In a competitive market, the equilibrium quantity and price result in maximum total surplus (consumer surplus + producer surplus) and no deadweight loss.
In a competitive market, the equilibrium occurs where the demand curve (D) intersects the supply curve (S). This equilibrium quantity (Qc) and price (Pc) maximize both consumer surplus (area above the price and below the demand curve) and producer surplus (area below the price and above the supply curve). The sum of consumer surplus and producer surplus represents the total surplus (TS), indicating the efficiency of the market. In a competitive market, there is no deadweight loss as resources are allocated efficiently. In contrast, in a monopoly market, a single firm has control over the market and can set prices higher than the marginal cost. The monopolist's profit-maximizing quantity (Qm) and price (Pm) result in a lower quantity and higher price compared to the competitive market.
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Adamson will pay a dividend of $1.6 per share at the end of this year, the dividend will grow at a constant rate of 5.5%. Ils common stock now sells for $37 per share. New stocks are expected to be sold to net $33.50 per share. Estimate Adamson's cost of retained earnings and its cost of new common stock
The Adamson's cost of retained earnings is approximately 9.824% and Adamson's cost of new common stock is approximately 10.276%.
To estimate Adamson's cost of retained earnings and cost of new common stock, we can use the Dividend Discount Model (DDM) and the Cost of Equity formula, respectively.
Cost of Retained Earnings (k retained): The cost of retained earnings represents the required rate of return on reinvested earnings. We can calculate it using the Dividend Discount Model:
k retained = (Dividend / Stock Price) + Growth Rate
Given: Dividend = $1.6 per share, Stock Price = $37 per share, Growth Rate = 5.5%
k retained = ($1.6 / $37) + 5.5%
= 0.04324 + 0.055
= 0.09824 or 9.824% (approx.)
Therefore, Adamson's cost of retained earnings is approximately 9.824%.
Cost of New Common Stock (k new): The cost of new common stock represents the required rate of return on newly issued stocks. We can estimate it using the Cost of Equity formula:
k new = (Dividends per Share / Net Proceeds per Share) + Growth Rate
Given: Dividends per Share = $1.6 per share, Net Proceeds per Share = $33.50 per share, Growth Rate = 5.5%
k new = ($1.6 / $33.50) + 5.5%
= 0.04776 + 0.055
= 0.10276 or 10.276% (approx.)
Therefore, Adamson's cost of new common stock is approximately 10.276%.
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To what amount will the following investment accumulate?
$30,829, invested today for 36 years at 6.28 percent, compounded
monthly.
To calculate the amount the investment will accumulate, we need to use the compound interest formula: A = P(1 + r/n)^(nt), where A is the final amount, P is the initial investment, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.
In this case, P = $30,829, r = 6.28% or 0.0628, n = 12 (since the interest is compounded monthly), and t = 36. Plugging these values into the formula, we get:
A = $30,829(1 + 0.0628/12)^(12*36)
A = $30,829(1.005233)^432
A = $30,829(8.409034)
A = $259,296.97
Therefore, the investment will accumulate to $259,296.97 after 36 years at a 6.28% annual interest rate, compounded monthly. It's worth noting that the power of compounding can significantly increase the final amount, even with a relatively low annual interest rate.
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Using the following information, create the following budgets for January, February and March: production budget direct materials budget, direct labour budget and overhead budget for Williams Inc., a Calgary-based motor vehicle wheel manufacturer for its new XLR tire. The marketing department thinks that it will have strong sales. It usually keeps 20% of the next quarter's sales as a target ending inventory. For new products, Williams Inc. requires a target ending inventory of 30% of the next quarter's sales. Unfortunately, they were unable to manufacture any units before the end of the current year. Jan Feb March April 20000 30000 45000 25000 If Williams Inc.uses 14 kg of direct materials (rubber and metal) for each wheel it manufactures at a total cost of $5.00. It pays a total of $2200 in labour wages per hour among 100 employees. It takes 30 minutes of total labour time to produce one wheel. Overhead costs are $5 for direct materials for each labour hour per month. It pays $12,000 per month in rent and insurance.
