Answer: debit to Stock Investments for $55,080.
Explanation:
As this is an investment in another company, it will count as an asset which means that when it increases, the account will have to be debited. It will therefore be debited for $55,080 to show the investment.
Cash will decrease by the same amount which means that it will have to be credited because assets are credited when they decrease.
Dr Stock Investments $55,080
Cr Cash $55,080
Cash Flows from Investing Activities would involve all of the following except:
A. The purchase of buildings.
B. The receipt of interest income on short-term investments.
C. The purchase of marketable securities.
D. The proceeds from the sale of equipment.
Answer:
B
Explanation:
there are three types of cash flows:
1. Investing cash flow - It involves the use of long term cash. it is the cash flow generated from the purchase and sale of fixed asset e.g. Sale of plant assets.
2. operating cash flow - it shows the net amount of cash generated from a company's normal business operation
3. financing cash flow - it shows the net amount of funding a company receives over a given period e.g. issuance of common stock
Which of the following is incorrect?
a. Future value means earning interest on interest.
b. External equity and dividends can be used as plug variables in a financial plan.
c. A financial plug variable is the designated source of external financing needed to deal with any shortfall or surplus in financing and thereby bring the balance sheet into balance.
d. There are two primary mechanisms for electing directors: cumulative voting and straight voting.
e. The rate required in the market on a bond is the yield to maturity.
Answer:
b. External equity and dividends can be used as plug variables in a financial plan.
Explanation:
When the external equity and dividend is applied like the plus variables in the financial plan so as a plug variable it represent the external financing source i.e. dividend that required to deal with any deficit or surplus in the financing and the external equity is not a source of the external financing
Therefore the option b is considered
A company issues the following bonds on June 1, 2002. Series A (counts as two) Series B $50 million BBB June 1, 2030 June 1, 2008 100 Par Value Rating Maturity Call date Call price $50 million BBB June 1, 2030 Non-callable -- If both bonds have the same market liquidity, the yield-to-maturity on the Series A bond should be [ ] than yield-to-maturity on Series B bond. a) higher b) lower c) the same d) either higher or lower(depending notherfactors)
Answer: a. Higher
Explanation:
Series A is a callable bond which means that the company will be able to buy it back after a certain period of time at a price dictated in the contract.
This provision is an advantage to the Issuer but not the investors so the Issuer will have to pay the investors more to get them to buy the bond even with the presence of this provision.
This additional payment will come in the form of a higher yield. This is why callable bonds have higher yields than non-callable comparable bonds.
Consider the market for seedless green grapes. The current price of a pound of seedless green grapes is $3. Two consumers, Leyla and Margaret, are willing to pay $4 and $5, respectively, for a pound of seedless green grapes. Two farmers are willing to sell seedless green grapes for as little as $2 and $3 per pound. How much is the consumer surplus in this market assuming each consumer purchases one pound of grapes and each farmer sells one pound of grapes
Answer:
$3
Explanation:
Consumer surplus is the difference between the willingness to pay of a consumer and the price of the good.
Consumer surplus = willingness to pay – price of the good
Consumer surplus of Leyla = $4 - $3 = $1
Consumer surplus of Margaret = $5 - $3 = $2
total surplus = $1 + $2 = $3
Which of the following is not an advantage of delegating authority at Red Frog Events?
a
Delegation helps develop subordinates
b
Subordinates learn how to make decisions
c
Some managers are too disorganized to delegate appropriately
d
An event manager can get more work done
Answer:
c. Some managers are too disorganized to delegate appropriately
Explanation:
Generally, the advantage of delegating authority in a firm can be numerous. Hence, considering the question, the benefit of delegating authority at Red Frog Events is no different.
Therefore, considering the available options, the statement that is NOT an advantage of delegating authority at Red Frog Events is "Some managers are too disorganized to delegate appropriately."
In contrast, some of the advantages of delegating authority are:
1. Delegation helps develop subordinates: as subordinates take more authority in some cases, they grow in decision-making and overall growth.
2. Subordinates learn how to make decisions: as subordinates are allowed to make decisions, they learn to understand how to make proper decisions
3. An event manager can get more work done: when subordinates are delegated with authority, it helps the manager focus more on other areas that need his attention, thereby getting more work done.
