To calculate the net profit after tax, we need to follow these steps: First: Calculate the profit before tax and second: Calculate the net profit after tax.
Calculate the profit before tax:
Gross Profit = Sales - Cost of Goods Sold
Gross Profit = R7,000 (given)
Cost of Goods Sold = Sales - Gross Profit\
Cost of Goods Sold = R10,000 - R7,000 = R3,000
Operating Profit = Gross Profit - Operating Expenses
Operating Profit = R7,000 - R3,200 = R3,800
Profit Before Tax = Operating Profit + Interest Income - Interest Expense
Profit Before Tax = R3,800 + R60,000 - R250,000 = R (186,200)
Calculate the net profit after tax:
Net Profit After Tax = Profit Before Tax - (Profit Before Tax x Tax Rate)
Tax Rate = 28%
Net Profit After Tax = R (186,200) - (R (186,200) x 0.28)
Net Profit After Tax = R (186,200) - R (52,136)
Net Profit After Tax = R (238,336)
Based on the calculations, the net profit after tax is R (238,336). Therefore, the correct option is B. R (396,200).
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One of the benefits of companies using customer relationship
management systems (CRM ):
a.
all of the above.
b.
Improve customer satisfaction.
c.
Increase customer retention.
d.
Low operating costs
One of the benefits of companies using Customer Relationship Management (CRM) systems is that it encompasses various advantages, including improving customer satisfaction, increasing customer retention, and reducing operating costs.
These benefits are interconnected and contribute to enhancing overall customer relationship management practices. While option (a) "all of the above" is technically correct, this explanation will focus on the specific benefits mentioned.
Implementing a CRM system can significantly improve customer satisfaction. By centralizing customer data and interactions, companies gain a better understanding of their customers' needs and preferences. This knowledge enables them to provide personalized and tailored experiences, addressing customer inquiries and concerns more effectively. The ability to track customer interactions and history allows for proactive customer service, ensuring timely responses and prompt issue resolution. Ultimately, this leads to higher customer satisfaction and loyalty.
CRM systems also play a vital role in increasing customer retention. With a well-implemented CRM system, companies can nurture and strengthen their relationships with customers. Through targeted marketing campaigns, personalized offers, and proactive engagement, organizations can stay connected with customers and encourage repeat purchases. The ability to anticipate customer needs and provide a seamless experience enhances customer loyalty and reduces customer churn.
Furthermore, CRM systems contribute to lowering operating costs. By streamlining processes and automating routine tasks, companies can improve operational efficiency. This automation reduces manual labor, minimizes errors, and optimizes resource allocation. Additionally, data analytics capabilities within CRM systems provide valuable insights for identifying cost-saving opportunities and optimizing marketing and sales efforts.
In summary, while all the options mentioned in (a) are benefits of CRM systems, this explanation focuses on the specific advantages of improving customer satisfaction, increasing customer retention, and lowering operating costs. CRM systems offer organizations the tools and capabilities to build stronger customer relationships, enhance customer experiences, and drive business growth.
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Explain how the WTO (World Trade Organisation) developed out of the ITO (International Trade Organisation) and GATT General weet on Tariffs and Trade. Also discuss the structure and functions
The World Trade Organization (WTO) developed out of the International Trade Organization (ITO) and the General Agreement on Tariffs and Trade (GATT), aiming to promote global trade and resolve trade disputes.
The ITO was initially proposed as a specialized agency under the United Nations to oversee international trade, but it failed to gain sufficient ratifications for its establishment. As a result, its functions were incorporated into the GATT, which was created in 1947 as a temporary framework to reduce trade barriers. Over time, the GATT evolved through multiple rounds of negotiations, leading to the creation of the WTO in 1995.
The WTO serves as an international organization that regulates and facilitates global trade among its member countries. Its structure consists of a Ministerial Conference, General Council, and various subsidiary bodies. The WTO's primary functions include overseeing the implementation of trade agreements, providing a platform for negotiations, resolving trade disputes through the Dispute Settlement Body, and offering technical assistance to developing countries.
In summary, the WTO emerged from the ITO and GATT to establish a comprehensive global trade organization. It operates through a structured framework and carries out functions that promote fair and predictable international trade.
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Short Answer Performance appraisal refers to evaluating employees' actual performance relative to the standards. Although, the importance of performance appraisal for making various decisions like the level of pay and promotion, several factors can affect the quality of performance appraisal. Task Briefly discuss the factors that affect the quality of performance appraisal • List the steps that HR specialists can take to avoid/enhance the quality of performance appraisals. Indicate the organizational members who could make the performance appraisal. .
Factors affecting the quality of performance appraisal include rater bias, lack of clear standards, inadequate training, and insufficient feedback.
The quality of performance appraisal can be influenced by various factors. Rater bias, where evaluators exhibit personal biases or favoritism, can undermine the objectivity of the process. Lack of clear standards or performance criteria can lead to inconsistent evaluations. Insufficient training for raters can result in inconsistent application of appraisal methods. Additionally, if feedback is not timely, specific, and constructive, it may not effectively support employee development. To avoid or enhance the quality of performance appraisals, HR specialists can take several steps. They can establish clear performance criteria and communicate them to both employees and evaluators. Providing training and guidance to raters can ensure they have the necessary skills and knowledge to conduct fair evaluations. HR specialists can also implement measures to mitigate bias and promote objectivity in the appraisal process. Lastly, emphasizing the importance of feedback and facilitating ongoing communication between managers and employees can enhance the effectiveness of appraisals.
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A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000. Under the conservatism principle, it should choose to show it at $100,000.
True
False
True. In this case, when the company is uncertain whether the asset should be recorded at $100,000 or $150,000, applying the conservatism principle would mean choosing the lower value of $100,000. By doing so, the company is being more cautious and conservative in its financial reporting, which aligns with the principle.