Williams Inc., a motor vehicle wheel manufacturer, needs to create budgets for January, February, and March. The budgets include the production budget, direct materials budget, direct labor budget, and overhead budget.
Production Budget: The production budget determines the number of units to be manufactured. Based on the sales forecast provided, the production budget for January, February, and March would be 20,000 units, 30,000 units, and 45,000 units, respectively.
Direct Materials Budget: The direct materials budget calculates the quantity and cost of materials needed. Since each wheel requires 14 kg of direct materials and the total cost is $5.00 per wheel.
Direct Labor Budget: The direct labor budget determines the labor hours and cost required for production. Given that it takes 30 minutes of total labor time to produce one wheel and the company pays a total of $2,200 in labor wages per hour among 100 employees.
Overhead Budget: The overhead budget includes the overhead costs associated with production. It is given that the overhead cost is $5 for direct materials for each labor hour per month.
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The idea that inflation by itself reduces people's purchasing power is called
A) the inflation tax.
B) menu costs.
C) the inflation fallacy.
D) shoeleather costs.
The idea that inflation by itself reduces people's purchasing power is called C) the inflation fallacy.
Inflation is the rate at which the general level of prices for goods and services is rising, while the purchasing power refers to the ability of a currency to buy goods and services. The inflation fallacy assumes that rising prices directly lead to a decrease in purchasing power for everyone. However, this idea is not entirely accurate because it doesn't consider the impact of wage adjustments and other factors.
When inflation occurs, it is true that the purchasing power of money decreases, but wages and other sources of income usually increase over time to compensate for this. In reality, people's purchasing power may not be significantly affected if wages adjust accordingly. The inflation fallacy overlooks these adjustments and oversimplifies the relationship between inflation and purchasing power.
Therefore, it is important to analyze the broader economic context rather than just focusing on inflation alone.
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Mention the factor affecting working capital requirement in short. [5 Marks]
One factor that affects the working capital requirement is the nature of the business and its industry. Different industries have varying working capital needs based on the characteristics of their operations. For example, businesses in the manufacturing sector may have higher working capital requirements due to the need to maintain inventory levels, manage raw material procurement, and cover production costs. In contrast, service-based businesses may have lower working capital requirements as they typically have fewer inventory-related expenses.
The size and growth rate of a business also impact its working capital requirement. Larger companies tend to have higher working capital needs due to increased operational complexity and larger-scale operations. Similarly, businesses experiencing rapid growth may require more working capital to support increased sales volume, expand operations, and invest in additional resources.
Another important factor is the efficiency of the company's internal processes and management practices. Effective inventory management, accounts receivable and payable management, and cash flow forecasting can significantly impact the working capital requirement. Efficient processes can reduce the need for excessive working capital tied up in inventory or unpaid invoices, improving overall cash flow and liquidity.
External factors such as market conditions, economic trends, and seasonal fluctuations can also influence the working capital requirement. Changes in customer demand, supplier terms, or credit availability can impact the cash conversion cycle and affect the level of working capital needed to sustain day-to-day operations.
Overall, the working capital requirement is influenced by factors such as the industry, business size and growth rate, internal management practices, and external market conditions. It is crucial for businesses to regularly assess and manage their working capital needs to ensure sufficient liquidity and operational efficiency.
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in general, microeconomic theory assumes that firms attempt to maximize the difference between
Microeconomic theory generally assumes that firms attempt to maximize the difference between their total revenue and total cost. This concept is known as profit maximization. In simple terms, a firm aims to maximize the profit it earns by increasing the revenue it receives from selling goods or services while minimizing the costs incurred in production.
Profit maximization is a key goal for firms as it enables them to stay competitive in the market, reinvest in their business, and create value for shareholders. To achieve this, firms analyze various factors such as consumer demand, production costs, and market conditions to determine the optimal output level and pricing strategy. By optimizing these factors, firms can maximize their profit margins and ensure long-term growth and sustainability.
