Answer:
Depletion expenses Dr $1,500,000
To Accumlated depletion $1,500,000
(Being the depletion expense is recorded)
Explanation:
The journal entry is shown below:
Depletion expenses Dr $1,500,000
To Accumlated depletion $1,500,000
(Being the depletion expense is recorded)
For recording this we debited the depletion expense as it increased the expense and credited the accumulated depletion as it reduced the assets
The computation is shown below:
The purchase price is
= Aquired value ÷ estimated production
= $18,550,000 ÷ 74,200,000
= $0.25 per gallons
Now depletion allowance is
= current year production × purchase price
= 6,000,000 × $0.25
= $1,500,000
The appropriate journal entry to record the transaction is:
Debit Depletion expense $1,500,000
Credit Accumulated depletion $1,500,000
First step is to calculate the depletion rate
Depletion rate = Cost/Estimated size
Depletion rate = $18,550,000/74,200,000
Depletion rate = $0.25 per gallon
Second step is to calculate the depletion expense
Depletion expense = Depletion rate × Quantity extracted
Depletion expense = $0.25 × 6,000,000 gallons
Depletion expense = $1,500,000
Third step is to prepare the journal entry for Carter Co.
December 31
Debit Depletion expense $1,500,000
Credit Accumulated depletion $1,500,000
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The purchase price of a natural gas-fired commercial boiler (capacity X) was $181,000 eight years ago. Another boiler of the same basic design, except with capacity 1.42X, is currently being considered for purchase. If it is purchased, some optional features presently costing $28,000 would be added for your application. If the cost index was 162 for this type of equipment when the capacity X boiler was purchased and is 221 now, and the applicable cost capacity factor is 0.8, what is your estimate of the purchase price for the new boiler
Answer:
$308,500.85
Explanation:
$181,000 eight years ago in real dollars was $181,000 / 162 = $111,728.40
new boiler with a 1.42X capacity x capacity factor = 1.42 x 0.8 = 1.136 (the price of the new boiler is 1.136 times the old boiler)
current price of the new boiler in real dollars = 1.136 x $111,728.40 = $126,923.46
real dollars converted to current nominal dollars = $126,923.46 x 2.21 = $280,500.85
price of the new boiler + additional optional features = $280,500.85 + $28,000 = $308,500.85
The Mahoney Company failed to accrue Rent Revenue on 12/31/23. The error was discovered on 2/1/24, before any cash was collected and after the 2023 books were closed. On 2/1/24, Mahoney would record:
Answer:
Mahoney would record record on the 2023 books A debit to rent receivables
Explanation:
As error of failure to accrue rent revenue on 12/31/2023 was discovered before closing of books, therefore on 02/01/2024 Mahoney would record on the 2023 books "A debit to rent receivables"
Journalize the following transactions in the accounts of Simmons Company:
Mar. 1 Received a $60,000, 60-day, 6% note dated March 1 from Bynum Co. on account.
18 Received a $25,000, 60-day, 9% note dated March 18 from Solo Co. on account.
Apr. 30 The note dated March 1 from Bynum Co. is dishonored, and the customer’s account is charged for the note, including interest.
May 17 The note dated March 18 from Solo Co. is dishonored, and the customer’s account is charged for the note, including interest.
July 29 Cash is received for the amount due on the dishonored note dated March 1 plus interest for 90 days at 8% on the total amount debited to Bynum Co. on April 30.
Aug. 23 Wrote off against the allowance account the amount charged to Solo Co. on May 17 for the dishonored note dated March 18.
