The current trading price of the Ray Donovan Incorporated bond is $757.11.
To calculate the current trading price of the bond, we need to find the present value of both the semi-annual coupon payments and the face value at maturity. First, we need to adjust the APR and yield to maturity (YTM) to semi-annual rates: 6%/2 = 3% and 11%/2 = 5.5%.
1. Find the present value of the semi-annual coupon payments:
Coupon payment = 3% * $1,000 = $30
PV of coupon payments = $30 * [(1 - (1 + 0.055)⁻²⁰) / 0.055] = $446.11
2. Find the present value of the face value at maturity:
PV of face value = $1,000 / (1 + 0.055)²⁰ = $311.00
3. Add the present values to find the current trading price:
Current trading price = $446.11 + $311.00 = $757.11
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Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $250 million. Annual upkeep is expected to amount to $800,000. The turf will have to be re- placed every 10 years at a cost of $950,000. Painting every 5 years will cost $75,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i = 8% per year?
The price per share for the following year would be $32 given that the stock is anticipated to have an ongoing dividend payment price per share and the cost of capital for the company.
When a stock, like the one described, has an indefinite payout, the price can be calculated by dividing the indefinite payment per share by the cost of capital.
10% interest rate, or 0.10. Base cost present value is equal to $500 million, or $500,000,000.
$1,000,000/r
= $1,000,000 / 0.10
= $10,000,000 is the present value of annual maintenance.
Artificial turf replacement cost present value is calculated as ($2,000,000 * (r / (1 + r)20) - 1) /r
= ($2,000,000 (0:10 / (1 + 0.10)20)-1) / 0.10
= $349,192.50
($250,000* (r/ (1+ r5)-1)/
r= ($250,000* (0.10 / (1+ 0.105)-1) / 0:10)
= $409,493.70 Present value of the painting
As a result, we have: Capitalised cost equals the present value of the base cost less the present value of annual maintenance. Artificial turf replacement costs in present value every 20 years and painting costs in present value every 5 years come to: $500,000,000, $10,000,000, $349,192.50, $409,493.70, or $510,758,686.20.
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one health insurance policy provision states that after the policy has been in force for two years, the insurer cannot void the policy or deny a claim because of a misstatement in the application. this provision is called the
The provision mentioned in your question is known as the "incontestability clause."
This clause protects the policyholder from having their insurance policy voided or a claim denied due to any misstatement in their application, but only after the policy has been in force for two years. It is a consumer protection measure that ensures that insurance companies cannot use minor errors or omissions in the application to deny claims or cancel policies after a certain period. However, if the misstatement was found to be intentional, the incontestability clause may not apply, and the insurer may still be able to deny a claim or void the policy.
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which of the following statements are true? multiple select question. a project with a positive npv creates cash inflows, but it may or may not recover the cost of the original investment. a project with a positive npv will recover the original cost of the investment plus sufficient cash inflows to compensate for tying up funds. the net present value method automatically provides for return of the original investment. the net present value method does not provid
Based on the given statements, the true statements are:
1. A project with a positive NPV will recover the original cost of the investment plus sufficient cash inflows to compensate for tying up funds.
2. The net present value method automatically provides for return of the original investment.
1. A positive NPV indicates that the present value of cash inflows is greater than the present value of cash outflows, which means the project will generate more cash than the initial investment, compensating for the funds tied up.
2. The net present value (NPV) method calculates the difference between the present value of cash inflows and the present value of cash outflows, inherently accounting for the return of the original investment.
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A stock recently paid a $4/share dividend. They maintain the same dividend payments for the next 11 years. Afterwards, they will steadily increase their dividend payments by 2.5%/year, forever. R=14%. Calculate the stock price.
The stock price is $63.09.To calculate the stock price , we need to find the present value of all future dividends and the future stock price. We can use the dividend discount model (DDM) to do this.
First, we need to find the present value of the first 11 years of dividends. Since the dividend payment remains constant for those years, we can use the perpetuity formula:
PV = (D / R) * (1 - (1 + g)⁻ⁿ)
where PV is the present value, D is the dividend payment, R is the required rate of return, g is the growth rate, and n is the number of periods.
In this case, D = $4, R = 14%, g = 0%, and n = 11. Plugging in these values, we get:
PV = (4 / 0.14) * (1 - (1 + 0)⁻¹¹) = $28.57
This is the present value of the first 11 years of dividends.
Next, we need to find the present value of all future dividends beyond year 11. Since the dividend payment increases by 2.5% per year, we can use the growing perpetuity formula:
PV = (D * (1 + g)) / (R - g)
where PV is the present value, D is the first dividend payment after year 11, R is the required rate of return, and g is the growth rate.
To find the first dividend payment after year 11, we need to calculate the dividend payment in year 11 and then increase it by 2.5% each year. The dividend payment in year 11 is:
D11 = D * (1 + g)^11 = 4 * (1 + 0)¹¹ = $4
The first dividend payment after year 11 is:
D12 = D11 * (1 + g) = 4 * (1 + 0.025) = $4.10
Plugging in these values, we get:
PV = (4.10 / (0.14 - 0.025)) = $34.52
This is the present value of all future dividends beyond year 11.