Julie is purchasing a home for $169,000.00. Her loan has been approved for a 30-year fixed-
rate loan at 5 percent annual interest. She will pay 20 percent of the purchase price as a down
payment. What is the total interest she will pay on her loan?
$135,200.87
$142,613.78
$126,168.64
$122,877.92
Answer:
Julie
The total interest she will pay on her loan is nearly:
= $126,168.64
Explanation:
a) Data and Calculations:
Cost of purchasing a home = $169,000
Downpayment (20% * $169,000) = $33,800
Amount of loan = $135,200 ($169,000 - $33,800)
Interest rate per annum = 5%
From an online financial calculator:
Loan Amount 135200
Loan Term 30 years
0 months
Interest Rate 5
Compound
Annually (APY)
Pay Back Every Year
Results:
House Price $169,000.00
Loan Amount $135,200.00
Down Payment $33,800.00
Total of 360 Mortgage Payments $261,281.82
Total Interest $126,081.82 on a monthly basis
Mortgage Payoff Date Jun. 2051
Payment Every Year $8,794.95
Total of 30 Payments $263,848.62
Total Interest $128,648.62 on a yearly basis
10 POINTS!!!! PERSONAL FINANCE// WILL GIVE BRAINLIEST
Starting a small business or engaging in gambling are pure risks because both offer the possibility of success and/or failure.
A.
True
B.
False
B. False
Since both starting a small business and engaging in gambling offer the potential for both success and failure, they cannot be considered pure risks.
Starting a small business and engaging in gambling are not considered pure risks. Let's understand the concepts of pure risk and the nature of these activities to see why this statement is false.
Pure risk refers to situations where there is only the possibility of loss or no loss, but no possibility of gain. Examples of pure risk include natural disasters, accidents, and illness. In these cases, there is no opportunity for financial gain, only the potential for financial loss.
On the other hand, both starting a small business and engaging in gambling involve the possibility of both success and failure. In a small business, there is an opportunity for financial gain through successful operations, attracting customers, and generating profits. However, there is also the risk of failure, where the business may not generate enough revenue or face challenges that lead to financial loss.
Similarly, gambling involves the possibility of winning money, which is a potential gain. However, there is also the risk of losing money, which is a potential loss.
Option B is the correct answer.
for more such questions on success
https://brainly.com/question/27968241
#SPJ8
Luker Corporation uses a process costing system. The company had $174,500 of beginning Finished Goods Inventory on October 1. It transferred in $851,000 of units completed during the period. The ending Finished Goods Inventory balance on October 31 was $172,200. The entry to account for the cost of goods manufactured during October is:
Answer:
See below
Explanation:
Given:
Beginning finished goods inventory
$174,500
Add: transfer units completed during the period
$851,000
Less: Ending finished goods inventory
($172,200)
Cost of goods sold
$853,300
Journal entry
Cost of goods sold Dr $853,300
-------------- Finished goods Cr $853,300
Cost of goods sold is only recorded when sales of products are made.
Stunning Motors, Ltd. makes economy autos for the world market. Stunning has decided to branch out and produce economical, fuel efficient motor bikes. They are exploring a joint venture With Bay Bikes, a Chinese motorbike company active in the Chinese market. In the meantime, before any formal agreement on a joint venture is reached, Bay Bikes is working with Stunning's R&D engineers to create a feasibility study on the Chinese market potential. This is an example of ___________
a. product differentiation
b. non-equity-based strategic alliance
c. sole proprietorship
d. entrepreneurial orientation
Answer:
b. non-equity-based strategic alliance
Explanation:
In the case of the non-equity strategic alliance, the organizations develop the agreement for sharing the resources without developing the distinct entity or equity i.e. shared.
Non-equity alliances are considered to be loose and not formal as compared to the partnership involving equity.
So as per the given situation, the option b is correct
A trial balance before adjustment included the following:
Debit Credit
Accounts receivable $133,000
Allowance for doubtful accounts $1,080
Sales 471,000
Sales returns and allowances 5,200
Required:
Prepare journal entries assuming that the estimate of uncollectible is determined by taking (1) 4% of gross accounts receivable.