Answer and Explanation:
The journal entries are shown below:
On Mar 1
Notes Receivable $60,000
To Accounts Receivable $60,000
(Being the note receivable is recorded)
On Mar 18
Notes Receivable $25,000
To Accounts Receivable $25,000
(Being the note receivable is recorded)
On Apr 30
Accounts Receivable $60,600
To Notes Receivable $60,000
To Interest Revenue ($60,000 × 2 ÷ 12 × 6%) $600
(Being the note receivable and interest revenue is recorded)
On May 17
Accounts Receivable $25,375
To Notes Receivable $25,000
To Interest Revenue ($25,000 × 9% × 2 ÷ 12) $375
(Being the note receivable and interest revenue is recorded)
On Jul 29
Cash $61,812
To Accounts Receivable $60,600
To Interest Revenue (60,600 × 8% × 90 ÷ 360) $1,212
(Being the note receivable and interest revenue is recorded)
On Aug 23
Allowance for Doubtful Accounts $25,375
To Accounts Receivable $25,375
(Being the allowance for doubtful debts is recorded)
Sullivan Equipment Company
Variable Costing Income Statement
For the Month Ended March 31
Sales (14,200 units) $653,200
Variable cost of goods sold:
Variable cost of goods manufactured $288,000
Inventory, March 31 (1,800 units) (32,400)
Total variable cost of goods sold 255,600
Manufacturing margin $397,600
Variable selling and administrative expenses 170,400
Contribution margin $227,200
Fixed costs:
Fixed manufacturing costs $64,000
Fixed selling and administrative expenses 42,600
Total fixed costs 106,600
Income from operations $120,600
Prepare in income statement under absorption costing.
Answer:
Income statement under absorption costing
Sales (14,200 units) $653,200
Less Cost of Goods Sold
Opening Inventory $0
Add Cost of Goods Manufactured $352,000
Less Closing Inventory (1,800 units × $22.00) ($39,600) ($312,400)
Gross Profit $340,800
Less Expenses :
Variable selling and administrative expenses ($170,400)
Fixed selling and administrative expenses ($42,600)
Net Operating Income / (Loss) $127,800
Explanation:
Manufacturing Cost Schedule :
Variable cost of goods manufactured $288,000
Add Fixed manufacturing costs $64,000
Total Manufacturing Cost $352,000
Units Manufactured :
Units Sold 14,200
Add Closing Stock 1,800
Less Opening Stock 0
Units Manufactured 16,000
Cost per unit manufactured = $352,000 / 16,000
= $22.00
What is unique about Costco’s channel management process? What components can other retailers borrow or implement?
Answer:
Its quick purchase and distribution of products and impeccable marketing.
Other retailers could implement or borrow are their branding strategies and eliminate costly and expensive management steps.
Explanation:
One of the main elements of Costo's success is its efficient and extremely competitive marketing strategy. In addition to this, product management strategies were also extremely effective in this company. This is because Costo manages the purchase and distribution of its products very quickly, preventing their shortages. This is done through purchases made in direct contact with suppliers, who send the products directly to the company's warehouses, which causes numerous steps in the supply process (made by producers and intermediaries) to be eliminated, thus ensuring speed and less economic expense.
Classify each of the following as:___________
a) Adding refrigerant to an air conditioning system
b) Fixing damage due to a car accident
c) Installing a new air conditioning system in an old building
d) Paving a new parking lot
e) Exterior and interior painting
f) Overhauling an engine in a large truck
g) Resurfacing a pool in an apartment building
h) New landscaping
Answer:
1. Ordinary maintenance and repairs.
a) Adding refrigerant to an air conditioning system.
b) Fixing damage due to a car accident.
e) Exterior and interior painting.
2. Assets improvements
c) Installing a new air conditioning system in an old building.
d) Paving a new parking lot.
h) New landscaping.
3. Extra ordinary repairs.
f) Overhauling an engine in a large truck.
g) Resurfacing a pool in an apartment building.
Explanation:
Assets improvements: this are improvements carried out on an assets for comfort and ease of use of such assets. Example is the installation of air conditioning unit in an old building.
Ordinary maintenance and repairs: this are maintenance and repairs carried out on machines, equipment and tools to bring them to the required working conditions or standard.
Extraordinary repairs: unlike ordinary maintenance and repairs this requires overhauling or changing of heavy components parts of a machine or equipment.
g Hudson Co. reports the contribution margin income statement for 2019. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (10,400 units at $280 each) $ 2,912,000 Variable costs (10,400 units at $210 each) 2,184,000 Contribution margin 728,000 Fixed costs 567,000 Pretax income $ 161,000 Assume the company is considering investing in a new machine that will increase its fixed costs by $44,500 per year and decrease its variable costs by $8 per unit. Prepare a forecasted contribution margin income statement for 2020 assuming the company purchases this machine.