Finally, we need to find the future stock price at the end of year 11, which is simply the expected dividend payment in year 12 divided by the difference between the required rate of return and the growth rate:
P11 = D12 / (R - g) = 4.10 / (0.14 - 0.025) = $34.52
Adding the present values of the first 11 years of dividends and all future dividends, we get the total present value of the stock:
Total PV = $28.57 + $34.52 = $63.09.Therefore, the stock price is $63.09.
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what are what industries produces a product that requires 3.4 lb of materials per unit the allowance for oasis was per unit is 0.3 lb and 0.1 pounds respectively the purchase price is two dollars per pound but a 2% discount is usually taken free cost or 0.1 per pound and receiving and handling cost for 07 per pound the hourly wage rate is pulled off per pound but i raise which will average 0.30 will go into effects of payroll taxes are 1.20 per hour and fringe benefits average 2.44 standard production time is 1 hour per unit 2 hours and 1.1 hours respectively the standard materials quantity per unit is
Based on the information provided, it is difficult to determine the exact industries that produce a product requiring 3.4 pounds of materials per unit. However, we can analyze the costs associated with producing such a product.
The standard materials quantity per unit is 3.4 pounds, with an allowance for oasis of 0.3 pounds and 0.1 pounds respectively. This means that the actual materials needed per unit are 3 pounds and 3.3 pounds for the two scenarios. The purchase price for materials is $2 per pound, with a 2% discount typically taken, bringing the cost to $1.96 per pound. The receiving and handling cost is $0.07 per pound, so the total cost of materials is $6.99 and $7.23 for the two scenarios.
The hourly wage rate for producing the product is $10 per pound, with a raise of $0.30 per pound in effect. Payroll taxes are $1.20 per hour and fringe benefits average $2.44. The standard production time is 1 hour per unit, 2 hours, and 1.1 hours respectively for the three scenarios.
Based on this information, it is clear that the cost of producing a unit of this product will vary depending on the industry and specific factors involved. However, we can conclude that producing this product requires a significant amount of materials, labor, and overhead costs, which will affect the final price of the product.
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If someone asks you a question in the workplace, but you don't know what to answer, what is something you should not say
When you're stumped for an answer in workplace to a question, use this tried-and-true "fail-safe" solution.
What to say in an interview when you're unable to respond to a question?Think about responding with something like, "That's a good question; can I think about it for a bit and get back to you later?" or "Great query! I can respond to some of it, but I'd like to consider it further and get back to you.
What should you say when you don't have the answer to a question?Try saying something like, "That's an interesting question, could I take some time to think it over and get back to you?" or "I can give you a partial answer to that enormous question.
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Question:-
How do you respond when you don't know the answer at work?
what is your effective annual yield in percentages on the mortgage with no points? info copied below you have just bought a new house for $360,000 and are taking out a mortgage for $288,000. your mortgage broker offers you a 30-year fixed-rate mortgage at 6% with no points.
The effective annual yield on the mortgage with no points is 6%.
To calculate the effective annual yield, we need to consider the interest rate, the number of compounding periods per year, and any fees associated with the mortgage. In this case, there are no points, which are fees paid at closing to lower the interest rate, so we only need to consider the interest rate and compounding periods.
The mortgage has a fixed interest rate of 6%, which means that the interest rate will not change over the 30-year term of the loan. The compounding periods are not specified, but assuming monthly compounding, we can calculate the effective annual yield using the formula:
Effective annual yield = (1 + (interest rate / compounding periods))^compounding periods - 1
Plugging in the numbers, we get:
Effective annual yield = (1 + (0.06 / 12))^12 - 1
Effective annual yield = 6.17%
As a result, the effective yearly return on the no-point mortgage is 6.17%. The real return, however, will be the same as the interest rate, which is 6%, because the interest rate is set and there are no costs.
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other things the same, if the fed increases the rate at which it increases the money supply then the short-run phillips curve shifts right in the long run. a. true b. false
False. An increase in the money supply does not cause the Phillips curve to shift in either the short or long run.
The Phillips Curve is an economic theory that states that there is an inverse relationship between inflation and unemployment. It does not directly factor in changes in the money supply.
In the short run, an increase in the money supply can lead to an increase in aggregate demand, and can cause inflation to increase.
In the long run, the increase in the money supply has no effect, as it is offset by an equal decrease in the demand for money.
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You purchased a machine for $1.07 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 40%. If you sell the machine right now (after three years of depreciation) for $756 000, what is your incremental cash flow from selling the machine?
The incremental cash flow from selling the machine is $498,600.
Since the machine has a seven-year life and has been depreciated straight-line to zero over this period, the annual depreciation expense is
$1.07 million / 7 = $153,571.43.
After three years, the accumulated depreciation is
$153,571.43 x 3 = $460,714.29.
Therefore, the book value of the machine is
$1.07 million - $460,714.29 = $609,285.71.
