Answer:
the answer for the first question is $166667.
the answer for the second question is $210526
the answer for the third question is An inverse.
Explanation:
given information that i will invest in a $10000 scholarship that will pay forever.
the interest rate charged is 6.00% per annum therefore this is a perpetuity present value problem where there is streams of income forever therefore we use the formula :
Pv of perpetuity= Cf/r
where Cr is the cash flows payed by the single investment forever in this case $10000 then r is the interest rate of the investment amount which is 6% in this case.
Pv of Perpetuity= $10000/6%
=$166667 therefore i must invest this amount to get the scholarship running with streams of $10000 forever.
in the second problem if now the interest rate is changed from 6% to 4.75% then the amount to be invested would be :
Pv of perpetuity = $10000/4.75%
=$210526 therefore this is the amount to be invested for a forever $10000 stream of incomes for a scholarship.
the relationship is indirect cause as the interest rate decreases the present value of the perpetuity that must be invested increases.
Answer:
D. Stocks are good for income while bonds are good for long-term growth.
Explanation:
A Stock is the smallest unit of a corporation. A stockholder is one of the owners of a corporation. Should the corporation makes profits, stockholders are entitled to dividends. Stocks are traded in the exchange markets. When the market or the corporation is doing well, stock price increases representing a capital gain to the shareholders.
Bonds are debts instruments that governments and corporates use to raise capital. They present long term investment opportunities to investors. Bonds offer regular and fixed interest payments to investors until maturity.
Stocks are riskier than bonds. Stock prices experience volatility as they trade every day. Their prices are likely to rise when the markets are favorable, which means profits to investors. Bonds are less risky and offer stable incomes for the long term.
Answer:
(a) Continue to operate.
(b) Shut down
(c) Continue to operate.
Explanation:
(a) It is given that the firm will experiencing a loss of $5000. Therefore, it means that a loss of $5,000 is borne by the producer of the fixed cost. It is a portion of fixed cost but the firm will continue to operate in the short run if it covers all of the variable cost in the short run.
(b) The firms in the long run try to cover all of its variable and fixed cost. If this situation persists then this firm unable to cover its all costs. Therefore, the firm will shut down its operation and go out of the business.
(c) Now, if the firm’s fixed costs are $2,000.
There is a reduction in the fixed cost by $6,000
Previously firm able to cover = $8,000 - $5,000
= $3,000
It means that it cover its fixed cost and hence, the firm will operate in both short run and long run.
Answer:
The correct answer is letter "B": The proceeds of the bond issue entirely as debt.
Explanation:
Under the U.S. General Accepted Accounting Principles (<em>GAAP</em>) the issuance costs of bonds are ignored for reporting purposes but the amount of sales revenues is recorded as debt. The amortization of the bond can be calculated using the <em>effective interest method</em> or the <em>straight-line method</em>.
Answer:
The correct answer is 9.56%
Explanation:
Before tax cost of Debt = rate(nper,pmt,pv,fv) * 2
nper = 25*2 = 50
pmt = 1000*12%*1/2 = 60
pv = 1230.51
fv = 1000
Before tax cost of Debt = rate(50,60,-1230.51,1000)*2
Before tax cost of Debt = 9.56%
