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company's retained earnings have a financing cost associated with them because retained earnings belong to which of the followin

Masja [62]

Answer:

a. The common stockholders.

Explanation:

A company's retained earnings have a financing cost associated with them because retained earnings belong to the common stockholders.

Retained earnings can be defined as the accumulated profits or net income generated by an organization but are not distributed or given as dividends to the stockholders, rather are reinvested in to the business.

Generally, retained earnings are used to pay off debts, used for capital expenditures and working capitals.

Retained earnings represents the total stockholders' equity reinvested back into the company.

5 0

3 years ago

CIRP. Jason Smith is a foreign exchange trader with Citibank. He notices the following quotes. Spot exchange rate SFr1.6627/$ Si

Zinaida [17]

Answer:

Answer explained below

Explanation:

A.

For six months, rSFr => 1.50% and r$ => 1.75%.

Since the exchange rate is in SFr/$ terms, the appropriate expression for the interest rate parity relation is

F/S => [ (1 + rSFr ) / ( 1 + r$) ]

then we can also say

F/S *( 1 + r$) => (1 + rSFr )

Now Left side => F/S *( 1 + r$) => [ ( 1 + 6.558) / ( + 1.6627) ] * (1 +0.0175)

Left side => 1.0133

and Right side => (1 + rSFr ) => 1.0150

Since the left and right sides are not equal, IRP is not holding.

B and C.

Since IRP is not holding, there is an arbitrage possibility.

As 1.0133 < 1.0150,

we can say that the EuroSFr quote is more than what it should be as per the quotes for the other three variables. And, we can also say that the Euro$ quote is less than what it should be as per the quotes for the other three variables. Therefore, the arbitrage strategy should be based on borrowing in the Euro$ market and lending in the SFr market. The steps are as as follows. -

Borrow $1000000 for six-months at 3.5% per year and then we will pay back

=> $1000000 * (1 + 0.0175) => $1,017,500 six months later.

Convert $1000000 to SFr at the spot rate to get SFr 1662700.

Lend SFr 1662700 for six-months at 3% per year. Will get back

=> SFr1662700 * (1 + 0.0150) => SFr 1,687,641 six months later.

Sell SFr 1687641 six months forward. The transaction will be contracted as of the current date but delivery and settlement will only take place six months later. So, sixmonths later exchange

SFr 1,687,641 for => SFr 1687641 ⁄ SFr 1.6558/$ => $1,019,230.

The arbitrage profit six months later is 1019230 - 1017500 = $1,730

6 0

3 years ago

Today is your 20th birthday, and your parents just gave you $5,000 that you plan to use to open a stock brokerage account. You p

Alex Ar [27]

Answer:

You anticipate that you will have $432,522 in the account on your 65th birthday, following your final contribution.

Explanation:

To calculate this, we use the formula for calculating the future value (FV) and FV of ordinary annuity as appropriate as given below:

FVd = D * (1 + r)^n ......................................................................... (1)

FVo = P * {[(1 + r)^n - 1] ÷ r} ...................... (2)

Where,

FVd = Future value of initial deposit or balance amount as the case may be = ?

FVo = FV of ordinary annuity starting from a particular year = ?

D = Initial deposit = $5,000

P = Annual deposit =s $500

r = Average annual return = 12%, or 0.12

n = number years = to be determined as necessary

a) FV in five years from now

n = 5 for FVd

n = 4 for FVo

Substituting the values into equations (1) and (2), we have:

FVd = $5,000 * (1 + 0.12)^5 = $8,812

FVo = $500 * {[(1 + 0.12)^4 - 1] ÷ 0.12} = $2,390

FV5 = Total FV five years from now = $8,812 + $2,390 = $11,201

FVB5 = Balance after $5,000 withdrawal in year 5 = $11,201 - $5,000 = $6,201.

b) FV in 10 years from now

n = 10 - 5 = 5 for both FVd and FVo

Using equations (1) and (2), we have:

FV of FVB5 = $6,201 * (1 + 0.12)^5 = $10,928

FVo = $500 * {[(1 + 0.12)^5 - 1] ÷ 0.12} = $3,176

FV10 = Total FV 10 years from now = $10,928 + $3,176 = $14,104

FVB10 = Balance after $10,000 withdrawal in year 10 = $14,104 - $10,000 = $4,104

c) FV in 45 years from now

n = 45 - 10 = 35 for both FVd and FVo

Using equations (1) and (2), we have:

FV of FVB10 = $4,104 * (1 + 0.12)^35 = $216,690

FVo = $500 * {[(1 + 0.12)^35 - 1] ÷ 0.12} = $215,832

FV45 = Total FV 45 years from now = $216,690 + $215,832 = $432,522

Conclusion

Therefore, you anticipate that you will have $432,522 in the account on your 65th birthday, following your final contribution.

5 0

3 years ago

Your aunt has promised to give you $5,000 when you graduate from college. You expect to graduate three years from now. If you sp

ikadub [295]

Answer:

The present value of the promised gift will:

be less than $5,000.

Explanation:

The present value of $5,000 to be received in three years' time from today is less than $5,000 received. This is explained by the time value of money concept. If the $5,000 gift is discounted to today's value, using a discount factor of 0.751 (10% in three years' time), it would be $3,755 ($5,000 * 0.751). This means that $5,000 received in year 3 is less than $5,000 received today.

3 0

3 years ago

A Swedish tour guide has devised a clever way for his clients to recognize him. He owns 13 pairs of shoes of the same style, cus

Bezzdna [24]

Answer:

P(13,2) = 169

Explanation:

We have to calculate the combinations for left and right shoe considering is not the same having a right shoe blue and left red than having a right shoe rend and a left red.

there are 13 pairs from whcih she will take a single pair:

$P(n,r) = n^{r} \\$

where:

n = number of pair = 13

r = shoes = 2 (one on each foot)

$P(n,r) = 13^{2} \\$

P(13,2) = 169

5 0

3 years ago