In summary, microeconomic theory suggests that firms focus on profit maximization by increasing the difference between total revenue and total cost. This objective drives firms to make strategic decisions and effectively allocate resources to stay competitive and achieve sustainable growth.
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Find the consumer and producer surpluses (in million dollars) by using the demand and supply functions, where p is the price in dollars) and x is the number of units (in millions). See Example 5 Demand Function p = 40 - 0.2x consumer surplus $ Supply Function p = 0.2x millions producer surplus $ millions Need Help? Read It [-70.43 Points] DETAILS LARAPCALC10 5.5.046. Find the consumer and producer surpluses by using the demand and supply functions, where p is the price in dollars) and x is the number of units (in millions). Demand Function p = 610 - 21x Supply Function p = 40x $ consumer surplus producer surplus $
the consumer surplus is $1050 million, and the producer surplus is $2000 million.To find the consumer and producer surpluses, we need to determine the equilibrium point where the demand and supply functions intersect.
Setting the demand function equal to the supply function, we have:
610 - 21x = 40x
Combining like terms and rearranging the equation, we get:
61x = 610
Solving for x, we find:
x = 10
Substituting this value back into either the demand or supply function, we can find the equilibrium price. Let's use the supply function:
p = 40(10) = 400
To calculate the consumer surplus, we need to find the area between the demand curve and the equilibrium price. It can be calculated as:
Consumer Surplus = (1/2) * (610 - 400) * 10 = $1050 million
To calculate the producer surplus, we need to find the area between the supply curve and the equilibrium price. It can be calculated as:
Producer Surplus = (1/2) * (400 - 0) * 10 = $2000 million
Therefore, the consumer surplus is $1050 million, and the producer surplus is $2000 million.
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Exchange rate systems vary in the degree to which a country’s central bank control its currency’s exchange rate. Many countries allow their currency to float, yet periodically engage in interventions to control the exchange rate. Explain why and how a central bank intervene to control the currency exchange rate. Be sure to explain the impact of such intervention on the economy including interest rates, inflation, and balance of trade.
Central banks intervene in currency exchange rates to control and stabilize their currency. Such interventions can impact the economy by influencing interest rates, inflation, and the balance of trade.
Central banks intervene in currency exchange rates for several reasons. One primary objective is to maintain price stability and prevent excessive volatility in the currency's value. By buying or selling their own currency in the foreign exchange market, central banks can influence its supply and demand, thereby affecting its exchange rate.
When a central bank wants to strengthen its currency, it may sell foreign currency reserves and buy its own currency. This reduces the supply of its currency in the market, leading to an increase in its value relative to other currencies. On the other hand, if a central bank wants to weaken its currency, it may sell its own currency and buy foreign currency, increasing the supply of its currency and causing its value to decrease.
The impact of currency interventions on the economy can be significant. Changes in exchange rates affect interest rates, as a stronger currency may lead to lower interest rates to stimulate exports, while a weaker currency may result in higher interest rates to prevent capital outflows. Additionally, currency interventions can influence inflation by affecting import and export prices. A stronger currency lowers import prices, potentially reducing inflation, while a weaker currency increases import prices and may lead to higher inflation.
Furthermore, interventions can impact the balance of trade. A stronger currency makes exports relatively more expensive and imports cheaper, potentially leading to a trade deficit. Conversely, a weaker currency makes exports cheaper and imports more expensive, which can improve the balance of trade.
Overall, central bank interventions in currency exchange rates aim to maintain stability, control inflation, influence interest rates, and manage the balance of trade. However, the effectiveness of such interventions depends on various factors, including market conditions, economic fundamentals, and the degree of market intervention by other countries.
