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Maurinko [17]
3 years ago
12

Your client has been offered a 5-year, $1,000 par value bond with a 10 percent coupon. Interest on this bond is paid quarterly.

If your client is to earn a simple rate of return of 12 percent, compounded quarterly, how much should she pay for the bond
Business
1 answer:
Serjik [45]3 years ago
5 0

Answer:

$906.18

Explanation:

Step 1: Calculation of the present value of the coupon (PVC) cash flow

The formula for calculating the PV of an ordinary annuity is used as follows:

PVC = P × [{1 - [1 ÷ (1+r)]^n} ÷ r] …………………………………. (1)

Where;

PVC = Present value of the coupon (PVC) payment =?

P = Quarterly coupon amount = $1,000 × (10%/4) = $25

r = interest rate = 12% annual = 12% ÷ 4 quarterly = 3% or 0.03 quarterly

n = number of period = 5 years = 7 × 4 quarters = 28 quarters

Substitute the values into equation (1) to have:

PVC = 25 × [{1 - [1 ÷ (1+0.03)]^28} ÷ 0.03] = $469.10

Step 2: Calculation of the present value of the face value (PVFAV) of the bond

The simple PV formula is used as follows:

PVFAV = FAV ÷ (1 + r)^n ……………………………………. (2)

Where;

PVFAC = Present value of the face value of the bond = ?

FAC = Face value of the bond = $1,000

r and n are as already given in step 1 above

Substituting these values into equation (2), we have:

PVFAV = FAV ÷ (1 + 0.03)^28 = $437.08

Step 3: Calculation of the market price of the bond

Market price of the bond = PVC + PVFAC …………………………… (3)

From step 1, PVC is $469.10, and PVFAC is $437.08 from Step 2. We can them substitute for them  in equation (3) and have:

Market price of the bond = $469.10 + $437.08 = $906.18

Conclusion

Therefore, she should pay $906.18 for the bond.

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3 years ago
True or false: standard rules exist to help managers identify appropriate allocation bases.
tangare [24]

False, standard rules doesn't exist to help managers identify appropriate allocation bases.

Standard Rules refers to strong moral commitments or ethics that allows smooth working of an organisation. It is basically fundamental requirements to govern an organisation. It could play a role in appropriate allocation bases but doesn't exist for it rather to keep check on principles and equality in an organisation. They are not legally binding. But, appropriate allocation bases require judgement. Managers use- the direct method or the sequential (or step) method or the reciprocal method, to develop judgements about allocation bases. Hence, the statement is false.

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4 0
1 year ago
B. If 18,000 units are produced, what is the variable cost per unit?C. If 21,000 units are produced, what are the total variable
alexdok [17]

Answer:

Instructions are listed below.

Explanation:

<u>Looking on the internet I found the necessary information to solve this problem:</u>

Giving the following information:

Units= 16,000

Fixed Overhead= $5*16,000= 80,000

Direct material= 12

Direct labor= 9

Indirect material= 1 (part of overhead)

variable overhead= 2

B. Units= 18,000

Variable cost per unit= direct material + direct labor + variable overhead= 12 + 9 + (2+1)= 24

C. Units=  21,000

Total variable cost= unitary cost* number of units

TVC= 24*21,000= $504,000

D. Units= 11,000

TVC= 24*11,000= $264,000

E. Units= 19,000

Overhead= variable overhead + fixed overhead

Overhead= 3*19,000 + 80,000= $137,000

F. Units= 23,000

Total overhead= 3*23,000 + 80,000= $149,000

G. Units= 19,000

Unitary overhead= total overhead/ number of units

Unitary overhead= 3 + (80,000/19,000)= $7.21

H. Units= 25,000

Unitary overhead= 3 + (80,000/25,000)= $6.2

3 0
3 years ago
In expanding into foreign markets, a company can strive to gain competitive advantage (or offset domestic disadvantages) by
il63 [147K]

Here's the options that completes the question:

A. building a state-of-the-art facility to fully capture scale economies via an export strategy.

B. using export, licensing, or franchising strategies so as to minimize risk and capital investment.

C. locating buyer-related activities in all countries where it sells its product.

D. dispersing its activities among various countries in a manner that lowers costs or else helps achieve greater product differentiation and transferring competitively valuable competencies and capabilities from its domestic operations to its operations in foreign markets.

E. avoiding the use of strategies that entail coordinating its domestic strategic moves with its strategic moves in the various foreign markets that it enters.

Answer:

D. dispersing its activities among various countries in a manner that lowers costs or else helps achieve greater product differentiation and transferring competitively valuable competencies and capabilities from its domestic operations to its operations in foreign markets

Explanation:

A key condition that makes a firm achieve competitive advantage or a favourable business position is it's costs and product design.

If a firm can lower it's cost in a foreign market while also maintaining quality just as it is has done in it's domestic market then it stands a better chance of success.

For example, if a firm in the clothing line industry decides to expand its operations to a foreign market eg Africa.

A key factor in determining its success is its ability to lower its cost in the foreign market as compared to competitors, while also achieving the same quality standards of products.

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Out of the money you make set some aside for unexpected expenses
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