Answer:
Forecasted contribution margin income statement for 2020
Sales (10,400 units at $280 each) $ 2,912,000
Variable costs (10,400 units at $202 each) ($ 2,100,800)
Contribution margin $ 811,200
Fixed costs ($567,000 + $44,500) ($ 611,500)
Pretax Income $199,700
Explanation:
Adjust the 2019 Contribution Income Statement by :
Decreasing variable costs by $8 per unit and,Increasing Fixed cost by $44,500If the minority price for a single share of stock of a company is $20, if there are 500 thousand shares of stock, and a person offers to buy the entire company for $14.5 million, what is the controlling interest premium being offered
Answer:
$4,500,000
Explanation:
current market price per stock $20
total stocks outstanding 500,000
corporation's total value = 500,000 x $20 = $10,000,000
investor's offer to purchase 100% at $14,500,000
controlling interest premium = $14,500,000 - $10,000,000 = $4,500,000
new price per stock = $14,500,000 / 500,000 = $29
The controlling interest premium equals the difference between the current market price of the stock and the purchase offer.
You have just taken a job at a manufacturing company and have discovered that they use absorption costing to analyze product costs and subsequent cost-volume-profit decisions. You would like to introduce them to variable costing and explain to them why this costing method can be used and why it is helpful.
Compose a short email - 2 to 3 short paragraphs because the president it too busy to read anything longer than that - proposing a variable costing system and what that might mean for reports, analysis and comparisons. You could give a brief example if you feel that is necessary for your explanation to the president.
Answer and Explanation:
Respected Sir,
Sub: Absorption costing to analyze product costs and subsequent cost-volume-profit decisions
As per your requirement please find the explanation below:
Absorption costing is a process by which we add part of the fixed overhead to the production expense of the goods. If we do on a per-unit basis. Here we will compute by dividing the fixed costs by the number of units that we built and sold over the era. Whereas Variable costing includes fixed overhead as a lump sum instead of a per-unit price.
Under this process, all your variable costs like equipment, raw materials, and shipping are included. We will add the maximum fixed overhead costs for the duration. Such costs are not calculated on a per-unit basis. Rather than we deduct them as a lump-sum expense from your income amount.
Variable costing is really useful as it reveals the earnings after all the expenses are paid for the accounting period. While you would not have earned revenue for the goods we purchased as some may be in the inventory, we are showing you have paid all of your expenses for the time. We have excess revenue when you actually sell the finished goods in the warehouse.
The absorption approach is not all that effective as absorption costing will inflate the income figures excessively in any given span of accounting. Since you're not going to subtract any of your fixed costs as we did not sell any of us produced goods, our profit and loss report doesn't reflect the maximum expenses you've had for the time. Therefore, these results may mislead us when our profitability is analyzed.
Regards
ABC
The Bank of Bramblewood would like to increase its loans to customers, but it is currently mandated by a high reserve rate. As a Federal Reserve member bank, it will borrow additional funds from the Fed and charge its customers an interest rate that is higher than the ________________.
Answer: discount rate
Explanation:
It should be noted that the discount rate is the rate that is charged by the Federal Reserve when any of its member banks borrow money from it.
Therefore, Federal Reserve member bank, the Bank of Bramblewood will borrow additional funds from the Fed and charge its customers an interest rate that is higher than the discount rate.
A Plus Appliances sells dishwashers with a fouryear warranty. In 2019, sales revenue for dishwashers is . The company estimates warranty expense at % of revenues. What is the total estimated warranty payable of A Plus Appliances as of December 31, 2019? A Plus Applicances began operating in 2019. (Round your final answer to the nearest dollar.)