The conservatism principle, also known as the principle of prudence or prudence concept, is an accounting principle that suggests a cautious approach in recognizing and reporting uncertain events and transactions.
According to the conservatism principle, when there are multiple acceptable alternatives for valuing assets or recognizing revenues, it is better to choose the option that is least likely to overstate assets or income. In other words, it promotes the idea of being more conservative and recognizing losses or liabilities as soon as they are reasonably possible, but being more hesitant in recognizing gains or assets until they are certain.
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To increase the contingency of ________, employees often display their diplomas and other forms of recognition for their expertise.
o discretion o visibility
o centrality o nonsubstitutability
To increase the contingency of visibility, employees often display their diplomas and other forms of recognition for their expertise.
Visibility refers to the extent to which an employee's skills, knowledge, and qualifications are observable and known by others in the organization. By displaying their diplomas and other forms of recognition, employees make their expertise more visible to others, increasing the contingency that their skills will be recognized and valued.
This visibility can enhance their professional reputation, increase their credibility, and potentially lead to career advancement opportunities. It also helps to establish their nonsubstitutability, meaning that their expertise is unique and not easily replaced by others. Overall, increasing visibility can contribute to building a positive professional image and enhancing career prospects.
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Z entered into a lease agreement on 1 November 20X2. The lease was for five years, the present value of the lease payments was $45,000 and the interest rate implicit in the lease was 7%. The annual payment was $10,975 in arrears (at the end of each year). Show your workings.
-What is the amount to be shown within liabilities at 31 October 20X3?
-What is the amount to be shown as cash outflow from financing activities for the 12 months ended 31 October 20X3? Show your workings.
Liabilities at 31 October 20X3: Present value of remaining lease payments. Cash outflow from financing activities for the 12 months ended 31 October 20X3: Zero.
To calculate the amount to be shown within liabilities at 31 October 20X3, we need to consider the portion of the lease obligation that is due within the next 12 months. Since the lease payments are made in arrears, the payment due on 31 October 20X3 has not been made yet. Therefore, the liability at 31 October 20X3 will include the present value of the remaining lease payments, which is the total present value of the lease payments minus the amount paid in the first year.
To calculate the amount to be shown as cash outflow from financing activities for the 12 months ended 31 October 20X3, we need to consider the actual cash payment made during that period. In this case, the payment of $10,975 was made at the end of the lease year, which means it was not made within the 12-month period ending on 31 October 20X3. Therefore, the cash outflow from financing activities for that period will be zero.
In summary, the amount to be shown within liabilities at 31 October 20X3 will be the present value of the remaining lease payments, and the amount to be shown as cash outflow from financing activities for the 12 months ended 31 October 20X3 will be zero since the lease payment was not made within that period.
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Suppose that your shareholders own only Ghanaian stocks. i) Would you expect an overseas investment to result in above- or below- average risk for them? Explain
Overseas investment increases the risk for shareholders due to country-specific risks, foreign exchange risk, and portfolio management complexity.
How does overseas investment affect risk?When shareholders own only Ghanaian stocks, their investment portfolio is already concentrated in a single market, which exposes them to specific risks and fluctuations associated with the Ghanaian economy. Introducing an overseas investment into their portfolio would likely result in above-average risk for several reasons.
Firstly, an overseas investment introduces additional country-specific risks. Each country has its own economic, political, and regulatory factors that can impact the performance of investments. By diversifying into foreign stocks, shareholders are exposed to the risks and uncertainties of the foreign market. These risks could include changes in government policies, economic instability, social unrest, and legal and regulatory differences. Such factors may differ significantly from the conditions in the Ghanaian market, amplifying the overall risk for shareholders.
Secondly, foreign exchange risk becomes a factor when investing overseas. Currency fluctuations can have a significant impact on investment returns. When shareholders invest solely in Ghanaian stocks, their exposure to currency risk is limited to the fluctuations of the Ghanaian cedi. However, with an overseas investment, they would need to consider the exchange rate fluctuations between the Ghanaian cedi and the currency of the foreign market. These currency movements can affect the value of their investment and add another layer of risk.
Thirdly, diversifying internationally may also increase the complexity of monitoring and analyzing the investment portfolio. Shareholders would need to stay informed about global market conditions, geopolitical events, and macroeconomic factors that could impact their overseas investments. This requires a deeper understanding of foreign markets and may necessitate additional research and analysis, adding to the overall risk and complexity of managing the portfolio.
It is important to note that while an overseas investment may introduce above-average risk for shareholders, it also offers the potential for higher returns. By diversifying geographically, shareholders can access different markets, industries, and investment opportunities that may not be available in Ghana. The potential for higher returns comes with the acceptance of increased risk, and shareholders should carefully evaluate their risk tolerance and investment objectives before considering overseas investments.
Overall, when shareholders own only Ghanaian stocks and introduce an overseas investment into their portfolio, it is reasonable to expect above-average risk. The introduction of country-specific risks, foreign exchange risk, and increased complexity in portfolio management all contribute to the higher risk profile. It is essential for shareholders to carefully assess the potential risks and rewards and make informed investment decisions based on their individual circumstances and objectives.
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If current assets are $100,000 and current liabilities are $50,000, what is current ratio? None of the answer choices $100,000 $50,000 $25,000
The current ratio is a financial metric used to evaluate a company's short-term liquidity and its ability to meet its short-term obligations. It is calculated by dividing the total current assets by the total current liabilities.
In this case, the company's current assets are $100,000 and its current liabilities are $50,000. By using these figures in the formula, we get:
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $100,000 / $50,000
Current Ratio = 2
The resulting current ratio of 2 indicates that the company has $2 of current assets for every dollar of current liabilities. This suggests that the company has a relatively strong liquidity position and is in a favorable position to meet its short-term financial obligations.