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Question 24
A analyst gathered the following information about a company and the market:
Current market price per share $28.00
Most recent dividend per share paid on common stock $2.00
Expected dividend payout rate 40%
Expected return on equity = 15%
Beta for the common stock 1.3
Expected market return on the market portfolio 13%
Risk-free rate of return = 4%
Using the discounted cash flow approach (DCF),the cost of capital of retained earning for the company is closest to:
A. 15.7%
B. 16.8%
C. 16.1%
D. 17%
If the Expected market return on the market portfolio is 13%. the cost of capital of retained earning for the company is closest to: C. 16.1%.
What is the Cost of Equity?First step is to find the expected growth rate
Retention Rate = 1 - Dividend Payout Rate = 1 - 0.40 = 0.60
Expected Growth Rate = Expected Return on Equity * Retention Rate
Expected Growth Rate = 0.15 * 0.60 = 0.09
Now let calculate the cost of capital of retained earnings
Cost of Equity = (Dividends per Share / Current Market Price per Share) + Growth Rate
Cost of Equity = ($2.00 / $28.00) + 0.09
Cost of Equity = 0.0714 + 0.09
Cost of Equity = 0.1614
Cost of Equity = 16.1% (Approximately)
Therefore the correct option is C.
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In 2016, the Allen Corporation had sales of
$ 70
million, total assets of
$ 44
million, and total liabilities of
$ 21
million. The interest rate on the company's debt is
6.3
percent, and its tax rate is
35
percent. The operating profit margin is
10
percent.
a. Compute the firm's 2016 net operating income and net income.
b. Calculate the firm's operating return on assets and return on equity. (Hint: You can assume that interest must be paid on all of the firm's liabilities.)
Question content area bottom
Part 1
a. Compute the firm's 2016 net operating income and net income.
The firm's 2016 net operating income is
$enter your response here
million. (Round to two decimal places.)
The firm's net operating income is $7 million in 2016.
The firm's net income is $3.227 million in 2016.
To compute the firm's 2016 net operating income, we need to subtract the operating expenses from the sales revenue. The operating profit margin is given as 10 percent, which means operating expenses are 90 percent of sales revenue.
a. Net Operating Income:
Net Operating Income = Sales - Operating Expenses
Net Operating Income = $70 million - (0.90 * $70 million)
Net Operating Income = $70 million - $63 million
Net Operating Income = $7 million
The firm's 2016 net operating income is $7 million.
To calculate the net income, we need to consider the interest expense and the tax rate. Net income is the profit after deducting interest and taxes from net operating income.
b. Net Income:
Interest Expense = Total Liabilities * Interest Rate
Interest Expense = $21 million * 6.3% = $1.323 million
Tax Expense = Net Operating Income * Tax Rate
Tax Expense = $7 million * 35% = $2.45 million
Net Income = Net Operating Income - Interest Expense - Tax Expense
Net Income = $7 million - $1.323 million - $2.45 million
Net Income = $7 million - $3.773 million
Net Income = $3.227 million
The firm's 2016 net income is $3.227 million.
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A country observes that its currency is gaining nominal value in the foreign exchange market. All other things being equal, if the country's output gap is currently zero, what can we expect to happen to its aggregate product (Y), price level (P) and interest rate (i) in the short run?
A country observes that its currency is gaining nominal value in the foreign exchange market. All other things being equal, if the country's output gap is currently zero, we can expect Y to decrease, P to decrease, and i to remain unchanged. The correct answer is A.
If a country's currency is gaining nominal value in the foreign exchange market and the output gap is currently zero, we can expect certain changes to occur in the short run with regards to aggregate product (Y), price level (P), and interest rate (i).
In this scenario, an increase in the value of the country's currency means that its goods and services become relatively more expensive for foreign buyers. This would lead to a decrease in exports and potentially a decrease in aggregate product (Y), as the demand for domestic goods and services decreases.
Since the output gap is zero, there is no immediate need for the economy to adjust its production capacity. Therefore, we can expect aggregate product (Y) to remain relatively unchanged. This rules out option (c) and option (d).
