Select the correct answer.

Problem 7-5 Coupon Rates [LO2] Gabriele Enterprises has bonds on the market making annual payments, with eight years to maturity

kakasveta [241]

Answer:

5.32%

Explanation:

The computation of the coupon rate on the bonds is shown below:

As we know that

Current price = Annual coupon × Present value of annuity factor(6.1%,8 ) + $1,000 × Present value of discounting factor(6.1%,8)

$952 = Annual coupon × 6.18529143 + $1,000 × 0.622697222

Annual coupon is

= ($952 - 622.697222) ÷ 6.18529143

= $53.24

Now

Coupon rate is

= Annual coupon ÷ Face value

= $53.24 ÷ $1,000

= 5.32%

Working notes:

1. Present value of annuity is

= Annuity × [1 - (1 + interest rate)^-time period] ÷ rate

= Annual coupon × [1 - (1.061)^-8] ÷ 0.061

= Annual coupon × 6.18529143

And,

2.Present value of discounting factor is

= $1,000 ÷ 1.061^8

= $1000 × 0.622697222

4 0

3 years ago

uppose the annual demand function for the Honda Accord is Qd = 430 – 10 PA + 10 PC – 10 PGwhere PA and PC are the prices of the

emmainna [20.7K]

Answer:

Qd = 400 units

elasticity of demand of the Accord with respect to the price of Camry = 0.5

elasticity with respect to the price of gasoline = -0.075

Explanation:

Solution:

The annual demand function for the Honda Accord is:

Qd = 430 – 10 PA + 10 PC – 10 PG

Where,

PA = Price of Honda Accord

PC = Price of Honda Camry

PG = Price of Gasoline per gallon.

Selling Price of both cars = $20,000

Fuel Cost = $3 per gallon.

a) Elasticity of Demand of the Accord with respect to the price of Camry.

First, we need to calculate the number of units demanded.

Qd = 430 – 10 PA + 10 PC – 10 PG

Qd = 430 – 10 (20) + 10 (20) – 10 (3.00)

Qd = 430 - 200 + 200 - 30

Qd = 430 - 30

Qd = 400 units

Cross-price elasticity of the Accord with respect to the price of the Camry will be:

Cross Price = (dQd/dPC) x (PC)/(Qd)

dQd/dPC = 10

PC = 20

Qd = 400

So,

Cross Price = 10* 20/400

Cross Price = 0.5

b) Elasticity with respect to the price of gasoline?

Elasticity = (dQd/dPG)*(PG/Qd)

dQd/dPG = -10

PG = 20

Qd = 400

Elasticity = (-10)*(3/400)

Elasticity = -0.075

5 0

3 years ago

From the following information, construct a simple income statement and a balance sheet:

yaroslaw [1]

Answer and Explanation:

The Preparation of the simple income statement and a balance sheet is shown below:-

Corporation X

Income Statement

for the Year Ended xxxx

Particulars Amount

Sales $1,000,000

Less: Cost of goods sold $500,000

Gross profit $500,000

Less: Other expenses $60,000

EBIT $440,000

Less: Interest $70,000

EBT $370,000

Less: Income tax $100,000

Net income $270,000

Number of shares outstanding $80,000

Earning per share $3.375

(Net income ÷ Number of shares outstanding)

Corporation X

Income Statement

for the Year Ended xxxx

Particulars Amount

Assets

Cash $70,000

Accounts Receivable $150,000

Inventory

Raw Material $80,000

Finished Goods $250,000

Total Current Assets $550,000

Plant & Equipment $410,000

Total Assets $960,000

Liabilities

Accounts Payable $160,000

Other Current Liabilities $60,000

Total Current Liabilities $220,000

Long term Debt $200,000

Equity $540,000

Total Liabilities & Equity $960,000

6 0

3 years ago

Where do you think the biggest hole is in the registration statement?

Alex17521 [72]

In the United States, a registration statement is a set of documents, including a prospectus, which a company must file with the U.S. Securities and Exchange Commission before it proceeds with a public offering.

Not that sure though
Best luck with your studying

8 0

3 years ago

The following information is for a collateralized mortgage obligation (CMO). Tranche A of $50 million receives quarterly payment

Verdich [7]

<h3>Answer:</h3><h3>Tranche A interest $50m*9%*3/12 $1,125,000 </h3><h3>Tranche B interest $100m*10%*3/12 $2,500,000 </h3><h3>Tranche C interest $50m*11%*3/12 $1,375,000</h3><h3>Principal balances:</h3><h3>Tranche A $47 million</h3><h3>Tranche B $100 million</h3><h3>Tranche C $50 million</h3><h3 /><h3 /><h3>Explanation:</h3><h3>The approach in debts securitization is that the most senior tranche,tranche A in this question receives any payment received in excess of periodic payment of interest.</h3><h3>On that basis,the quarterly payments can be shared between the three tranches as follows:</h3><h3>Total quarterly payment received $8000,000</h3><h3>Tranche A interest $50m*9%*3/12 ($1,125,000) </h3><h3>Tranche B interest $100m*10%*3/12 ($2,500,000) </h3><h3>Tranche C interest $50m*11%*3/12 ($1,375,000) </h3><h3>Balance left $3,000,000</h3><h3>As earlier reiterated, the balance of $3 million would be used to redeem part of tranche A,hence in tranche A is $47 million($50m-$3m):</h3><h3>Principal balances:</h3><h3>Tranche A $47 million</h3><h3>Tranche B $100 million</h3><h3>Tranche C $50 million</h3>

8 0

3 years ago