2.5 - Quiz: Recording Business Transactions Quiz

A $ 1 comma 000 bond with a coupon rate of 6.2% paid semiannually has two years to maturity and a yield to maturity of 6%. If

pav-90 [236]

Answer:

As a result of a fall in interest and YTM, the bond price will increase by $15.04

Explanation:

To calculate the change in price due to fall in interest rate, we must first calculate the price of the bond before and after the fall of interest rates.

To calculate the price of the bond, we need to first calculate the coupon payment per period. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,

Coupon Payment (C) = 1000 * 0.062 * 0.5 = $31

Total periods (n)= 2 * 2 = 4

r or YTM = 6% * 1/2 = 3% or 0.03

The formula to calculate the price of the bonds today is attached.

Before Interest rates Fell

Bond Price = 31 * [( 1 - (1+0.03)^-4) / 0.03] + 1000 / (1+0.03)^4

Bond Price = $1003.717098 rounded off to $1003.72

After Interest Rates Fell

New YTM = 6% - 0.8% = 5.2% or 0.052

Semi Annual YTM = 0.052 * 0.5 = 0.026

Bond Price = 31 * [( 1 - (1+0.026)^-4) / 0.026] + 1000 / (1+0.026)^4

Bond Price = $1018.764647 rounded off to $1018.76

Change in Bond Price = 1018.76 - 1003.72 = $15.04

As a result of a fall in interest and YTM, the bond price increased by $15.04

7 0

3 years ago

Leslie works for a local ad agency as an intern. The agency is hired to develop an advertising campaign for a chain of coffee sh

Blizzard [7]

Answer:

With reference to the above scenario, "big ideas":

could become the bases of creative and successful advertising campaigns.

Explanation:

The 1st option is not correct as the statement "big ideas are impossible to develop as they are not applicable to retail chains" is not correct because ideas are required by every company.
The statement which states that big ideas are only needed in advertising for consumer services is not correct as every industry needs advertising.
The statement which states that big ideas are typically not the bases for effective advertising campaigns is also incorrect as big ideas are necessary fro effective advertising campaigns.
Big ideas are not limited to the advertisement of business to business scenario yet they are applicable to every kind of advertisement.
So the statement which states that big ideas can become the bases of creative and successful advertising campaigns is correct.

5 0

3 years ago

During an economic downturn, consumers spend considerably less on goods and services. this results in layoffs that are classifie

kati45 [8]

During an economic downturn, consumers spend considerably less on goods and services. this results in layoffs that are classified as CYCLICALLY UNEMPLOYED.

7 0

3 years ago

A salesperson is trying to sell you a phone that has 16gb of memory saying, “that’s enough space to record an hour of high quali

Reptile [31]

A 16GB memory has the capacity to hold much more than an hour of high quality video. The quality of a video determines how much space it will occupies. An average top quality video can not be more than 3.6 GB in size. This means that, a 16 GB memory will hold more than fours hours long video recording. It can be much more than this is the video is of low quality.

5 0

3 years ago

Read 2 more answers

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. Compute the number of units

juin [17]

Answer:

see explanation

Explanation:

Units to achieve target profit = Target Profit + Fixed Cost ÷ Contribution margin ratio.

where ,

Contribution margin ratio = Contribution ÷ Sales

5 0

3 years ago