment

FV=future value=$1000

r= 13.80%.

n=5 years

PV=$1000/(1+13.80%)^5

PV= $523.95

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Answer:

$960,000

Explanation:

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4 years ago

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A company decides to establish an EOQ for an item. The annual demand is 400,000 units, each costing $9, ordering costs are $35 p

Vitek1552 [10]

Answer and Explanation:

a. The computation of the economic order quantity is shown below:

$= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

$= \sqrt{\frac{2\times \text{400,000}\times \text{\$35}}{\text{\$1.98}}}$

= 3,761 units

b. The number of orders would be equal to

= Annual demand ÷ economic order quantity

= 400,000 ÷ 3,761 units

= 106.35 orders

c. The computation of the total cost is shown below:

= Purchase cost + ordering cost + carrying cost

where,

Purchase cost = Annual consumption × Cost per unit

= 400,000 × $9

= $2,800,000

Ordering cost = (Annual demand ÷ EOQ) × Cost to place one order

= (400,000 ÷ 3,761) × $35

= $3,723

Carrying cost = (EOQ ÷ 2) × carrying cost percentage × Cost per unit

= (3,761 ÷ 2) × 22% × $9

= $3,723

Now put these values to the above formula

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4 years ago

In the prisoners' dilemma game, self-interest leads

Sati [7]

Answer:

The correct answer is option d.

Explanation:

Prisoner's dilemma game is a game of strategy where the individual rational decisions lead to collective irrationality. When the individual players act in their self-interest they are unable to produce an optimal outcome.

For instance, if two prisoners are captured and both of them confess that the other person has committed the crime to save themselves. Both of them will be convicted. This outcome will not be consistent with any prior agreement and will also cause a loss to both.

So individual rational decision to save oneself will lead to a collective loss of being convicted.

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4 years ago

If the firm’s marginal cost per customer is $30, and the firm wants to follow the profit-maximizing rule, what would be the firm

Mazyrski [523]

Answer:

The quantity of customers is 4000, and the price is $30.

Explanation:

Assumed that the table is provided depicting the pricing and revenue structure.

Now, that the profit is maximized for monopoly when the Marginal Revenue = Marginal Cost.

That is when additional cost is recovered from additional revenue.

Here, when 4,000 customers are their then Marginal Revenue for each 1,000 customers = $30,000

Thus, marginal revenue for each customer = $30,000/1,000 = $30 for each customer.

And since the marginal cost is also $30 for each customer:

Maximum profit shall be:

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4 0

3 years ago

Which of the following would be classified as a financing activity on the statement of cash flows?

PtichkaEL [24]

Answer: Repurchasing capital stock from owners.

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These transactions are usually made for financing of company projects or for expansion purposes.

Among all other options only repurchasing of capital stock will result in reduction of long term liability of the company.

Hence, option D is correct.

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4 years ago