Riley has worked for Centrum Springs, Inc., for many years and has now been given the opportunity to advance in the company. His manager is retiring and hopes that Riley will take over for him. However, even though Riley is an experienced employee, there are many things that he still needs to learn. Riley has trained many new employees, but he has never held a management position. Riley needs to have a general understanding of what it takes to be a manager. There are many problems in Riley's department. There are no plans to fall back on in case the initial plan fails. Riley also will need to learn how to direct people in such a way that makes them want to do more than they absolutely have to. Riley feels that this is a great opportunity, and he is anxious to learn everything to be a great manager. He knows that if he performs well in this position, he will have the opportunity to move up the corporate ladder.
Refer to Centrum Springs, Inc. Riley's usual duties represent which of these areas?
a. Financial management
b. Operations management
c. Marketing management
d. Human resources management
e. Administrative management
Answer:
B. I hope i helped!
Explanation:
A firm has to choose between two technologies; both produce same output with one being labor intensive and other being capital intensive. The firm will use labor intensive technology when _________________. Select the correct answer below: wages are less than the interest rate total cost of labor is less than total cost of capital average variable cost is less than average fixed cost labor is more productive than capital
Answer:
total cost of labor is less than total cost
Explanation:
In the case when the firm would use the labor intensive technology at the time when the marginal product from labor intensive would be more than the marginal product of capital intensive this is due to the rise in the firm benefit as the firm would produce and sell more
The other thing is that the cost of labor intensive would be less than the capital intensive cost. This cost would benefit the organization with respect to the decision making
Which of the following types of promotion is usually the least expensive for a company?
A.
Personal selling
B.
Publicity
C.
Direct marketing
D.
Advertising
Answer:
B. Publicity.
Explanation:
A company can publicize its names, products, and services by organizing an event or by organizing a seminar. The aim of publicity is to make consumbers aware about the products and services that a company deals in.
Define corporate culture. What are the components of a good corporate culture? Why do you think that corporate culture has such a huge impact on the success of a company? Please share your thoughts.
Answer:
Corporate culture, also known as company culture, refers to a set of beliefs and behaviors that guide how a company’s management and employees interact and handle external business transactions.
Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows: Annual sales 2,500 units Selling price per unit $ 304 Variable costs per unit: Production $ 125 Selling $ 49 Avoidable fixed costs per year: Production $ 50,000 Selling $ 75,000 Allocated common fixed corporate costs per year $ 55,000 If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product. At what selling price would the new product be just breaking even
The Key Corporation's selling price for the new product to break even should be $272.
Data and Calculations:
Annual sales = 2,500 units
Selling price per unit = $304
Variable costs per unit:
Production $ 125
Selling $ 49
Variable costs per unit = $174 ($125+ $49)
The total variable costs for 2,500 units = $435,000 (2,500 x $174).
Avoidable fixed costs per year:
Production $ 50,000
Selling $ 75,000
The total Avoidable fixed costs = $125,000 ($ 75,000 + $50,000).
Allocated common fixed = $55,000
Loss of contribution margin = $65,000
The total common fixed costs = $120,000 ($65,000 + $55,000).
The total fixed costs (Avoidable and Common) = $245,000 ($125,000 + $120,000).
Key Corporation incurs a total production cost for 2,500 units in the year = $680,000 ($435,000 + $245,000).
Thus, for Key Corporation to break even, the selling price should be = $272 ($680,000/2,500).
Learn more: https://brainly.com/question/15281855
Wainwright Corporation had the following activities in 2020. Sale of land for $120,000. Purchase of inventory for $645,000. Purchase of treasury stock for $52,000. Purchase of equipment for $315,000. Issuance of common stock for $620,000. Sale of available-for-sale debt securities for $85,000. Compute the amount Wainwright should report as net cash provided (used) by investing activities in its 2020 statement of cash flows.
Answer:
net cash used by investing activities = $280,000
Explanation:
Cash flow from Investing Activities :
Proceeds from Sale of Land $120,000
Purchase of Equipment ($315,000)
Proceeds from Sale of debt securities ($85,000)
Net Cash used by Investing activities ($280,000)
therefore,
Wainwright should report as net cash used by investing activities in its 2020 statement of cash flows of $280,000
Rounding in the calculation of monthly interest rates is discouraged. Such rounding can lead to answers different from those presented here. For long-term loans, the differences may be pronounced. Assume that you take out a $2000 loan for 30 months at 9% APR. How much of the first month's payment is interest
Answer:
the first month payment of interest is $74.70
Explanation:
The computation of the first month payment of interest is shown below
Given that
PV = $2,000
NPER = 30
RATE = 9% ÷ 12 = 0.75%
FV = $0
The formula is given below:
= -PMT(RATE;NPER;PV;FV;TYPE)
After applying the above formula, the monthly interest payment is $74.70
hence, the first month payment of interest is $74.70
any waste material on the floor should be
Answer:
Cleaned...it's waste
An aircraft manufacturer with a strong presence in the United States, is looking to expand its market overseas. The firm currently sells its aircraft to several airlines in the United Kingdom but now wants to establish manufacturing units there as well in order to acquire a bigger share in the European market. Hence, it plans to merge with QueenAir, a British aircraft manufacturer.
