Answer:
7.53%
Explanation:
Calculation for the discount rate of d(0,4)d(0,4)
The discount factor is : d=1/1+i
And given that the interest rates are compounded annually the discount factor will gives the present value of the bond when provided with the interest rate and maturity value.
Therefore the present value of a bond with a maturity value of 1 will be;
Present value=1 /(1+i1) (1+i) (1+i3) (1+i4)
Present value=1 / (1.07) (1.073) (1.077) (1.081)
Present value=0.748
The present value of a bond with a maturity value of 1 will therefore be 0.748.
Now, let calculate the discounting factor for the whole 4 years:
1 (1+d (0,4))‐⁴ =0.748
(1+d(0,4))=0.748‐¹/⁴
1+d (0,4) =1.0753
d (0,4)=0.0753
Therefore the discount rate will be 7.53%
Answer: Interest revenue for $2400
Explanation:
From the question, we are informed that Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014 for $60,000. The journal entry to record this investment includes a debit for Interest revenue for $2400.
This was calculated in the following way:
= $60,000 × 8% × 1/2
= $60,000 × 0.08 × 0.5
= $2400 interest revenue
<u>Calculation of Return on Equity:</u>
Return on Equity can be calculated using the following formula:
Return on Equity = Net Income / Equity
We can calculate net income using the following formula:
Net Income = Sales * Profit Margin = 3650*5% = $182.50
And we can calculate Equity using the following formula:
Equity = Total Assets * (1-Total Debt ratio) = 3350*(1-41%) = $1976.50
Now Finally,
Return on Equity = Net Income / Equity = 182.50 / 1976.50 = 9.23%
Hence the return on equity is <u>9.23%</u>
Answer:
As per MM proposition total capital would remain same.
which implies share price = (24-12)/2= $6 per share