When the machine is sold for $756,000, there is a gain of
$756,000 - $609,285.71 = $146,714.29.
Since the tax rate is 40%, the tax on this gain is
0.4 x $146,714.29 = $58,685.71.
The incremental cash flow from selling the machine is therefore the after-tax gain from the sale plus the return of the book value:
$146,714.29 - $58,685.71 + $609,285.71 = $498,600.
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Use the following table to answer the question. Calculate the rate of inflation for 2015-2016.
Year CPI 2014 168
2015 175 2016 185 A. 5.40% B. 4.97% C. 5.71% D. 6.05%
The rate of inflation in 2015-2016, given the CPI can be found to be C. 5.71%.
How to find the inflation rate ?The rate of inflation for 2015-2016 can be calculated using the formula:
Inflation Rate = (CPI in current year - CPI in previous year) / CPI in previous year x 100%
Using the CPI values given in the table:
CPI in 2015 = 175
CPI in 2016 = 185
CPI in 2014 = 168
Inflation Rate = (185 - 175) / 175 x 100%
Inflation Rate = 5.71%
Therefore, the rate of inflation for 2015-2016 is 5.71%.
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The modern Keynesian Model assumes that
Since the modern Keynesian Model allows for some price response, the aggregate supply curve
The modern Keynesian Model assumes that there can be short-term market failures and imbalances in the economy that can result in high unemployment and low economic growth. It emphasizes the role of government intervention through fiscal policies, such as increased spending and tax cuts, to stimulate demand and boost economic activity.
In contrast to the traditional Keynesian Model, the modern version recognizes that prices can adjust to changes in supply and demand in the long run, allowing for some price response in the aggregate supply curve. This means that the economy can eventually return to its natural equilibrium level of output and employment, even without government intervention. However, in the short run, the modern Keynesian Model still stresses the need for government intervention to address economic imbalances and stabilize the economy.
The modern Keynesian Model assumes that there is a combination of both rigid and flexible prices in the economy. Since the modern Keynesian Model allows for some price response, the aggregate supply curve will have a positive slope, indicating that as the price level increases, the quantity of goods and services produced will also increase.
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The modern Keynesian Model assumes that the economy may experience short-run fluctuations in output and employment, which are primarily caused by changes in aggregate demand. Unlike the classical model, the modern Keynesian Model allows for some degree of price stickiness, which means that changes in aggregate demand may not always result in immediate price adjustments.
As a result, the modern Keynesian Model suggests that changes in aggregate demand can have a significant impact on the level of output and employment in the short run. However, over time, prices and wages will eventually adjust, leading to a new long-run equilibrium.
Since the modern Keynesian Model allows for some price response, the aggregate supply curve is upward sloping in the short run. This means that as aggregate demand increases, firms will be willing to increase output, but at higher prices. Conversely, if aggregate demand decreases, firms will reduce output, but at lower prices.
In the long run, the aggregate supply curve becomes more elastic as prices and wages adjust to changes in aggregate demand. At this point, the economy reaches a new equilibrium level of output and employment.
Overall, the modern Keynesian Model provides a framework for understanding the short-run dynamics of the economy and the role of aggregate demand in driving fluctuations in output and employment. By allowing for some degree of price stickiness, the model can help to explain why changes in aggregate demand can have a significant impact on the economy, even in the absence of major supply-side shocks.
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Country A has a 90/10 ratio of 15.7(1990) and 12.42(2000) and a
50/10 ratio of 6.43(1990) and 5.09(2000)
Explain.
Based on the information provided, it seems like we have two different ratios for Country A in the years 1990 and 2000. Let's break down the data for a clearer understanding:
1. 90/10 Ratio:
- 1990: 15.7
- 2000: 12.42
2. 50/10 Ratio:
- 1990: 6.43
- 2000: 5.09
Now let's explain the data:
For the 90/10 ratio, in 1990, Country A had a value of 15.7, which means that for every 90 units of a certain factor (e.g. income, resources, etc.), there were 10 units of another factor. By 2000, this ratio decreased to 12.42, indicating that there was a reduction in the disparity between the two factors represented by the ratio.
For the 50/10 ratio, in 1990, Country A had a value of 6.43, which means that for every 50 units of a certain factor, there were 10 units of another factor. By 2000, this ratio decreased to 5.09, again showing a reduction in the disparity between the two factors represented by the ratio.
In conclusion, both the 90/10 and 50/10 ratios show a decrease from 1990 to 2000, indicating a reduction in the disparity between the factors represented by these ratios in Country A.
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Sheffield Inc. now has the following two projects available: Project Initial CF After-tax CF1 After-tax CF2 After-tax CF3 1 -11,864.01 5,250 6,125 9,500 2 -3,336.42 3,750 3,150 = - Assume that RF = 5.How do you calculate working capital for a new project?
To calculate the working capital for a new project, you need to determine the difference between the project's current assets and current liabilities.
Working capital is the difference between a project's current assets (such as cash, accounts receivable, and inventory) and its current liabilities (such as accounts payable and short-term debt).