A Plus Appliances sells dishwashers with a four-year warranty. In 2019, sales revenue for dishwashers is $94,000. The company estimates warranty expense at 4.5% of revenues. What is the total estimated warranty payable of A Plus Appliances as of December 31,2019? A Plus Appliances began operating in 2019. (Round your final answer to the nearest dollar.)
Answer:
$4230
Explanation:
Given that, the sales revenue to the dishwashers is equal to $94,000
Also the company estimated warranty expense cost is equal to 4.5% of revenues,
Thus, the estimated warranty payable can be determined by the following formula:
Annual sales revenue for the dishwashers * warranty expense revenues
= $94,000 * 4.5% = $94,000 * 0.045
= $4230
Hence, the total estimated warranty payable of A Plus Appliances as of December 31, 2019 = $4230
Department 1 completed and transferred out 450 units and had ending work in process inventory of 60 units. The ending inventory is 20% complete for materials and 60% complete for labor and overhead. The equivalent units of production for labor and overhead is ______ units.
Answer:
Equivalent units= 486 units
Explanation:
Giving the following information:
Units completed= 450
Ending work in process= 60 units
The ending inventory is 20% complete for materials and 60% complete for labor and overhead.
To calculate the equivalent units of production, we need to use the following formula:
Units started and completed = units completed - beginning WIP
Ending work in process completed= Ending WIP* %completed
=Number of equivalent units
Units started and completed = 450 - 0= 450
Ending work in process completed= 60*0.6= 36
= 486 units
Answer:462
Explanation:
Widget Co has a market capitalization of $ 100M. It does a 5-for-1 stock split. It then does a 1- for-25 reverse stock split. Finally, it does a 35-for-1 stock split. Nothing else changes. What’s the new market cap?
Answer: $100M
Explanation:
This is a bit of a trick question but when you come into contact with such questions remember this, stock splits do not change the total Market Capitalization. Market Cap is the total cash value of the company's stock in the market. A split would increase the number of shares outstanding but the market cap will remain the same because the shares will decrease in value.
Fill in the blanks to complete the sentence. A company has the following budget information: Sales: $118,800; COGS: $48,500; Depreciation expense: $1,500; Interest expense: $250; Other expenses: $41,880. If the company budgets 40% for income tax expense, the budgeted net income will be $
Answer:
16,002
Explanation:
A company has the following budget information
Sales = $118,000
COGS= $48,500
Depreciation expense= $1,500
Interest expense= $250
Other expense= $41,880
The company budgets 40% for income tax expense
= 40/100
= 0.4
The first step is to calculate the total expense incurred in the company
Total expense= COGS+depreciation expense+Interest expense+Other expenses
= $48,500+$1,500+$250+$41,880
= $92,130
The next step is to calculate the pre-tax income
Pre-tax income= Sales-total expenses
= $118,800-$92,130
= $26,670
The next step is to calculate the income tax expense
Income tax expense= $26,670×0.4
= $10,668
Therefore, the budgeted net income can be calculated as follows
Budgeted net income= Pre-tax income-income tax expense
= 26,670-10,668
= 16,002
Hence the budgeted net income is 16,002
Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6 percent and the market risk premium is 8.1 percent?
Stock Beta Expected Return
A. 89 7.83%
B. 1.52 12.59
C. 1.25 11.27
C 1.27 14.50
D. 80 10.08
Answer: Stock of D is correctly priced at 10.08%
( for the beta of Stock A and D, I guessed you meant 0.89 and 0.80 respectively as opposed to 89 and 80 you put, so i corrected and solved accordingly.)
Explanation:
Expected return = Rf + beta ( Rm - Rf )
Rf =Risk free return = 3.6
Rm-Rf = Market risk premium = 8.1%
A) Stock Beta , Expected Return= 0.89, 7.83%
Expected return = 3.6 + 0. 89 (8.1) = 10.809%-- its over priced
B) Stock Beta , Expected Return= 1.52 12.59%
Expected return = 3.6 + 1.52(8.1) = 15.912%---- its over priced
B) Stock Beta , Expected Return= 1.25 11.27%
Expected return = 3.6 + 1.25(8.1) = 13.725 %--- its overpriced
c) Stock Beta , Expected Return= 1.27 14.50%
Expected return = 3.6 + 1.27(8.1) = 13.887%---- Its underpriced
d) Stock Beta , Expected Return= 0.80 10.08%
Expected return = 3.6 + 0. 80(8.1) = 10.08%---- Correctly priced
You would expect a bond of the U.S. government to pay higher interestrate as compared to a bond of an Eastern European government.