Regarding the price level (P), a stronger currency can result in lower import prices, which could lead to a decrease in the overall price level. Hence, we can expect P to decrease, supporting option (a).
Lastly, in the short run, the interest rate (i) is generally influenced by the central bank's monetary policy decisions and the overall economic conditions. The change in currency value alone does not necessarily determine the direction of the interest rate. Therefore, we can expect i to remain unchanged, supporting option (a).
In conclusion, the correct answer is option A - We can expect Y to decrease, P to decrease, and i to remain unchanged.
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Complete Question:
A country observes that its currency is gaining nominal value in the foreign exchange market. All other things being equal, if the country's output gap is currently zero, what can we expect to happen to its aggregate product (Y), price level (P) and interest rate (i) in the short run?
a. We can expect Y to decrease, P to decrease, and i to remain unchanged.
b. We can expect Y to decrease, P to decrease, and i to decrease.
c. We can expect Y to increase, P to remain unchanged, and i to remain unchanged.
d. We can expect Y to increase, P to increase, and i to increase.
e. None of the alternatives is correct.
Company A is financed by 29% of debt and the rest of the company is financed by common equity. The company’s before-tax cost of debt is 3.1%. Currently the risk-free rate is 1.1%, the market risk premium is 6%, and the stock has a beta of 1.4. If company A faces a marginal tax rate of 30%, its weighted average cost of capital (WACC) should be _____. (Note: Round your answer as decimals with three decimal places. For example, if your answer is 8.7%, you should write 0.087 in the answer box.
The weighted average cost of capital (WACC) for Company A should be 0.068.
How to calculate WACC?
To calculate the WACC, we need to consider the weights of debt and equity in the capital structure and the respective costs of each component.
Given that 29% of the company is financed by debt, the weight of debt (W_d) is 0.29. The weight of equity (W_e) would be the remaining percentage financed by common equity, which is 100% - 29% = 71%.
The before-tax cost of debt (r_d) is given as 3.1%.
To calculate the after-tax cost of debt (r_d * (1 - tax rate)), we multiply it by (1 - 0.30) since the company faces a marginal tax rate of 30%. This gives us an after-tax cost of debt of 2.17%.
The cost of equity (r_e) can be calculated using the Capital Asset Pricing Model (CAPM). The equation is r_e = r_f + β * (r_m - r_f), where r_f is the risk-free rate, β is the beta of the stock, and r_m is the market risk premium. Plugging in the given values, we get r_e = 1.1% + 1.4 * 6% = 9.5%.
Now, we can calculate the WACC using the formula WACC = W_d * r_d + W_e * r_e. Substituting the values, we get WACC = 0.29 * 2.17% + 0.71 * 9.5% = 0.6283 ≈ 0.068.
Therefore, the weighted average cost of capital (WACC) for Company A is approximately 0.068 or 6.8%.
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Which of the following supply decisions can lead to poor operational efficiency?
a) Raw materials that arrive late from the supplier
b) Employees not arriving to work on time
c) Operation procedures that do not meet customer expectations
d) Parts that arrive to the facility that do not meet quality standards
The supply decisions that can lead to poor operational efficiency include raw materials arriving late from the supplier, employees not arriving to work on time, operation procedures that do not meet customer expectations, and parts that arrive at the facility that do not meet quality standards.
All of the options listed - raw materials arriving late, employees not arriving on time, operation procedures not meeting customer expectations, and parts not meeting quality standards - have the potential to negatively impact operational efficiency.
When raw materials arrive late from the supplier, it can disrupt production schedules, lead to delays, and create inefficiencies in the manufacturing process. This can result in production bottlenecks, decreased output, and increased costs.
Employees not arriving to work on time can cause staffing shortages, reduced productivity, and workflow disruptions. It can lead to a domino effect, affecting other employees' ability to perform their tasks efficiently and impacting overall operational performance.
Operation procedures that do not meet customer expectations can result in customer dissatisfaction, rework, or product returns. Inefficient processes can lead to errors, delays, and decreased customer satisfaction, ultimately affecting operational efficiency.