Requied:
What would weaken the company's decision to merge with QueenAir?
For 2020, X Company's production budget was 3,500 units of finished product, and the budget for direct material costs was $24,080. Actual production in 2020 was 2,500 units of finished product, and actual direct material costs were $17,230. What was the static budget for direct material costs in 2020
Answer: $24,080
Explanation:
The Static budget is based on a particular level of production and once it is prepared, it does not change even if the assumptions used in the calculation of the budget changes.
In this case, the budgeted direct material cost is $24,080 for a production level of 3,500 units of finished goods. This material cost is therefore based on a certain production level which makes it the static budgeted amount for materials.
Green Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $43 to buy from farmers and $14 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $19 or processed further for $18 to make the end product industrial fiber that is sold for $51. The beet juice can be sold as is for $34 or processed further for $22 to make the end product refined sugar that is sold for $51.
Required:
What is the financial advantage (disadvantage) for the company from processing one batch of sugar beets into the end products industrial fiber and refined sugar?
Answer:
Financial advantage $5
Explanation:
The computation of the financial advantage (disadvantage) for the company is shown below:
Combined sales value ($51 + $51) $102
Less: further processing ($18 + $22) -$40
Sugar beets cost -$43
Cost to crush -$14
Financial advantage $5
We simply deduct all cost from the revenue so that the financial advantage or disadvantage could come
Hammerstein Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company, on January 1, 2021, granted 2 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within four years. The common shares have a market price of $20.8 per share on the award date. Required: 1. Determine the total compensation cost from these restricted shares. 2.
Answer:
1. $41,600,000
2. No Entry
3. Dr Compensation Expense 10,400,000
Cr Paid-In-Capital- Restricted Stock 10,400,000
4.$35,360,000.
Explanation:
1. Calculation to the total compensation cost from these restricted shares.
Total compensation cost =$20.8 * 2M Shares
Total compensation cost = $41,600,000
Therefore the total compensation cost from these restricted shares is $41,600,000
2. & 3. Preparation of the appropriate journal entries
2. No Entry
3. Dr Compensation Expense 10,400,000
($41,600,000/ 4yrs)
Cr Paid-In-Capital- Restricted Stock 10,400,000
4. Calculation to determine the total compensation cost, assuming the company follows the fair value approac
Total compensation cost=$20 * 2M Shares * (100%-15%)
Total compensation cost=$20 * 2M Shares * 85%
Total compensation cost= $41,600,000*85%
Total compensation cost= $35,360,000
Therefore the total compensation cost, assuming the company follows the fair value approach is $35,360,000
Pharmicon, Inc., a pharmaceutical firm, discovered a complete cure for the common cold. The medicine could be put into a pill that would be taken once a day for a week. Knowing these results, directors of Pharmicon decided to delay the press release and bought thousands of shares of Pharmicon stock. After the purchases, Pharmicon issued a press release about the pill. The price of the stock skyrocketed. When the SEC found out about the purchases and the delay in the press release, it sued Pharmicon for violating Rule 10b-5. The court in this case would most likely rule in favor of Group of answer choices
Question Completion:
a. the SEC, because the information about the cure was material and was not disclosed to the public prior to the directors' purchase of the stock.
b.Pharmicon, because the information was not material.
c.the SEC, because owning company stock is a conflict of interest for the directors.
d.Pharmicon, because they issued a press release to the public
Answer:
Pharmicon, Inc.
The court in this case would most likely rule in favor of:
a. the SEC, because the information about the cure was material and was not disclosed to the public prior to the directors' purchase of the stock.