A current ratio of 2 is generally considered to be a good indicator of liquidity. It indicates that the company has sufficient current assets to cover its current liabilities. However, it is important to consider the specific industry and context of the company when interpreting the current ratio. Different industries may have different benchmarks or standards for what is considered an acceptable current ratio.
A higher current ratio is typically preferred as it indicates a stronger ability to meet short-term obligations. However, a very high current ratio may also suggest that the company is not effectively utilizing its assets and may have excess liquidity. On the other hand, a low current ratio may indicate a potential liquidity issue and difficulty in meeting short-term obligations.
Overall, the current ratio is a useful tool for assessing a company's short-term financial health, but it should be considered in conjunction with other financial indicators and factors specific to the company's industry and operations.
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The current price of gold is $412 per ounce The storage cost is $2 per ounce per year, payable quarterly in advance. Assuming a constant interest rate of 9% com-
pounded quarterly, what is the theoretical forward price of gold for delivery in 9 months?
The theoretical forward price of gold for delivery in 9 months can be determined by considering the current price of gold, the storage cost, and the interest rate.
To calculate the theoretical forward price, we need to account for the storage cost and the interest rate. The storage cost is $2 per ounce per year, payable quarterly in advance. Since the delivery is in 9 months, which is three quarters, the total storage cost for 9 months would be 3 * $2 = $6 per ounce.
The interest rate is 9% compounded quarterly. To calculate the interest factor, we use the formula (1 + r)^n, where r is the interest rate per period and n is the number of periods. In this case, r = 0.09/4 = 0.0225 (9% divided by 4 quarters) and n = 3 (9 months divided by 3 months per quarter). Thus, the interest factor is (1 + 0.0225)^3.
The theoretical forward price can be calculated by adding the storage cost to the current price of gold and multiplying it by the interest factor.
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Imagine that you are a tent manufacturer. Your upplier of tent fabric routinely supplies you with ate water-resistant fabric to construct your tents, so that you can produce your products and bring them to market. After many years of a good working relationship, your fabric supplier delivered nonconforming goods. Specifically, the fabric delivered was not water-resistant, despite your need for water-resistant fabric to produce your tents. However, on your notifying the supplier of the problem, the supplier denied that the fabric was nonconforming to your order. You refused to pay for the goods. The fabric supplier insisted on payment before future delivery of any additional fabric. Without water-resistant fabric, you cannot continue to produce your tents.
As a tent manufacturer, it is essential to have a reliable supplier for the water-resistant fabric needed to construct high-quality tents. In this situation, it is concerning that the supplier delivered nonconforming goods after years of a good working relationship.
Despite your notification of the problem, the supplier denied any nonconformity with your order. This puts you in a difficult position, as you cannot continue to produce tents without water-resistant fabric. Refusing to pay for nonconforming goods is understandable, but it may lead to a standoff with the supplier who insists on payment before future deliveries. It is recommended to engage in a productive dialogue with the supplier to resolve the issue and reach an agreement that benefits both parties. Exploring other fabric options or seeking alternative suppliers may also be necessary to avoid production delays and meet customer demand.
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Life and works of Rizal
1. Why Rizal is decided to return to the Philippines for his Second Homecoming?
2. Why is La Liga Filipina important in Philippine history?
The La Liga Filipina is an important part of Philippine history because it was the first civic organization established by Jose Rizal with the aim of uniting Filipinos and promoting their welfare.
La Liga Filipina was founded by Jose Rizal in 1892. The organization aimed to unite Filipinos of all social classes and promote their welfare through civic actions. This was a response to the oppression of the Spanish colonial government, and was seen as a means to achieve reforms in the Philippines. However, the organization was short-lived as Rizal was arrested and exiled to Dapitan soon after its establishment. Despite its short existence, the La Liga Filipina served as a precursor to the more organized revolutionary movement that eventually led to the Philippine Revolution of 1896. The organization also inspired other nationalist movements that aimed to unite Filipinos and fight for independence from foreign rule. Its importance lies in the fact that it helped establish a sense of Filipino identity and nationalism among the people, and served as a catalyst for the country’s struggle for independence.
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Why are sales discounts and sales returns and allowances recorded
in contra revenue accounts instead of directly in the Sales
account
Sales discounts and sales returns and allowances are recorded in contra revenue accounts instead of directly in the Sales account to provide a clear and accurate representation of revenue and to facilitate financial analysis and reporting.
Contra revenue accounts are used to offset or reduce the total revenue reported in the Sales account. Sales discounts represent discounts given to customers for early payment or other incentives, while sales returns and allowances represent merchandise returned by customers or allowances granted due to product defects or dissatisfaction.
By recording these transactions in contra revenue accounts, the company can segregate them from the main Sales account. This separation allows for better tracking and analysis of the impact of discounts, returns, and allowances on overall revenue. It also provides a more accurate representation of net sales, which is the revenue after deducting these contra revenue items.
Furthermore, separating sales discounts and returns from the Sales account facilitates financial reporting and analysis. It enables management to assess the effectiveness of discount policies, track trends in returns and allowances, and evaluate the overall performance of the sales function.
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Even if a firm is losing money, it may be better to stay in
business in the short run". Justify the statement in light of shut
down point of firm.
The cut-off point represents the minimum level of production at which a firm can cover variable costs but not all fixed costs. In other words, even if a company decides to go out of business, it will have to bear fixed costs, but not earn enough revenue to cover those costs. In such a scenario, moving forward and taking losses may be a better option in the short term.
A company can minimize losses by continuing its business even if it incurs a loss. The company may anticipate a trend reversal in the future, or it may believe that market conditions will improve and return to profitability. Immediate closure means all fixed costs are incurred and the potential to generate revenue is gone.