Similarly, parts arriving at the facility that do not meet quality standards can lead to production delays, rejections, or the need for rework. This can disrupt the production flow, increase costs, and decrease operational efficiency.
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Explain the contention that in the absence of the tax advantages
of debt the use of gearing can increase the expected rate of return
for shareholders, but not necessarily. (Topic:
Miller-Modigiliani)
Without tax advantages, the impact of gearing on the expected rate of return for shareholders is uncertain and depends on the balance between potential benefits and risks associated with debt financing and the company's financial performance.
The contention put forth by Miller and Modigliani, known as the Modigliani-Miller theorem, states that in the absence of tax advantages related to debt, the use of gearing, or financial leverage, does not affect the expected rate of return for shareholders. According to this theory, the capital structure of a firm, which refers to the mix of debt and equity financing, does not impact the overall value of the firm or the returns received by shareholders.
Without tax advantages, the increase in the expected rate of return due to gearing is not guaranteed. Gearing can amplify the returns for shareholders in certain scenarios. When a company uses debt financing, it increases the potential rewards for shareholders if the company performs well. However, the use of debt also adds financial risk. If the company underperforms or faces financial distress, the burden of debt repayment can reduce or even eliminate shareholder returns.
Therefore, in the absence of tax advantages, the impact of gearing on the expected rate of return for shareholders becomes uncertain. It depends on the balance between the potential benefits and risks associated with debt financing, as well as the overall financial performance of the company.
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In your post, tell us one product each which NYC/USA government may impose a price ceiling and price floor on. Give a reason for selecting each product
The NYC/USA government may impose a price ceiling on rental housing to address affordability issues and a price floor on agricultural products to protect the income of farmers.
Rental housing in NYC is known for its high costs, which can create affordability challenges for residents. To address this issue, the government may impose a price ceiling on rental housing. A price ceiling would set a maximum limit on the rent that landlords can charge, ensuring that housing remains affordable for low-income individuals and families. This measure aims to prevent excessive rent increases and provide more affordable options for renters in a high-cost market.
In the case of agricultural products, the government may impose a price floor to protect the income of farmers. Agriculture is an essential sector for the economy, and fluctuations in market prices can significantly impact farmers' livelihoods. A price floor would establish a minimum price for agricultural products, ensuring that farmers receive a fair income for their produce. This measure provides stability and support for farmers, particularly during periods of low market prices or fluctuations in supply and demand.
Both price ceilings on rental housing and price floors on agricultural products are policy tools that the government can use to intervene in markets and address specific concerns related to affordability and income stability. These measures aim to balance the interests of consumers and producers while achieving broader social and economic objectives.
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On January 1, 2021, Byner Company purchased a used tractor. Byner paid $5,000 down and signed a noninterest-bearing note requiring $25,000 to be paid on December 31, 2023. The fair value of the tractor is not determinable. An interest rate of 10% properly reflects the time value of money for this type of loan agreement. The company's fiscal year is December 31. Required: 1. Prepare the journal entry to record the acquisition of the tractor. Round computations to the nearest dollar. 2. How much interest expenses will the company include in its 2021 and 2022, income statement for this note? 3. What is the amount of the liability the company will report in its 2021 and 2022 balance sheets for this note?
1. Journal entry: Debit Tractor ($30,000), Credit Notes Payable ($30,000).
2. Interest expense: 2021 - $3,000, 2022 - $3,000.
3. Liability on the balance sheet: 2021 - $27,000, 2022 - $24,000.
1. The journal entry to record the acquisition of the tractor involves debiting the Tractor account for the total cost ($5,000 down payment + $25,000 note amount = $30,000) and crediting the Notes Payable account for the same amount.
2. The interest expense for the note is calculated by multiplying the outstanding balance of the note by the interest rate. For 2021 and 2022, the interest expense would be $30,000 x 10% = $3,000 each year.