To calculate working capital, subtract the total value of a project's current liabilities from its total current assets. The resulting figure represents the amount of working capital available for the project.
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5. Assume the company's growth rate slows to the industry average in five years. What future return on equity does this imply, assuming a constant payout ratio? 6. After discussing the stock value with Josh, Carrington and Genevieve agree that they would like to increase the value of the company stock. Like many small business owners. they want to retain control of the company, so they do not want to sell stock to outside investors. They also feel that the company's debt is at a manageable level and do not want to borrow more money. How can they increase the price of the stock? Are there any conditions under which this strategy would not increase the stock price?
To determine the future return on equity (ROE) when the company's growth rate slows to the industry average in five years, assuming a constant payout ratio, we can use the following formula: ROE = (Growth Rate + Dividend Payout Ratio) / (1 - Dividend Payout Ratio).
Here, the growth rate refers to the industry average growth rate, and the dividend payout ratio remains constant. Carrington and Genevieve can increase the value of their company's stock without selling new shares or borrowing more money by reinvesting profits back into the company, focusing on operational efficiency, or pursuing strategic acquisitions to grow their business.
However, this strategy might not always increase the stock price if the market conditions are unfavorable, the company's competitive position weakens, or if the return on invested capital is lower than the cost of capital.
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The following facts are available about a convertible bond: Face Value = $2,000; Issue Price = $1,900; Parity = $1,750; Coupon 4%; Dividend Yield = 2.5%; Premium = $150. What is this CB s breakeven in years?
a. 4
b. 5
c. 6
d. 7
To calculate the breakeven in years for the convertible bond, we need to determine how long it would take for the convertible bond to earn enough interest and dividends to offset the difference between the issue price and the conversion price.
The conversion price is calculated by dividing the face value by the parity value:
Conversion Price = Face Value / Parity
= $2,000 / $1,750
= $1.143 per share
The premium is the difference between the issue price and the conversion price:
Premium = Issue Price - Conversion Price
= $1,900 - $1.143
= $756.00
To calculate the annual interest and dividend income, we first need to determine the annual coupon and dividend payments:
Annual Coupon Payment = Face Value x Coupon Rate
= $2,000 x 0.04
= $80.00
Annual Dividend Payment = Parity x Dividend Yield
= $1,750 x 0.025
= $43.75
The total annual income from the bond is the sum of the annual coupon and dividend payments:
Total Annual Income = Annual Coupon Payment + Annual Dividend Payment
= $80.00 + $43.75
= $123.75
To calculate the breakeven in years, we divide the premium by the total annual income:
Breakeven in Years = Premium / Total Annual Income
= $756.00 / $123.75
= 6.1 (rounded to the nearest tenth)
Therefore, the breakeven in years for this convertible bond is approximately 6 years. The answer is (c) 6.
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Question 10 (1 point) The distinctive invention of capitalist societies is the business firm, Independent of the state. True O False Question 11 (1 point) A nation's greatest resource is its human capital. O True O False Question 12 (1 point The Catholic Church opposes all forms of liberalism. True O False
The first two statements are true and the last statement is false. Question 10: True. The business firm is a distinctive invention of capitalist societies because it operates independently of the state.
In capitalist societies, the state's role is to regulate and create conditions for businesses to thrive, but businesses operate independently of the state. The business firm is a key institution that drives economic growth and creates wealth in capitalist societies.
Question 11: True. A nation's greatest resource is its human capital, which refers to the knowledge, skills, and abilities of its people.
Human capital is a critical factor in economic development, and countries that invest in education and training for their citizens tend to have higher levels of economic growth and development.
Question 12: False. The Catholic Church does not oppose all forms of liberalism. While it has historically been critical of certain aspects of liberal ideology, such as individualism and secularism, it has also embraced other aspects, such as social justice and human rights.
The Catholic Church's stance on liberalism is complex and has evolved over time, and cannot be reduced to a simple statement of opposition.
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Last year Janet purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 30-year maturity. At the time of the purchase, it had an expected yield to maturity of 12.2%. If Janet sold the bond today for $1,045.79, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.
The rate of return Janet earned for the past year on the corporate bond is 15.58%.
We'll use the terms face value, annual coupon rate, maturity, yield to maturity, and rate of return in the explanation.
Calculate the annual coupon payment.
Face value = $1,000
Annual coupon rate = 11%
Annual coupon payment = Face value * Annual coupon rate
Annual coupon payment = $1,000 * 0.11 = $110
Calculate the total amount Janet received from selling the bond.
Selling price = $1,045.79
Calculate Janet's total return for the past year.
Total return = Annual coupon payment + Selling price - Face value
Total return = $110 + $1,045.79 - $1,000 = $155.79
Calculate the rate of return as a percentage.
Rate of return = (Total return / Face value) * 100
Rate of return = ($155.79 / $1,000) * 100 = 15.579%
After rounding to two decimal places, Janet's rate of return for the past year is 15.58%
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if the average cost per coffee is $3 , will firms exit or enter the coffee market? c. what is the average cost per coffee in the long run?