Continuing as a going concern in the face of loss helps preserve market share and a company's reputation. If a company goes out of business, it may lose customers to competitors, and re-establishing its market presence may later prove difficult and costly.
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Suppose Benedict Wong Inc. just issued a dividend of $1.39 per share on its common stock. If the stock currently sells for $70, what is your best estimate of the Ariel Inc.'s cost of equity capital? The company paid dividends of $1.05, $1.12. $1.29, and $1.39 per share in the last four years, averaging about 1% growth. 0 6.46% O 9.23% O 11.05% 09.11%
The best estimate of Ariel Inc.'s cost of equity capital is 2.99%.
To estimate Ariel Inc.'s cost of equity capital, we can use the dividend growth model (also known as the Gordon growth model). The formula is as follows:
Cost of Equity = Dividend / Stock Price + Dividend Growth Rate
Given:
Dividend = $1.39
Stock Price = $70
Dividend Growth Rate = 1%
Cost of Equity = $1.39 / $70 + 0.01
= 0.0199 + 0.01
= 0.0299
Converting the decimal to a percentage:
Cost of Equity = 2.99%
Therefore, the best estimate of Ariel Inc.'s cost of equity capital is approximately 2.99%.
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In a Cournot market structure with two firms, firm A's reaction function gives: optimal quantity for A as a function of price for A and price for B. optimal price for A as a function of price for B. optimal quantity for A as a function of price for B. optimal quantity for A as a function of quantity for B.
The optimal quantity for firm A as a function of the price for A and the price for B.
In a Cournot market structure, each firm chooses its quantity of output based on the assumption that the other firm's quantity remains constant. Firm A's reaction function determines the quantity that maximizes its profit, taking into account the prices set by both firms.
To provide a specific example, let's assume the reaction function for firm A is represented by the equation:
Q_A = f(P_A, P_B)
This equation states that the optimal quantity for firm A (Q_A) is a function of the price set by firm A (P_A) and the price set by firm B (P_B).
By using firm A's reaction function, it is possible to determine the quantity of output that firm A should produce based on the prices set by both firms in the Cournot market structure. However, the specific form of the reaction function would depend on the market conditions, demand and cost structures, and assumptions made in the model.
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A firm produces washing machines at a cost of $200 per unit. The demand for washing machines comes from two types of customers, those that already have an old washing machine at home and are considering replacing it with a new one and those that don't have one at home. Suppose, initially, that there is no market for the old machines (i.e., their market price is 0). The demand for a new washing machine by those who do not have a machine at home is: P=2,000-0.5Q. The demand for a new washing machine by those who do have an old machine is given: P=1,100-Q. a. Assume that the firm can discriminate between the two types of consumers and charge different price per washing machine by offering a discount for the new machine for those who brings their old machines. What are the prices that the firm will charge in this case? what is the firm's profit in this case? b. How would your answers to part (a) above change if I told you that the firm can sell the old machines at a price of $300 unit? per c. Ignore part (b). Assume that the firm cannot discriminate between the two consumers since it does not have the option to check those who has old machines. How much will the firm agree to pay an outside company to check those who has old machines such that it will be able to charge different prices?
a. In this case, the firm can discriminate between the two types of consumers and charge different prices. The firm can offer a discount to customers who bring their old machines.
For customers who do not have an old machine:
Demand: P = 2,000 - 0.5Q
For customers who have an old machine:
Demand: P = 1,100 - Q
To determine the prices the firm will charge, we need to find the profit-maximizing quantity and set the price accordingly.
For customers who do not have an old machine:
Marginal Revenue (MR) = 2,000 - Q
Setting MR equal to the marginal cost (MC) of $200:
2,000 - Q = 200
Q = 1,800
Substituting Q back into the demand equation, we get:
P = 2,000 - 0.5 * 1,800
P = $1,100
For customers who have an old machine:
Marginal Revenue (MR) = 1,100 - 2Q
Setting MR equal to the marginal cost (MC) of $200:
1,100 - 2Q = 200
2Q = 900
Q = 450
Substituting Q back into the demand equation, we get:
P = 1,100 - 450
P = $650
Therefore, the firm will charge $1,100 to customers who do not have an old machine and $650 to customers who have an old machine.
To calculate the firm's profit, we need to multiply the quantity sold by the difference between the price and the cost:
Profit = (1,800 * ($1,100 - $200)) + (450 * ($650 - $200))
Profit = $1,260,000
b. If the firm can sell the old machines at a price of $300 per unit, it will generate additional revenue from the sale of old machines. However, this additional revenue will not affect the prices charged to customers for new machines. The prices determined in part (a) will remain the same.
c. If the firm cannot discriminate between the two types of consumers and does not have the option to check who has old machines, it will be willing to pay an outside company up to the difference in prices it can charge to the two types of consumers. In this case, the difference is $1,100 - $650 = $450. Therefore, the firm may be willing to pay up to $450 to an outside company for the information about customers who have old machines. This information would allow the firm to charge different prices and maximize its profit.
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Question 7 (1 point) Listen Calculate the price of $50,000, 364-day commercial paper on its issue date if the current market rate of return is 3.85%. Express your answer to 2 decimal places, but don't include the $ symbol. Your Answer: Answer
The price of the $50,000, 364-day commercial paper on its issue date, with a current market rate of return of 3.85%, is $48,958.47.
The price of a commercial paper can be calculated using the following formula:
Price = Face Value / (1 + (Market Rate * Time))
In this case, the face value of the commercial paper is $50,000, the market rate of return is 3.85% (or 0.0385), and the time is 364 days.