3. The liability reported on the balance sheet is the remaining balance of the note. Since $3,000 of principal is paid each year, the balance reduces. Therefore, in 2021, the liability would be $30,000 - $3,000 = $27,000. In 2022, the liability would further decrease to $27,000 - $3,000 = $24,000.
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_______ is a fully amortizing
loan.
Negative Amortization Mortgage
Interest Only Mortgage
Balloon Mortgage
Standard Fixed Rate Mortgage
Standard Fixed Rate Mortgage is a fully amortizing loan. The borrower makes fixed monthly payments throughout the loan term, typically 15 or 30 years. Therefore, option D is correct.
A fully amortizing loan refers to a loan structure where the borrower makes regular payments over the loan term that cover both the principal and interest. Each payment is designed to fully repay the loan by the end of its term.
Among the options provided, the Standard Fixed Rate Mortgage is the type of loan that qualifies as a fully amortizing loan. In a Standard Fixed Rate Mortgage, the borrower makes fixed monthly payments throughout the loan term, typically 15 or 30 years.
These payments are structured to pay off both the interest charged on the loan and a portion of the principal balance. Over time, as the borrower continues to make these payments, the outstanding balance gradually decreases until the loan is fully repaid at the end of the term.
The benefit of a fully amortizing loan is that it ensures the borrower's debt is systematically paid down, allowing for eventual full ownership of the property. Each payment contributes towards reducing the principal balance and gradually building equity in the property.
In summary, a Standard Fixed Rate Mortgage is an example of a fully amortizing loan. It involves making regular payments that cover both the principal and interest, gradually reducing the loan balance over time until it is fully repaid. Therefore, option D is correct.
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(3) Consider a binomial tree model with S(0) = 10, u = 0.1, d = -0.2 and r = 0. Asian Options are options whose payoffs depend on the average price of the underlying asset. Let Č(2) be the payoff at time 2 of an Asian option with strike price 9. i.e. S(0) + S(1) + S(2) Č(2) = (2) - 9,0} =max 3 Compute the following: (a) E.[C(2)|S(1)] (b) E.[C(2)] (c) Var.[Č(2)]
Consider a binomial tree model (a) E.[C(2)|S(1)] = 0.41(b) E.[C(2)] = 0.11(c) Var.[Č(2)] = 0.0223.
Given data: S(0) = 10, u = 0.1, d = -0.2, r = 0. Let Č(2) be the payoff at time 2 of an Asian option with strike price 9 i.e., S(0) + S(1) + S(2) Č(2) = (2) - 9,0} = max3Now we need to find (a) E.[C(2)|S(1)](b) E.[C(2)](c) Var.[Č(2)]Solution:(a) E.[C(2)|S(1)]For a binomial tree model, S(1) can take one of two possible values:10 u = 10 x 1.1 = 11d = 10 x (0.8) = 8For S(1) = 11, the two possible values of S(2) are S(2) = 11 x 1.1 = 12.1 S(2) = 11 x 0.8 = 8.8For S(1) = 8, the two possible values of S(2) are S(2) = 8 x 1.1 = 8.8 S(2) = 8 x 0.8 = 6.4Č(2) = max(0, 9 – (10 + 11 + 12.1) / 3) = max(0, 9 – 11.37) = 0Č(2) = max(0, 9 – (10 + 8.8 + 6.4) / 3) = max(0, 9 – 8.07) = 0.93E.[C(2)|S(1) = 11] = P(u) Č(2)u + P(d) Č(2)d = 0.56 x 0 + 0.44 x 0.93 = 0.41E.[C(2)|S(1) = 8] = P(u) Č(2)u + P(d) Č(2)d = 0 x 0 + 1 x 0 = 0Thus, E.[C(2)|S(1)] = 0.41 for S(1) = 11 and 0 for S(1) = 8(b) E.[C(2)]Now we need to find the probability of each path of the stock price: uud = 0.56udu = 0.16dud = 0.16ddd = 0.12Thus, E.[C(2)] = 0.56 x 0 + 0.16 x 0.41 + 0.16 x 0.41 + 0.12 x 0 = 0.11(c) Var.[Č(2)]Var.[Č(2)] = E[(Č(2) – E.[Č(2)])2] = 0.56 x (0 – 0.11)2 + 0.16 x (0.41 – 0.11)2 + 0.16 x (0.41 – 0.11)2 + 0.12 x (0 – 0.11)2 = 0.0223Therefore, (a) E.[C(2)|S(1)] = 0.41(b) E.[C(2)] = 0.11(c) Var.[Č(2)] = 0.0223
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How do some nations' and regions' Permanent Funds solve the
Natural Resource Curse?