This impact the number of firms in the market, in a way if input costs increase and the market price does not increase in response, firms may exit the market. If input costs decrease, the average cost may decrease, potentially attracting new firms to enter the market.
Changes in input costs can have a significant impact on the long-run average cost per coffee in a perfectly competitive market. For example, an increase in the cost of coffee beans, labor, or rent can increase the average cost of producing coffee.
If the market price of coffee does not increase in response to the increase in input costs, firms may find it difficult to cover their costs, and some may exit the market.
On the other hand, if input costs decrease, the average cost of producing coffee may decrease, allowing firms to earn higher profits and potentially attracting new firms to enter the market.
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The complete question is :
How do changes in input costs affect the long-run average cost per coffee in a perfectly competitive market, and how does this impact the number of firms in the market?
Sisters Corp. expects to earn $7 per share next year. The firm's ROE is 12% and its plowback ratio is 80%. If the firm's market capitalization rate is 10%. a. Calculate the price with the constant dividend growth model. (Do not round intermediate calculations.) Priceſ b. Calculate the price with no growth. Price c. What is the present value of its growth opportunities? (Do not round intermediate calculations.) PVGO
The price with the constant dividend growth model is $75.00. This is calculated by taking the expected dividend per share of $7.00 and dividing it by the market capitalization rate of 10%, which is 0.10.
The resulting figure is then divided by the retention ratio of 80%. This gives the expected dividend growth rate of 8.75%. The price with no growth is $70.00, calculated by taking the expected dividend per share of $7.00 and dividing it by the market capitalization rate of 10%.
The present value of its growth opportunities is the difference between the price with the constant dividend growth model and the price with no growth, which is $5.00.
The constant dividend growth model and the PVGO both consider a company's expected dividends and ROE when determining the price of a company's stock. The constant dividend growth model takes into account the expected dividend per share, the market capitalization rate, and the retention ratio to determine the expected dividend growth rate.
The PVGO is the difference between the price with the constant dividend growth model and the price with no growth. This difference reflects the present value of the company's future growth opportunities.
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Genuine Inc issued a 30-year bond that is callable in 5 years. It has a coupon rate of 5.5% payable semiannually, a yield to maturity of 8%, and a call premium of $100. What is the yield to call? a. 7.59% b. 15.18% c. 2.16% d. 4.76% e. 9.52% f. 5.45%
Genuine Inc issued a 30-year bond that is callable in 5 years. It has a coupon rate of 5.5% payable semiannually, a yield to maturity of 8%, and a call premium of $100. The yield to call is a. 7.59%
The yield to call is the rate of return that an investor receives by investing in a callable bond, which can be redeemed prior to maturity by the issuer. In this case, Genuine Inc. issued a 30-year bond that is callable in 5 years. The bond has a coupon rate of 5.5% payable semiannually, a yield to maturity of 8%, and a call premium of $100.
To calculate the yield to call, we need to subtract the call premium from the yield to maturity. In this case, the yield to call is 7.59%, which is lower than the yield to maturity of 8%. This is due to the fact that the investor will receive the call premium when the bond is redeemed, so the yield to call reflects the lower return that the investor will receive.
Therefore, correct option is A.
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which of the following statements applies to the discount rate? the federal funds rate is the same as this rate. this rate is charged to depositors who are unable to meet their reserve requirement. the fed does not directly control this rate. this rate is used when banks borrow directly from the fed.
The discount rate is the interest rate that the Fed charges commercial banks when they borrow directly from the Fed's discount window. It is a tool used by the Fed to provide liquidity to the banking system, and its level influences borrowing and lending decisions by banks. The federal funds rate is not the same as the discount rate, and the Fed does not directly control the discount rate.
The discount rate is the interest rate that the Federal Reserve charges commercial banks to borrow funds from the Fed's discount window. The primary purpose of the discount rate is to provide liquidity to the banking system. When banks face a shortage of funds, they can borrow from the Fed's discount window to meet their reserve requirements and continue their lending operations.
Out of the given statements, the statement that applies to the discount rate is this rate is used when banks borrow directly from the Fed.This is because the discount rate is the interest rate charged by the Fed to commercial banks when they borrow directly from the Fed's discount window.
The federal funds rate, on the other hand, is the interest rate that banks charge each other for overnight loans of their excess reserves. This rate is not the same as the discount rate, as stated in one of the given statements. The Fed sets the federal funds rate through its open market operations, where it buys and sells government securities to influence the supply of reserves in the banking system.
Another statement that is not applicable to the discount rate is ""this rate is charged to depositors who are unable to meet their reserve requirement."" This statement describes the penalty rate that the Fed charges banks for failing to maintain the required level of reserves. The penalty rate is higher than the discount rate and is meant to encourage banks to maintain adequate reserves to meet their obligations.
Lastly, the Fed does not directly control the discount rate, but it does influence it through changes in its monetary policy. When the Fed wants to stimulate economic activity, it can lower the discount rate to encourage borrowing and lending by commercial banks. Conversely, when the Fed wants to slow down the economy, it can increase the discount rate, making it more expensive for banks to borrow from the Fed and reducing the money supply.