A. True
B. False
Answer: False
Explanation:
Bond interest is determined in part by the riskiness of the Issuer of the bond. The United States is one of the most trust-worthy countries in the world and this is reflected by the US T-bills being considered a risk-free asset the world over.
The less risky an asset is, the less interest it has to pay as it does not have to compensate its investors for more added risk. A United States Bond is definitely safer than an Eastern European Government bond who are not as developed as the Western Europeans speaking in an unbiased manner. Therefore the US Bond will pay a lower interest relative to a bond of an Eastern European government.
In the government-wide statements, Internal Service Funds are most commonly a(n) ________ activity, whereas Enterprise Funds are a(n) ________ activity.
Answer: business type; governmental
Explanation:
It should be noted that the main difference that exists between the enterprise fund and the internal service fund is that while the enterprise fund
are used to give services to general public, the internal service funds are used in the provision of services within governmental organization.
makes and sells tasty burritos for $8 per unit with a unit variable cost of $6. All sales are for cash and the variable costs are paid immediately. The company has budgeted the following data for March: Sales 22160 units Cash, beginning balance $34000 Selling and administrative (of which depreciation, $5,000) $53000 Required minimum cash balance $66480 If necessary, the company will borrow cash from a bank on the first day of March. Assume that the borrowing can be made in any (exact) amount, but bears interest at 3% per month. The March interest will be paid during subsequent months. Q: What is the closest amount of cash that must be borrowed on March 1 to cover all cash disbursements and to obtain the desired March 31 cash balance
Answer:
$36,160
Explanation:
expected cash flow for March
Beginning cash balance $34,000
Sales $177,280
Variable costs -$132,960
S&A costs -$48,000
without depreciation
ending cash balance $30,320
desired ending cash -$66,480
cash deficit to be $36,160
covered by bank loan
If the government guarantees sugar farmers a price of $1 per pound when the market equilibrium price is actually $0.50 per pound, which of the following will occur?
a) A shortage of sugar will occur, increasing inefficiency.
b) A shortage of sugar will occur, decreasing inefficiency.
c) A surplus of sugar will occur, increasing inefficiency.
d) A surplus of sugar will occur,decreasing inefficiency.
Answer:
C
Explanation:
A price floor is when the government or an agency of the government sets the minimum price of a product. A price floor is binding if it is set above equilibrium price.
the price per pound of sugar is above equilibrium price, as a result the supply of sugar would increase while the demand for sugar would decrease. this would lead to a surplus. because at $1, supply would exceed demand, there would be an increase in inefficiency
Answer:
A surplus of sugar will occur, increasing inefficiency.
Explanation:
When the price of sugar is set above the market equilibrium price, the quantity supplied will be greater than the quantity demanded by consumers. Therefore, a surplus of sugar occurs that increases the level of inefficiency.
26. Currently, Bruner Inc.'s bonds sell for $1,250. They pay a $120 annual coupon, have a 15-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC
Answer:
2.11%
Explanation:
From the information given; we use the Excel spreadsheet to compute the difference between this bond's YTM(Yield to maturity) and its YTC(Yield to call).
From the diagram; we will see that the
YTM(Yield to maturity) = 8.91%
YTC(Yield to call).= 6.81%
Therefore the difference between this bond's YTM and its YTC = (8.91 - 6.81)%
the difference between this bond's YTM and its YTC = 2.11%
Determine the amount of money that must be invested now (time 0) at 10% nominal interest, compounded monthly, to provide an annuity of $7 comma 000 per year for 12 years, starting eight years from now. The interest rate remains constant over this entire period of time.