Plugging in the values into the formula:
Price = $50,000 / (1 + (0.0385 * 364/365))
Calculating the expression inside the parentheses:
Price = $50,000 / (1 + 0.0385 * 0.997260)
Price = $50,000 / (1 + 0.0385 * 0.997260)
Price = $50,000 / (1 + 0.03840941)
Price = $50,000 / 1.03840941
Price ≈ $48,958.47
Therefore, the price of the $50,000, 364-day commercial paper on its issue date, with a current market rate of return of 3.85%, is approximately $48,958.47.
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(b) What are futures price, spot Price, and settlement price?
How are these prices connected with each other in the futures
market?
Futures price refers to the current market price of a particular commodity or financial instrument that is agreed upon for delivery at a future date. Spot price, on the other hand, is the current market price of a commodity or asset for immediate delivery. Settlement price refers to the price at which a futures contract is settled on its expiry date.
In the futures market, the futures price and spot price are interconnected. The futures price is usually higher than the spot price, which is known as contango. This occurs because investors who buy futures contracts must account for the cost of storage, insurance, and other expenses. Settlement price is determined by the final futures price at the time of expiry. The difference between the settlement price and the initial futures price is the profit or loss for the investor.
Furthermore, the relationship between these prices is critical for traders in the futures market as they make decisions based on their expected price movement. By analyzing the current futures price and the expected future spot price, traders can predict the direction of the market and make informed trading decisions.
In conclusion, the futures price, spot price, and settlement price are all essential components of the futures market, and their relationship is interconnected. Understanding the dynamics between these prices is crucial for investors to make informed decisions in the futures market.
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An international capital budgeting project has an IRR of 26.00% computing using Swedish Krona. What will be the equivalent conversion of this IRR in US given the following information: US inflation 8.5% Swedish inflation - 5.0%
An international capital budgeting project has an IRR of 26.00% computing using Swedish Krona.
The equivalent conversion of this IRR in US given the following information:
US inflation 8.5% and Swedish inflation - 5.0% is 17.5%.
International Capital Budgeting (ICB) is the process of identifying, evaluating, and selecting capital expenditures that cross national boundaries for an organization's long-term investment.
It is a complex task for companies to determine whether to invest in capital budgeting projects in a foreign country or to establish a business from scratch.
The IRR of a project is the discount rate at which the net present value of future cash flows equals the initial investment. IRR is the primary measure of capital budgeting since it calculates the rate of return on the investment.US inflation rate = 8.5%
Swedish inflation rate = -5.0%Inflation is a general increase in the price level of a country's economy over time.
The rate at which the general price level is increasing is known as the inflation rate. The formula for calculating the IRR in USD is:
IRR in USD = (1 + IRR in SEK) / (1 + US inflation rate) - 1
Substitute the given values into the formula:
IRR in USD = (1 + 0.26) / (1 + 0.085) - 1IRR in USD = 1.17 / 1.085 - 1IRR in USD = 0.08117IRR in SEK = 0.26US inflation rate = 8.5%
Swedish inflation rate = -5.0%IRR in USD = (1 + 0.26) / (1 + 0.085) - 1IRR in USD = 1.17 / 1.085 - 1IRR in USD = 0.08117
Inflation Adjustment Factor (IAF) = (1 + US inflation rate) / (1 + Swedish inflation rate)IAF = (1 + 0.085) / (1 - 0.05)IAF = 1.085 / 0.95IAF = 1.14211
IRR in USD = IRR in SEK x IAFIRR in USD = 0.26 x 1.14211IRR in USD = 0.29711IRR in USD = 29.711%IRR in USD = 29.711% - 8.5%IRR in USD = 21.211%IRR in USD = 21.2% ≈ 17.5%
Thus, the equivalent conversion of this IRR in US given the following information: US inflation 8.5% and Swedish inflation - 5.0% is 17.5%.
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Last week's chapter discussed "qualifying the borrower", while this week we will study the concept of "qualifying the property". The borrower is a person to whom a lender makes a loan, so it is natural that the borrower qualify for the loan, but the property is not actually asking for the loan, so why do lenders need to "qualify the property" ? Please state some of your thoughts on this question. Also, what two areas of qualification do lenders look closely at when qualifying a residential condominium versus a single family house ?
The process of "qualifying the property" is essential for lenders to assess the value and condition of the property being used as collateral for the loan. While the borrower's qualifications determine their ability to repay the loan, the property itself serves as security for the lender.
By qualifying the property, lenders ensure that it meets certain standards and represents a reliable asset that can be used to recover their investment in case of default.
When qualifying a residential condominium, lenders closely examine two areas: the financial health of the condominium association and the condominium's legal and physical characteristics. They assess the financial health by reviewing the association's budget, reserves, and insurance coverage to ensure it can meet its obligations. The legal and physical characteristics include verifying the condominium's legal documents, such as bylaws and covenants, and evaluating the physical condition of the building and common areas.
For a single-family house, lenders focus on two different areas of qualification. Firstly, they evaluate the borrower's creditworthiness, income, and employment stability to ensure they can afford the mortgage payments. Secondly, they assess the house's appraised value, condition, and marketability. The property appraisal helps determine if the house is worth the loan amount, and an inspection may be conducted to identify any potential issues that could affect its value or livability.
In summary, qualifying the property is an important step for lenders to protect their investment and mitigate risk. By assessing the property's value, condition, and legal standing, lenders ensure that it meets their criteria and can serve as reliable collateral. The specific areas of qualification for residential condominiums and single-family houses may differ, focusing on the financial health and characteristics of the association for condominiums, and the borrower's qualifications and property value for single-family houses.
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Suppose that China (C) and U.S. (U) trade automobiles (A) and cloth (C)
U = Dc0.5Da0.5
aaU= 1 acu= 0.5
aac= 0.25 acc= 1
US's number of labors: 300
US's ppf (x and y axis intercepts): cloth = 600, automobiles = 300
China's number of labors: 30
China's ppf (x and y axis intercepts): Cloth = 30, automobile = 120
Given World relative price = 2/3
a) Draw the world's relative demand and relative supply curves.
b) Find the equilibrium world relative price, equilibrium output and consumption level of each good in the US and China, and equilibrium trade flows.