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There are a number of reasons why a firm might want to repurchase its own stock. Read the statement and then answer the corresponding question about the company's motivation for the stock repurchase: Smith and Martin Co. 's board of directors has decided to repurchase some of its stock on the open market because the company has received a large, one-time cash flow, and it believes that the company's stock is undervalued.
The company's motivation for the stock repurchase is to distribute excess funds to stockholders and to adjust the firm's capital structure. Advantages of stock repurchase include: Minimizing dilution effect and Changing the firm's capital structure
Smith and Martin Co. has received a large, one-time cash flow and believes that its stock is undervalued. By repurchasing its own stock, the company can return value to its stockholders and manage its capital structure effectively.
Advantages of stock repurchase include:1. Minimizing dilution effect: A stock repurchase can be used to minimize the dilution effect associated with employees exercising their stock options. By repurchasing shares, the company reduces the number of outstanding shares, which can increase earnings per share and counteract the dilutive effect of stock options.
2. Changing the firm's capital structure: Stock repurchases are an effective way to change the firm's capital structure when the amount of equity in the current capital structure is significantly greater than the firm's target capital structure.
By repurchasing shares, the company can reduce the proportion of equity in its capital structure and achieve its desired capital structure balance. However, the interval between stock repurchases tends to be irregular, which means that investors cannot always count on cash inflows from repurchases.
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Complete Question:
There are a number of reasons why a firm might want to repurchase its own stock. Read the statement and then answer the corresponding question about the company's motivation for the stock repurchase:
"Smith and Martin Co.'s board of directors has decided to repurchase some of its stock on the open market because the company has received a large, one-time cash flow, and it believes that the company's stock is undervalued".
What is the company’s motivation for the stock repurchase? Explain in 150 words.
To protect against a takeover attemptTo distribute excess funds to stockholdersTo adjust the firm's capital structureTo acquire shares needed for employee options or compensationWhich of the following statements would be considered advantages of stock repurchase? Check all that apply. Explain in 150 words.
The interval between stock repurchases tends to be irregular, which means that investors cannot always count on cash inflows from repurchases.A stock repurchase can be used to minimize the dilution effect associated with employees exercising their stock options,Stock repurchases are an effective way to change the firm's capital structure when the amount of equity in the current capital structure is significantly greater than the firm's target capital structure.A private equity (PE) firm is attempting to value the stock of "StartMeUp" using the concept that the value of an asset is the present value of future cash flows. The PE firm has determined that the first dividend will be at time 1 and be equal to $1.00. Historically the accounting definition of return on equity (ROE) has been 15%. Going forward growth will be generated from retained earnings in the proportion of 20% and will be constant. The firm doesn’t have any debt so that it is unlevered.
Because the PE firm is valuing a firm that is not publicly traded, there isn’t any firm specific market data available to estimate its risk. The return on the market portfolio is and the risk-free rate is .
Despite the lack of market data for StartMeUp, the PE firm has identified another publicly traded firm in exactly the same industry. That firm has a beta of 1.5, a debt-to-equity ratio of 0.8, and a tax rate of 25%.
Find the price of one share of StartMeUp.
The price of one share of StartMeUp is $12.50.
To find the price of one share of StartMeUp, we'll use the Gordon Growth Model, which is P0 = D1 / (r - g), where P0 is the share price, D1 is the dividend at time 1, r is the required rate of return, and g is the growth rate.
1. Determine the growth rate (g): g = Retained Earnings Ratio x ROE = 0.2 x 0.15 = 0.03 (3%).
2. Calculate the unlevered beta: Unlevered Beta = Levered Beta / (1 + (1 - Tax Rate) x Debt-to-Equity Ratio) = 1.5 / (1 + (1 - 0.25) x 0.8) = 1.0714.
3. Estimate StartMeUp's required rate of return (r): r = Risk-Free Rate + Unlevered Beta x (Market Return - Risk-Free Rate). Assume Risk-Free Rate = 2% and Market Return = 10%, then r = 0.02 + 1.0714 x (0.10 - 0.02) = 0.1086 (10.86%).