Answer:
the amount of money that must be invested now is $21068.87
Explanation:
Given that:
Nominal interest = 10%
Annuity = 7000
n = 8 years
The Effective interest rate is calculated by using the formula:
Effective interest rate = [tex]( 1 + \dfrac{r}{100 \times n})^n-1[/tex]
Effective interest rate = [tex]( 1 + \dfrac{10}{100 \times 8})^8-1[/tex]
Effective interest rate = 0.1045
Effective interest rate = 10.45 %
Thus ; the the amount of money that must be invested now is the present value with the annuity of $7, 000 per year for 12 years, starting eight years from now.
[tex]PV = 7000(\dfrac{(1+ 0.1045)^{12}-1}{0.1045(1 + 0.1045)^{12}})( \dfrac{1}{(1+ 0.1045)^8})[/tex]
PV = 7000 × 6.666056912 × 0.4515171371
PV = $21068.87
Thus; the amount of money that must be invested now is $21068.87
What is the future value of a $900 annuity payment over five years if interest rates are 8 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Answer:
Future Value of Annuity = $5279.94
Explanation:
An annuity is a series of cash flows that are constant, occur after equal intervals of time and are for a definite and limited time period. The future value of an annuity is calculated using the attached formula,
Future Value of annuity = 900 * [((1+0.08)^5 - 1) / 0.08]
Future Value of Annuity = $5279.94
Moss County Bank agrees to lend the Cullumber Company $695000 on January 1. Cullumber Company signs a $695000, 6%, 9-month note. What entry will Cullumber Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30
Answer:
The interest on notes is calculated as follows
Interest payable = Face value of bonds * Interest rate * (Time of maturity / 12 months)
= $695,000 * 6% * 9/12
=$31,275
Cullumber company will pay the face value of the notes as the notes are payable at par, along with interest rate of 6% for the period of 9 months. This will result in outflow of cash, thereby crediting cash account. The liability on account of notes payable and interest payable will be settles, thereby debiting the payable account
General Entry
Date Account Title and Explanation Debit Credit
30 Sep. Notes payable $695,000
Interest payable $31,275
Cash $726,275
(To record the amount to be paid at maturity)
Vulcan, Inc., has 8.2 percent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments and have a par value of $1,000. If the YTM on these bonds is 10.2 percent, what is the current bond price
Answer:
The current bond price (PV) is $878.16.
Explanation:
The current bond price (PV) can be calculated by compiling the following data :
FV = -$1,000
n = 10
Pmt = $1,000 × 8.20% = -$82
P/yr = 1
YTM = 10.20%
Pv = ?
Using a Financial Calculator, the current bond price (PV) is $878.1575 or $878.16.
The risk-free interest rate is 3.7% per year, the market risk premium is 5.6% per year, and a stock’s beta is 0.84. What is the stock’s annual expected return? Question 16 options: A) 9.8% B) 8.4% C) 9.1% D) 9.5% E) 8.7%
Answer:
The answer is B. 8.4%
Explanation:
To solve this, we will use Capital Asset Pricing Model(CAPM)
Stock’s annual expected return=
Rf + beta(Rm-Rf)
Rf is the risk free rate
Risk premium is (Rm-Rf) - the difference between market interest rate and the risk free rate.
Rf is 3.7%
Risk premium is 5.6%
Beta is 0.84
3.7% + 0.84(5.6%)
3.7% + 4.7%
= 8.4%
Which of these statements about corporate bonds is correct?
Answer:
Option A is the right answer.
Explanation:
Bonds seems to be debt security during which the lender is obliged to pay compensation at regular time intervals as well as pay the money back the balance of the shareholder at intellectual ability.
Option B: The raising of new bonds diminishes underlying ownership within the company. Incorrect issuance of new equities diminishes the company's current ownership.Option C: Debenture bonds attached leverage on the assets guaranteed. Incorrect debentures represent short term loans. Option D: Bonds focuses on providing funding for equities. Incorrect since debt funding is provided by Bonds.So that alternative A would be the appropriate choice.