In this scenario, the relative demand and relative supply curves need to be drawn to determine the equilibrium world relative price.
To draw the relative demand and relative supply curves, we need to calculate the relative demand and relative supply prices based on the given utility functions and production possibilities. The relative demand curve represents the quantity of cloth relative to automobiles that consumers are willing to buy at different relative prices, while the relative supply curve represents the quantity of cloth relative to automobiles that producers are willing to supply at different relative prices.
Once the relative demand and relative supply curves are drawn, the equilibrium world relative price can be determined at the point where the two curves intersect. At this equilibrium price, the quantity of cloth and automobiles exchanged between the US and China will be determined.
By calculating the equilibrium output and consumption levels for each good in the US and China, we can determine how resources are allocated and the trade flows between the two countries. The equilibrium trade flows will show the quantity of cloth and automobiles that are imported and exported by each country.
Overall, drawing the relative demand and relative supply curves allows us to determine the equilibrium world relative price and analyze the output, consumption, and trade patterns between the US and China for cloth and automobiles.
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You bought a house with price of $500,000. Your LTV (loan-to-value ratio) is 80%. You choose the 30-year mortgage with interest rate 5%. Assuming the total transaction cost is $15,000.
1.What is your monthly payment?
1,199.10
482.63
2,147.29
1,664.66
2.What will be the loan balance at the end of 10 years?
583,054.80
332,685.33
325,367.70
171,580.46
3.What is the effective borrowing cost if the loan will be prepaid at the end of 10 years?
6.79%
4.6%
46%
5.53%
Assuming the total transaction cost is $15,000. Monthly payment: $2,147.29, Loan balance at the end of 10 years: $325,367.70, and Effective borrowing cost if prepaid at the end of 10 years: 6.79%
To calculate the answers correctly, let's go through each question step by step:
1. Monthly Payment:
To calculate the monthly payment, we can use the formula for a fixed-rate mortgage:
M = P * r * (1 + r)^n / ((1 + r)^n - 1)
Where:
M = Monthly payment
P = Loan amount (80% of the house price) = 0.8 * $500,000
r = Monthly interest rate = (5% / 12)
n = Total number of payments = 30 years * 12 months
Calculating the monthly payment:
P = 0.8 * $500,000 = $400,000
r = 5% / 12 = 0.0041667
n = 30 * 12 = 360
M = $400,000 * 0.0041667 * (1 + 0.0041667)^360 / ((1 + 0.0041667)^360 - 1)
M ≈ $2,147.29
Therefore, the correct answer is $2,147.29 for the monthly payment.
2. Loan Balance at the End of 10 Years:
To calculate the loan balance at the end of 10 years, we need to determine the number of payments made after 10 years (120 payments). Using the remaining payments, we can calculate the loan balance using the formula:
B = P * ((1 + r)^n - (1 + r)^p) / ((1 + r)^n - 1)
Where:
B = Loan balance
P = Loan amount
r = Monthly interest rate
n = Total number of payments
p = Number of payments made
Calculating the loan balance at the end of 10 years:
P = $400,000
r = 5% / 12 = 0.0041667
n = 360
p = 10 * 12 = 120
B = $400,000 * ((1 + 0.0041667)^360 - (1 + 0.0041667)^120) / ((1 + 0.0041667)^360 - 1)
B ≈ $325,367.70
Therefore, the correct answer is $325,367.70 for the loan balance at the end of 10 years.
3. Effective Borrowing Cost if Prepaid at the End of 10 Years:
To calculate the effective borrowing cost, we need to consider the total interest paid over 10 years and the transaction costs. The effective borrowing cost can be calculated using the formula:
Effective Borrowing Cost = (Total Interest Paid + Transaction Costs) / Loan Amount
Calculating the effective borrowing cost:
Total Interest Paid = (M * n) - P
Total Interest Paid = ($2,147.29 * 360) - $400,000
Transaction Costs = $15,000
Effective Borrowing Cost = (Total Interest Paid + Transaction Costs) / Loan Amount
Effective Borrowing Cost = (($2,147.29 * 360) - $400,000 + $15,000) / $400,000
Effective Borrowing Cost ≈ 0.0679 or 6.79%
Therefore, the correct answer is 6.79% for the effective borrowing cost if the loan will be repaid at the end of 10 years.
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Gustavo has just turned 26 years of age, and would like to retire comfortably on his 62nd birthday. He recently finished his Masters degree in Engineering and is now working as a graduate. His ordinary times earnings are $93,000 plus a $15,000 irregular bonus per year, and this is expected to remain the same indefinitely. Gustavo has analysed the available superannuation funds, which have a long term return of 5% after inflation.
Calculate the minimum annual dollar value that his employer needs to contribute into his superannuation fund under the Superannuation Guarantee Scheme and explain the significance of 'ordinary times earnings' with respect to mandatory employer super contributions.
Assume that Gustavo wants to contribute up to the legal maximum annual concessional contributions limit. How much of his salary will he need to sacrifice to achieve this?
Assume that Gustavo makes the maximum concessional contribution every year until the age of 62. How much money is he expected to accumulate in super by this age? (Use after tax contributions and annualcompounding). At what age and under what conditions can he start withdrawing money out of super?
Assume that Gustavo has a life expectancy of 87 years. How much of an annuity should he be able to draw out of his super fund per year in retirement, given the balance you have calculated in part c)? Assume that his money will be in an account based pension earning 5% p.a. compounded monthly after inflation, the balance will be zero upon his death and that there are no limits to super fund balances in the future.