4. Calculate the share price: P0 = D1 / (r - g) = $1 / (0.1086 - 0.03) = $12.50.
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The CEO of Kuehner Development Company has just come from a meeting with his marketing staff where he was given the latest market study of a proposed new shopping center. The study calls for a construction phase of 1 year, and a subsequent operation phase. This question focuses largely on the construction phase. The marketing staff has chosen a 12-acre site for the project that they believe they can acquire for $2.25 million. The initial studies indicate that this shopping center will have gross building area (GBA) of 190,000 sq. ft. The head of the construction division assures the CEO that hard costs will be kept to $54 per sq ft. of GBA, and soft costs (excluding interest carry and loan fees) will be kept to $4.50 per square foot of GBA. Site improvements will cost $750,000. The Shawmut Bank has agreed to provide construction financing for the project. The bank will finance the construction costs (hard and soft) and the site improvements at an annual rate of 13%. They will also charge a loan-commitment fee of 2% of the total balance. The construction division estimates that 60 percent of the financed construction costs will be taken down evenly during the first six months of the construction project. The remaining 40 percent will be taken down evenly during the last six months. a. What are the total construction costs that the bank is willing to finance? b. Given the terms of the construction loan, what will be the total interest carry for the shopping center project? c. What will be the total amount that Kuehner must borrow (Hint: remember to include interest carry)? d. How much equity does Kuehner need to put into the project? e. Acme Insurance Co. agrees to provide permanent financing for the project and "take-out" the construction loan at the end of 1 year. They agree to provide a fully amortizing mortgage with a 20 year maturity at a 12 percent annual interest rate. What is the monthly debt service that Kuehner will have to make once construction is complete and operations begin?
Okay, here are the steps to solve this question:
a) Total construction costs to finance:
Hard costs: 190,000 sq ft GBA x $54/sq ft GBA = $10,260,000
Soft costs: 190,000 sq ft GBA x $4.50/sq ft GBA = $855,000
Site improvements: $750,000
Total construction costs to finance = $10,260,000 + $855,000 + $750,000 = $11,865,000
b) Interest carry for the construction loan (at 13% annual rate for 1 year):
$11,865,000 x 0.13 = $1,542,450
c) Total amount to borrow (construction costs + interest carry):
$11,865,000 + $1,542,450 = $13,407,450
d) Equity needed:
Total project cost = $13,407,450 + $2,250,000 (land cost) = $15,657,450
Since taking out a $13,407,450 construction loan, the equity needed is $15,657,450 - $13,407,450 = $2,250,000
e) Monthly debt service once construction is complete (at 12% annual rate for 20 years):
$13,407,450 x 0.12 / 12 = $148,588 (monthly interest)
20 years x 12 months/year = 240 payments
$13,407,450 / 240 payments = $55,654 (monthly principal payment)
Monthly debt service = $148,588 + $55,654 = $204,242
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2. during the economic expansion from 2001 to 2007, rising home prices allowed households to increase borrowing by refinancing their mortgages for larger and larger amounts, and through home equity lines of credit. this increase in borrowing would:
The increase in borrowing by households during the economic expansion from 2001 to 2007, fueled by rising home prices, had positive effects on consumer spending and investment, but also increased economic risk and vulnerability to housing market fluctuations.
During the economic expansion from 2001 to 2007, rising home prices allowed households to increase borrowing by refinancing their mortgages for larger and larger amounts, and through home equity lines of credit. This increase in borrowing would have several effects:
Increased consumer spending: With increased access to credit, households would be able to spend more on consumer goods and services, which would help to stimulate economic growth.
Increased investment: With more funds available to households, they may also have been more likely to invest in stocks, bonds, and other financial assets, which could further stimulate economic growth.
Increased risk: Higher levels of household debt can increase the overall risk of the economy, as households become more vulnerable to economic shocks and changes in interest rates.
Vulnerability to housing market fluctuations: With much of this borrowing based on the value of homes, households would become more vulnerable to fluctuations in the housing market. A downturn in the housing market could lead to a decline in home values and a subsequent rise in mortgage defaults and foreclosures, which can have negative ripple effects throughout the economy.
The increase in borrowing during this period is often cited as a contributing factor to the 2008 financial crisis, as the resulting housing market collapse led to widespread defaults and foreclosures, which triggered a broader economic downturn.
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Stocks A and B have the following probability distributions of expected future returns:
Probability A B
0.1 (9 %) (22 %)
0.2 4 0
0.5 13 21
0.1 20 29
0.1 29 37
Calculate the expected rate of return, , for Stock B ( = 11.30%.) Do not round intermediate calculations. Round your answer to two decimal places.
%
According to the question, the expected rate of return for Stock B is 2.2% + 0% + 10.5% + 2.9% + 3.7% = 11.30%.
What is rate of return?Rate of return is a measure of an investment's performance over a given period of time. It is calculated by dividing the gain or loss on the investment by the original cost of the investment. The rate of return is usually expressed as a percentage. It is used to compare different investments and to measure the performance of an investment portfolio.
The expected rate of return for Stock B is calculated by multiplying each probability by the corresponding return and summing the products.
0.1 x 22% = 2.2%
0.2 x 0% = 0%
0.5 x 21% = 10.5%
0.1 x 29% = 2.9%
0.1 x 37% = 3.7%
Expected rate of return = 2.2% + 0% + 10.5% + 2.9% + 3.7% = 11.30%.
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The Booth Company's sales are forecasted to double from $1,000 in 2019 to $2,000 in 2020. Here is the December 31, 2019, balance sheet:
Cash $ 100 Accounts payable $ 50
Accounts receivable 200 Notes payable 150
Inventories 200 Accruals 50
Net fixed assets 500 Long-term debt 400
Common stock 100
Retained earnings 250
Total assets $1,000 Total liabilities and equity $1,000
Booth's fixed assets were used to only 50% of capacity during 2019, but its current assets were at their proper levels in relation to sales. All assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 5% and its payout ratio to be 70%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.