Bonds are like IOUS with a promise to repay the amount borrowed, with interest, on a certain date. Thus, option A is correct.
Bonds appear to be a type of financial instrument where the lender is required to provide periodical payments of compensation as well as to reimburse the shareholder for their remaining amount at the investor's intellectual discretion.
An Iou-like financial obligation is a bond. By purchasing corporate bonds, investors are making a loan to the corporation issuing the connection. Bonds usually provide investors with a fixed rate of interest that is paid over a specified period of time at periodic times. In general, bonds are a less risky investment. Therefore, option A is correct.
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Suppose a bank has $500 million in deposits and $35 million in required reserves, and it is holding no excess reserves. What is the required reserve ratio
Answer:
The required reserve ratio is $17500 million.
Explanation:
The given deposit with the banks = $500 million
Required reserves = $35 million
We already have the deposits with the bank and the required reserves. Now we have to calculate the required reserve ratio and it can be calculated by multiplying the bank deposit with required reserves.
Required reserve ratio = Bank deposits × Required reserve
= 500 × 35
= $17500 million
Gugenheim, Inc., has a bond outstanding with a coupon rate of 5.8 percent and annual payments. The yield to maturity is 7 percent and the bond matures in 14 years. What is the market price if the bond has a par value of $2,000?
A. $1,790.11
B. $1,825.91
C. $1,788.00
D. $1,792.86
E. $1,795.22
Answer:
The market price if the bond has a par value of $2,000 is A. $1,790.11
Explanation:
The Market Price, PV of the Bond can be determined as follows :
PMT = $2,000 × 5.80% = - $116
P/yr = 1
YTM = 7 %
n = 14
Fv = - $2,000
Pv = ?
Using a financial calculator, the Market Price, PV is $1,790.1088 or $1,790.11.
It is better to evaluate economic decisions at the marginal, where the decision has to be made as long as its marginal benefit exceeds its marginal cost, if not equal to its marginal cost.
A. True
B. False
Answer: True
Explanation:
Output is always maximised where Marginal Benefit is above Marginal Cost. Ideally speaking, Marginal Benefits should be equal to Marginal Costs but Marginal Benefits being greater than cost is still a good thing because it means that there is still room for expansion until such a point as the MB = MC.
However, if it starts costing more per unit to gain a benefit per unit MB < MC, the decision makers can know to limit the activity because this will cause losses. This is why it is better to make decisions at a Marginal level so that one may know when output is maximised as well as when to rein in production.
You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 35-year mortgage loan for 85 percent of the $3,350,000 purchase price. The monthly payment on this loan will be $16,800. What is the APR on this loan? What is the EAR on this loan?
Answer:
APR = 2.43%
EAR = 2.46%
Explanation:
(a) What is the APR on this loan?
Annual percentage rate (APR) is the yearly interest rate that a borrower pays or an investor earns. It is expressed in percentage term without taking compounding into consideration.
This can be calculated using the Annual Percentage Rate (APR) formula as follows:
APR = {[(Fees + Interest amount) / Principal / n] * 365} * 100 ……………… (1)
Where;
APR = ?
Fees = 0
Interest amount = Interest rate * Purchase price = 85% * $3,350,000 = $2,847,500
Principal = Purchase price = $3,350,000
n = Number of days in the mortgage term = 365 days * 35 years = 12,775 days
Substituting the values into equation (1), we have:
APR = {[(0 + 2,847,500) / 3,350,000 / 12,775] * 365} * 100
APR = 2.43%
(b) What is the EAR on this loan?
The Effective Annual Rate (EAR) refers to the interest rate earned by an investor in a year after the compounding has been adjusted for over a specified period.
This can be calculated using the Effective Annual Rate (EAR) formula as follows:
EAR = (1 + i/n)^n – 1 ..................... (2)
Substituting the values into equation (2), we have:
i = Stated annual interest rate = APR = 2.43%, or 0.0243
n = Number of compounding periods = 12
EAR = (1 + 0.0243/12)^12 – 1
EAR = 0.0246, or 2.46%