Explanation:
SEC's Rule 10b-5 forbids insider trading and, therefore, enables the SEC to sue individuals who use the privileged information they acquire about an entity's security to buy or sell the entity's securities. The information may be acquired illegally or legally, provided it is not publicly available. Insider trading exists when a professional breaches a fiduciary duty or betrays the trust and confidence reposed in him by trading on a security based on material, nonpublic information about the security.
You are considering attending college for one term. Your costs for one term include: tuition: $21,000 food and apartment rent: $6,000 books and college supplies: $2,000. Also, college attendance implies that when you switch work hours to study hours your income will fall from $10,000 to $3,000 (for the full term). What is the opportunity cost of going to college for this term, assuming that your food and apartment rent are the same with college as without it
Answer:
Opportunity cost of going to college $7,000
Explanation:
Opportunity cost is the value of the next best alternative forgone in favour of a decision. In this scenario, opportunity cost would mean any income sacrificed by the college students because he wanted to take a college education.
$
Before the college he could make 10,000
Switching work hours for study, he will now make 3,000
Opportunity cost 7,000
Opportunity cost of going to college $7,000
The opportunity cost of going to college for this term, assuming that my food and apartment rent are the same with college as without it is $7,000
Opportunity cost is an economic term for expressing cost in terms of foregone alternative. It is what has to be given up in order to have an alternative.
With regards to the above, opportunity cost would mean any income sacrificed by the college students because he wanted to take a college education.
Opportunity cost
= Before the college, he could make - Switching work hours for study, he will now make
= $10,000 - $3,000
= $7,000
Hence, the opportunity cost of going to college would be $7,000
Learn more at : https://brainly.com/question/8846809
Glacier Bicycle Company manufactures commuter bicycles from recycled materials. The following data for October are available: Quantity of direct labor used 5,000 hrs. Actual rate for direct labor $22.75 per hr. Bicycles completed in October 800 bicycles Standard direct labor per bicycle 6.0 hrs. Standard rate for direct labor $24.00 per hr. a. Determine for October the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Direct Labor Rate Variance $fill in the blank 1 113,750 Direct Labor Time Variance $fill in the blank 3 4,800 Total Direct Labor Cost Variance $fill in the blank 5 b. How much direct labor should be debited to Work in Process
Answer:
A. Direct Labor Rate variance -$6250 Favorable
Direct labor time variance $4800 Unfavorable
Total Direct Labor Cost Variance $-1450 Favorable
B. Dr Work In Process $116,650
Explanation:
A.
Calculation to determine Direct Labor Rate variance using this formula
Direct Labor Rate variance= (actual hours* actual rate)- (actual hours * standard rate)
Let plug in the formula
Direct Labor Rate variance=( 5000 *22.75) - (5000*24)
Direct Labor Rate variance= $113750- 120,000= Direct Labor Rate variance-6250 Favorable
Calculation to determine Direct labor time variance using this formula
Direct labor time variance= (Actual hours* Standard rate)- (Standard hours * Standard rate)
Let plug in the formula
Direct labor time variance= (5000 * 24) -(4800 * 24)
Direct labor time variance= 120,000-115200
Direct labor time variance= 4800 Unfavorable
Calculation to determine Total Direct Labor Cost Variance using this formula
Total Direct Labor Cost Variance= Direct Labor Rate variance + Direct labor time variance
Let plug in the formula
Total Direct Labor Cost Variance= -6250 Favorable + 4800 Unfavorable
Total Direct Labor Cost Variance= -1450 Favorable
b. Preparation of the journal entry to determine How much direct labor should be debited to Work in Process
Dr Work In Process $116,650
Cr Direct Labor Cost Variance $ 1,450
Cr Payroll $ 115,200
Therefore the amount of Direct Labor to be Debited to Work In Process is $116,650
On April 1, Dallow, Inc. factored $160,000 of its accounts receivable without recourse. The factor retained 10% of the accounts receivable as an allowance for sales returns and charged a 5% commission on the gross amount of the factored receivables. What amount of cash did Dallow receive from the factored receivables
Answer:
$136,000
Explanation:
According to the scenario, computation of the given data are as follows,
Amount receivable = $160,000
Allowance for sales return = 10% × $160,000 = $16,000
Commission = 5% × $160,000 = $8,000
So, amount of cash from factored receivables can be calculated by using following formula,
Cash from factored receivables = Amount receivable - Allowance for sales return - Commission