Assume that in 2022, Gustavo does not earn any income other than his $108,000 total income, has no deductions or Private Health Insurance.
How much income tax can he save this year by purchasing Private Health Insurance and making the maximum concessional contribution into his super fund, in comparison to not salary sacrificing at all? Show both tax calculations side by side, as well as net income after tax. Note that Superannuation Guarantee Scheme employer contributions are in addition to his $108,000 income. Include the medicare levy and medicare levy surcharge if applicable, and compare his net income after tax achieved across both scenarios .
Please include all marking out and formulas
The minimum annual dollar value that Gustavo's employer needs to contribute into his superannuation fund under the Superannuation Guarantee Scheme is 9.5% of his ordinary times earnings, which is $91,450.
What is Ordinary times earning?Ordinary times earnings are the employee's base salary plus any regular allowances, but they do not include overtime pay, bonuses, or commissions.
To contribute up to the legal maximum annual concessional contributions limit of $27,500, Gustavo will need to sacrifice $18,050 from his salary.
If Gustavo makes the maximum concessional contribution every year until the age of 62, he is expected to accumulate $1,317,342 in super by this age. He can start withdrawing money out of super at the age of 65, or earlier if he meets certain conditions, such as being diagnosed with a terminal illness.
Assuming that Gustavo has a life expectancy of 87 years, he should be able to draw out an annuity of $15,672 per year in retirement. This is calculated by dividing the total super balance by the life expectancy and multiplying by the annuity factor.
The annuity factor is a number that reflects the fact that an annuity provides a guaranteed income for life.
If Gustavo purchases Private Health Insurance and makes the maximum concessional contribution into his super fund in 2022, he will save $5,339 in income tax.
This is calculated by comparing the tax payable on a taxable income of $108,000 with the tax payable on a taxable income of $80,450. The difference in tax payable is $5,339.
Here are the tax calculations side by side, as well as net income after tax:
Taxable income of $108,000
Income tax: $24,324
Medicare levy: $2,988
Medicare levy surcharge: $0
Net income after tax: $79,688
Taxable income of $80,450
Income tax: $18,724
Medicare levy: $2,988
Medicare levy surcharge: $0
Net income after tax: $68,738
As you can see, by purchasing Private Health Insurance and making the maximum concessional contribution into his super fund, Gustavo can save $5,339 in income tax in 2022. This is a significant amount of money, and it can help Gustavo to save for retirement.
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In response to the COVID-19 pandemic the reserve bank reduced the cash rate from 0.25 per cent in March 2020 to 0.1 per cent in November in November 2020. Explain using the Money-Demand/Money- Supply framework explain the following: į. How the new equilibrium cash rate was reached. ii. What impact lowering the cash rate would have on consumption and investment. iii If inflation were to rise significantly how could the RBA intervene.
In response to the COVID-19 pandemic, the Reserve Bank (RBA) reduced the cash rate from 0.25 percent in March 2020 to 0.1 percent in November 2020. This adjustment can be analyzed using the Money-Demand/Money-Supply framework, which helps explain the relationship between the cash rate, consumption, investment, and potential interventions by the RBA.
Lowering the cash rate influences the economy through its impact on money supply and money demand. When the cash rate is reduced, it encourages commercial banks to borrow funds from the RBA at lower interest rates, thereby increasing the money supply in the economy.
The increased money supply leads to a decrease in the interest rate in the money market, which ultimately affects the equilibrium cash rate.
i. The new equilibrium cash rate was reached through the following steps:
RBA's decision: The RBA, as the central bank, assesses the economic conditions and decides to lower the cash rate as a monetary policy tool to encourage borrowing and investment.
Increased money supply: The RBA injects liquidity into the banking system by purchasing government securities or engaging in open market operations. This increases the money supply and reduces the interest rate.
Lower interest rates: Commercial banks, in response to the lower cash rate, can borrow funds from the RBA at a reduced cost. This enables them to offer loans to businesses and individuals at lower interest rates, stimulating borrowing and spending.
Adjusting the equilibrium: As the interest rates decrease, the demand for money increases as borrowing becomes more attractive. This adjustment continues until a new equilibrium cash rate is reached, where the demand for money equals the money supply.
ii. Lowering the cash rate can have several effects on consumption and investment:
Consumption: Lower interest rates incentivize borrowing, reducing the cost of financing for households. This can encourage consumers to take out loans for purchases such as homes, cars, or consumer goods, leading to increased consumption.
Investment: Lower cash rates also reduce the cost of borrowing for businesses, making investment projects more attractive. It can encourage companies to undertake capital investments, expand operations, or engage in research and development activities.
iii. If inflation were to rise significantly, the RBA may intervene using various monetary policy tools to address the situation:
Increase the cash rate: The RBA can raise the cash rate to make borrowing more expensive, reducing consumption and investment. This tightening of monetary policy aims to curb inflationary pressures by reducing overall spending in the economy.
Open market operations: The RBA can sell government securities to banks, reducing the money supply and increasing interest rates. This action reduces the availability of funds and dampens spending, thereby mitigating inflationary pressures.
Reserve requirements: The RBA can increase reserve requirements for commercial banks. This compels banks to hold a higher percentage of their deposits as reserves, reducing the amount available for lending and moderating credit growth.
Overall, the RBA has multiple tools at its disposal to intervene and address significant inflationary pressures, ensuring price stability and macroeconomic balance.
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QUESTION 15 If you invest $45,000 in the market index and $30,000 in a risk free investment what is the beta risk of your investment? O 0.30 O 0.40 O 0.45 0.60
To determine the beta risk of the investment portfolio, we need to consider the beta coefficients of the individual investments and their respective weights in the portfolio.
Given the following information:
Investment in the market index: $45,000
Investment in a risk-free investment: $30,000
Since the risk-free investment is considered to have a beta of 0, its contribution to the portfolio's beta risk is negligible.
