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brilliants [131]
3 years ago
11

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

bitrage-free price of that bond?
Business
1 answer:
Firdavs [7]3 years ago
3 0

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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For each of the following, compute the present value: (Do not round intermediate calculations and round your answer to 2 decimal
timurjin [86]

Answer:

Present value = FV / (1 + r)^t

1. PV = $19,415 / (1 + 0.07)^15

PV = $19,415 / (1.07)^15

PV = $19,415 / 2.759031

PV = $7,036.89

2. PV = $47,382 / (1 + 0.11)^8

PV = $47,382 / (1.11)^8

PV = $47,382 / 2.3045378

PV = $20,560.31

3. PV = $312,176 / (1 + 0.10)^13

PV = $312,176 / (1.10)^13

PV = $312,176 / 3.4522712

PV = $90,426.27

4. PV = $629,381 / (1 + 0.13)^25

PV = $629,381 / (1.13)^25

PV = $629,381 / 21.230542

PV = $29,645.07

5 0
3 years ago
Your restaurant has assets of $64,342 and liabilities of $47,266. What is the equity of your business?
Alborosie

Answer:

Equity of the business= $17,076.

Explanation:

Equity as used in business is used to refer to the difference between the worth of a business (its assets) and what the business owes (debts and liabilities).

In other words, total equity refers to the value which is left in the company after the total liabilities must have been subtracted from the total assets.

The formula to calculate total equity is given below:

Equity = Assets - Liabilities

Therefore to calculate the equity above, we have:

Equity = $64,342 - $47,266

Equity = $17,076.

4 0
3 years ago
Orlando Company, which applies overhead to production on the basis of machine hours, reported the following data for the period
astraxan [27]

Answer:

$37,600 favorable

Explanation:

Variable overhead spending variance can be computed as;

= (Actual hours worked × Actual variable overhead rate) - ( Actual hours worked - Standard variable overhead rate)

= ( 18,800 hours × $77,700/12,000) - (18,800 hours × $4.5)

= [(18,800 × $6.5) - (18,800 × $4.5)]

= $122,200 - $84,600

= $37,600 favorable

6 0
2 years ago
Christian spends a significant amount of his time at work performing tasks such as distributing work among his subordinates and
Margaret [11]

Answer:

Distributing work among his subordinates and arranging their shifts and tasks to be performed is related most closely to controlling and analyzing performance against goals managerial function.

Explanation:

A manager is who is in charge of departments in companies, guiding the people, making decisions planning for better.

The are four functions of management in industries include distributing work among subordinates and arranging their shifts and tasks to be performed, controlling a workflow, analyzing performance against goals and leading to internal goals achievement.

6 0
3 years ago
Noncompensatory stock option plans have all of the following characteristics except:__________
zmey [24]

Answer: d. A provision related to the achievement of certain performance criteria

Explanation:

While compensatory plans are used in order to compensate the employees of a particular company, the noncompensatory stock option is one whereby the employees of a company are allowed to purchase the stock of that company at a particular price t a specific price and at a particular time period.

Some of its characteristics include:

• participation by substantially all full-time employees who meet limited employment qualifications.

• equal offers of stock to all eligible employees.

• a limited amount of time permitted to exercise the option.

Option D that "provision related to the achievement of certain performance criteria" isn't a characteristics. Therefore, D is the answer.

7 0
2 years ago
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