Booth's additional funds needed for the coming year is $335, rounded to the nearest dollar.
How to Calculate the Additional Funds Needed?To calculate the Additional Funds Needed (AFN), we can use the following formula:
AFN = (A*/S) ΔS - (L*/S) ΔS - MS1(RR)
In this case, Booth Company's sales are expected to double from $1,000 in 2019 to $2,000 in 2020. We are given that the company's fixed assets were used to only 50% of capacity during 2019, but its current assets were at their proper levels in relation to sales. This means that all assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist.
Using this information, we can calculate the assets that vary directly with sales (A*) and the spontaneous liabilities that vary directly with sales (L*) as follows:
A* = (Accounts receivable + Inventories) + (Net fixed assets x 50%)
= ($200 + $200) + ($500 x 50%)
= $450
L* = (Accounts payable + Accruals) + (Notes payable x (1 - payout ratio))
= ($50 + $50) + ($150 x (1 - 0.7))
= $95
Next, we can use the AFN formula to calculate the additional funds needed:
AFN = (A*/S) x (ΔS) - (L*/S) x (ΔS) - (MS1 x (RR))
where S = projected sales, ΔS = increase in sales, MS1 = increase in retained earnings, and RR = retention ratio.
Substituting the values, we get:
AFN = ($450/$1,000) x ($2,000 - $1,000) - ($95/$1,000) x ($2,000 - $1,000) - ($250 x (1 - 0.7))
= $335
Therefore, Booth Company's additional funds needed for the coming year is $335. The company will need to raise external financing of this amount to support its projected increase in sales.
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Your broker charges $0.0029 per share per trade. The exchange charges $0.0173 per share per trade for removing liquidity and credits $0.0155 per share per trade for adding liquidity. The current best BID price for stock XYZ is $82.89 per share, while the current best ASK price is $82.90 per share. You post an order to buy XYZ at the current best BID price and wait. Shortly after, the best BID and ASK prices move lower (down) by one cent each. Your buy order is executed. Immediately, you post an order to sell XYZ at the new best BID price, and your sell order is executed. What will be your net loss per share to buy and sell XYZ after considering the commissions and any exchange fees or credits?
Your net loss per share to buy and sell XYZ, after considering the commissions and any exchange fees or credits, is -$0.0176.
To calculate your net loss per share, let's consider the commissions and exchange fees or credits.
1. Buying XYZ:
- Execution price: $82.89 per share
- Broker commission: $0.0029 per share
- Exchange fee (adding liquidity): -$0.0155 per share (credit)
2. Selling XYZ:
- Execution price: $82.88 per share (since prices moved down by one cent)
- Broker commission: $0.0029 per share
- Exchange fee (removing liquidity): $0.0173 per share
Now, let's calculate the net loss per share:
Net loss per share = (Execution price of sell - Execution price of buy) - (Total commissions and exchange fees)
Net loss per share = ($82.88 - $82.89) - [($0.0029 + $0.0029) + ($0.0173 - $0.0155)]
Net loss per share = -$0.01 - ($0.0058 + $0.0018)
Net loss per share = -$0.01 - $0.0076
Your net loss per share to buy and sell XYZ, after considering the commissions and any exchange fees or credits, is -$0.0176.
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Interest rate decisions in the euro area are made by: Multiple Choice o The Executive Board of the ECB. o The European Commission. o The European System of Central Banks (ESCB). o The European Council of Mini
The interest rate decisions in the Euro area are made by the Executive Board of the ECB (European Central Bank). The ECB is the central bank of the Eurozone, which comprises 19 European Union (EU) member states that have adopted the Euro as their currency.
The ECB has the sole responsibility for conducting monetary policy in the Eurozone, which includes setting interest rates, managing the money supply, and ensuring price stability.
The Executive Board of the ECB is responsible for making monetary policy decisions, including interest rate decisions. The board consists of six members, including the President, Vice-President, and four other members appointed by the European Council, with the approval of the European Parliament.
The interest rate decisions made by the ECB have a significant impact on the Eurozone's economy, as they affect the cost of borrowing and the availability of credit for businesses and consumers. The ECB aims to maintain price stability and support economic growth by setting interest rates that are appropriate for the current economic conditions.
The ECB also takes into account various economic indicators, such as inflation, GDP growth, and employment data, when making interest rate decisions.
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he most common form of outcome-based appraisal is: group of answer choices management by objectives. the performance standards review. behaviorally anchored rating scales. the essay method.
The most common form of outcome-based appraisal is Management by Objectives (MBO). Option A is answer.
This approach involves setting specific, measurable, achievable, relevant, and time-bound (SMART) goals for employees in collaboration with their managers. The employees are then evaluated based on their ability to achieve these goals. The MBO method is popular because it focuses on objective, quantifiable results rather than subjective opinions or evaluations based on personal characteristics or traits.
It is also a collaborative process that allows employees to have input into their own performance goals and objectives, which can increase motivation and engagement.
Option A is answer.
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