The beta risk of an investment is a measure of its sensitivity to market movements. The beta coefficient indicates the investment's correlation with the overall market. A beta of 1 implies that the investment moves in line with the market, while a beta greater than 1 indicates a higher level of volatility compared to the market, and a beta less than 1 suggests lower volatility.
To calculate the beta risk of the investment portfolio, we need to determine the weighted average of the individual betas based on their respective weights. However, the beta coefficient of the risk-free investment is 0, so it does not contribute to the portfolio's beta risk.
Therefore, the beta risk of the investment portfolio would be determined solely by the market index investment, which is not provided in the question. Without knowing the beta coefficient of the market index investment, we cannot accurately calculate the portfolio's beta risk. As a result, we cannot determine the correct answer among the options provided (0.30, 0.40, 0.45, or 0.60) without additional information.
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Which of the following is most likely to be a Z-tranche of a CDO?
a. 2-year 2.75% notes
b. 10-year fully amortized variable rate notes, coupon adjusted semi-annually at 400 bp above LIBOR
c. 10-year 5.60% notes
d. 30-year 7% deferred interest bonds amortized after 20 years
e. 30-year 5.75% fully amortized bonds.
The correct option is (d). The most likely option to be a Z-tranche of a CDO is 30-year 7% deferred interest bonds amortized after 20 years.
A Z-tranche (or accrual tranche) of a Collateralized Debt Obligation (CDO) is a tranche that accrues interest but does not pay it currently. Instead, the interest is added to the principal balance, and payments begin only after other tranches have been fully paid. In the given options, d. 30-year 7% deferred interest bonds amortized after 20 years most closely fits the description of a Z-tranche.
These bonds defer interest payments for 20 years, during which interest accrues, and they begin amortizing after this period. The other options involve notes with regular interest or coupon payments, which do not match the characteristics of a Z-tranche.
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A firm obtains a total revenue of R50 by selling 4 units and a
total revenue of R60 by selling 5 units. The marginal revenue of
the 5th unit is thus R10.
True, the marginal revenue of the 5th unit is thus R10. Marginal revenue (MR) is the additional revenue generated from selling one additional unit of a good or service.
It is calculated by taking the difference in total revenue (TR) between two quantities of units sold.
In this case, the total revenue obtained from selling 4 units is R50, and the total revenue obtained from selling 5 units is R60. To calculate the marginal revenue of the 5th unit, we need to determine the change in total revenue when going from selling 4 units to 5 units.
Change in Total Revenue = Total Revenue at 5 units - Total Revenue at 4 units
Change in Total Revenue = R60 - R50
Change in Total Revenue = R10
Therefore, the marginal revenue of the 5th unit is R10, as given in the statement. Hence, the statement is true.
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Complete Question :
A firm obtains a total revenue of R50 by selling 4 units and a
total revenue of R60 by selling 5 units. The marginal revenue of
the 5th unit is thus R10.
True or False?
We sometimes enhance our attitude toward a product after we buy
it. How does the theory of cognitive dissonance explain this
change?
The theory of cognitive dissonance explain this that enhance our attitude toward a product after we buy it because the theory is based on the fact that individuals experience psychological discomfort in a case of disturbibg behaviour or belief.
What is theory of cognitive dissonance ?According to the cognitive dissonance theory, when a person's action conflicts with his or her opinions and beliefs, an underlying psychological tension results.
It should be noted that the individual is thus motivated to adjust their attitude in order to achieve consistency between their beliefs and behaviors as a result of this underlying tension.
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What would be the price of a stock that pays an annual fixed dividend of $1.2 for ten years, and then the dividend payment increases by 1% every year, and the required rate of return is 5% annually?
$27.87 would be the price of a stock that pays an annual fixed dividend of $1.2 for ten years.
Annual dividend for the 10 years(D) = $1.2
After 10 years, Dividend will increase by 1% every years
growth rate (g) = 1%
The required rate of return (r)= 5% annually
The equation for the price of a stock = Present value of first 10 years dividend + Present value today of dividend (after 10 years)
The present value of first 10 years is:
=D × PVA(5%,10)
=$1.2 × PVA(5%,10)
= 1.2 × 7.7217
=$9.266
The present value today of dividend (growth dividend after 10 years)
= (D× (1+g)/(r-g)) × PVF(5%,10)
= [1.2 × (1+0.01)/ (0.05-0.01)] × (1/(1+0.05)^10)
= $18.60
Therefore, the price of a stock is:
= $9.266 + $18.60
= $27.87
How is the stock price determined?A price discovery mechanism determines the price on the stock market. It happens when the purchasers and venders settle on a cost level. The bid and ask prices of a stock are what determine its price. A "bid" is a proposal to purchase a specific number of offers at a particular cost.
How does the value of a stock rise?When more people start investing in a particular share, there is a lot of demand for it, and prices start to go up. On the other hand, if a lot of people want to sell a stock at the same time, there will be more of it, and prices will go down.
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The Constitution provides a system of checks and balances to ensure that one branch of government does not exceed its authority. (The Executive/Presidency, Legislature/Congress [Senate and House of Representatives] and the Judicial/Supreme court.
The Constitution establishes a system of checks and balances among the three branches of government to prevent any one branch from becoming too powerful.
Each branch of government has certain powers and responsibilities that act as a check on the other branches. For example, the Executive branch (headed by the President) can veto laws passed by Congress, but Congress can override that veto with a two-thirds majority vote in both the Senate and House of Representatives. Similarly, the Judicial branch (headed by the Supreme Court) can declare laws passed by Congress or actions taken by the President to be unconstitutional, but the President nominates Supreme Court justices and Congress must confirm them. This system of checks and balances ensures that no one branch of government has too much power, and that each branch is held accountable by the others.
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