= $160,000 - $16,000 - $8,000
= $136,000
1. Define business. Explain the functions of business.
[tex] \large{ \tt{☄ \: ANSWER}} : [/tex]
↦ Business is an economic activity that is directed towards acquiring and earning profit and wealth through customer's satisfaction. It plays an important role for the economic development of the country and uplift living standard of the people. Some of the functions of business are described below :
Creation of utilities : For the fulfillment of needs of customers , business creates various types of utilities. A business has many components and each component is involved in the creation of the certain utility. For instance : manufacturers create from utility , transportation system created place utility , warehousing time utility and insurance companies risk utility.Generation of employment : Business is a source of employment. Various types of employees are required to a business. In industries , both skilled and unskilled manpower are required for production , distribution and auxiliaries functions. Hence , the development of industry and commerce helps to solve the unemployment problem of a nation.Earning Foreign Currency : Business is the main source of earning Foreign Currency. Foreign currency can be earned by exporting surplus products and services to foreign countries. The development of export trade brings favourable balance in payment.Provides investment opportunities : Business provides investment opportunities to the investors in production and distribution activities. Depending on the nature of investment ; investors receive dividend , interest or other financial benefits. The persons of organizations having sufficient capital can invest their money in production and commercial activities according to their interest , capability and knowledge.[tex] \large{ \tt{✺ \: STUDY \: TIP}} : [/tex]
FEED YOUR BRAIN : Foods like apples , walnuts and blueberries can improve your ability to focus , retain information and remain mentally alert. ♪
ツ Hope I helped! ♡
☼ Have a wonderful day / evening ! ☪
# StayInAndExplore ! ☂
▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁▁
23. Maria, a new employee, noticed that her supervisor, Jasmine, approved an expense report submitted by a co-worker that resulted in the company for which they both worked paying for the co-worker's car repairs that were needed due to an accident that happened when co-worker was on a personal errand instead of company business. Jasmine's actions could encourage Maria to
Answer:
She failed to cover up the co-worker's improper claim of a personal expense on a company expense report.
Explanation:
Analyzing the above case, it is correct to say that the supervisor Jasmine failed to cover up the undue complaint of the co-worker, as the accident occurred when he was on a personal mission and unrelated to the company's business, which makes the company not has legal obligations to pay for repairs to his car and these are broken down in a company expense report like the one approved by Jasmine.
Therefore, the supervisor acted unethically and did not follow the company's legal regulations.
What are competinves prionties, and how do
they help supply chain organizations gain
Competitive advantage?
Explanation:
Competitive priorities can be understood as the central objectives that organizations seek to remain competitive and positioned in the market, through the management of quality, cost, flexibility and delivery.
An organization's supply chain is responsible for the entire operational process of a product, from the purchase of the raw material to the delivery of the product to the end customer.
Therefore, supply chain management is essential so that all interconnected production systems for a good are aligned with the best practices that guarantee the continuous improvement of the entire supply chain, and this is where competitive priorities must be considered, because staying competitive in the market requires quality assurance at each stage of the process, with the greatest flexibility and lowest costs, in addition to delivery in the right quantity, at the right time to the right customer.
A railroad company is required to pay 79,860, which is due three years from now. The company invests 15,000 in a bond with modified duration 1.80, and 45,000 in a bond with modified duration Dmod, to Redington immunize its position against small changes in the yield rate. The annual effective yield rate for each of the bonds is 10%. Calculate Dmod.
Answer:
3.04
Explanation:
Calculation to determine Dmod.
First step is to calculate the present value of the assets which also represent the present value of the liability
Present value of the assets =$15,000+$45,000
Present value of the assets = $60,000
Second step is to calculate the modified duration of the assets which is the weighted average
Modified duration of the assets=($15,000/$60,000)/1.80+$45,000/$60,000Dmod
Modified duration of the assets=0.25(1.80) + 0.75Dmod
Third step is to calculate the Modified duration of the liability
Modified duration of the liability =3/(1+0.1)
Modified duration of the liability =3/1.1
Now let calculate Dmod
Dmod = (3/1.1 – 0.45)/0.75
Dmod=(2.7272-0.45)/0.75
Dmod=2.2772/0.75
Dmod=3.036
Dmod=3.04 (Approximately)
Therefore Dmod is 3.04