Some nations' and regions' Permanent Funds solve the Natural Resource Curse is by investing a portion of their natural resource revenues into a diversified portfolio of assets. These funds are designed to save a portion of the revenues generated from natural resources, such as oil, gas, and minerals, to provide a stable source of income for future generations.
The Natural Resource Curse refers to a phenomenon where countries with abundant natural resources often experience economic and social challenges, including poor economic growth, corruption, political instability, and environmental degradation. This curse is attributed to the reliance on a single sector for economic growth and the volatility of commodity prices.
Permanent Funds are created by some nations and regions to manage their natural resource revenues effectively. These funds aim to mitigate the negative effects of the Natural Resource Curse by investing a portion of their revenues into a diversified portfolio of assets, such as stocks, bonds, and real estate. This approach aims to generate long-term returns and provide a stable source of income for future generations, reducing the dependency on natural resource revenues.
Permanent Funds also provide transparency and accountability in the management of natural resources. By separating the revenues generated from natural resources from government spending, it becomes easier to monitor the use of funds, reducing corruption and mismanagement.
In summary, Permanent Funds offer a solution to the Natural Resource Curse by providing a stable source of income, reducing dependency on natural resources, promoting transparency and accountability, and diversifying investments to generate long-term returns.
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For any given interest rate, the shorter the time period before the receipt a dollar, the lower is its present value. TRUE/False :
For any given interest rate, the shorter the time period before the receipt of a dollar, the lower its present value.
The concept of present value in finance and economics states that the value of a future cash flow decreases as the time period before its receipt becomes shorter. This relationship is due to the time value of money, which suggests that a dollar received today is worth more than a dollar received in the future. This is because a dollar received today can be invested and earn interest or returns over time.Therefore, for any given interest rate, the shorter the time period before the receipt of a dollar, the lower its present value will be. As time passes, the future dollar's present value decreases because there is less time for it to earn returns or interest.
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Hamilton set the reproduction cost of a building at $750,000. If it has lost 35% of value and sites are selling for $250,000, what is the value of the property?
The value of the property would be $487,500.To determine the value of the property after a 35% loss in value, we can calculate it based on the reproduction cost provided by Hamilton, which is $750,000.
First, we find the amount of value that has been lost. This is calculated as 35% of the reproduction cost: $750,000 * 0.35 = $262,500.
Next, we subtract the lost value from the reproduction cost to find the remaining value: $750,000 - $262,500 = $487,500.
Since sites are selling for $250,000, we compare this value to the remaining value. If the remaining value is greater than the selling price, the value of the property is the remaining value; otherwise, it is the selling price. In this case, the value of the property would be $487,500.
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if more foreign auto plants relocate to the united states, we would expect
If more foreign auto plants relocate to the United States, there are several things that we would expect to happen. First and foremost, this would likely have a positive impact on the U.S. economy as a whole. It would create more jobs and investment opportunities, which could boost GDP and increase overall economic growth. Additionally, it could help to reduce the trade deficit by increasing exports of American-made vehicles.
Another potential benefit of having more foreign auto plants in the U.S. is that it could lead to increased competition in the domestic auto market. This could help to lower prices for consumers and improve the overall quality of vehicles being produced. It could also help to stimulate innovation and technological advancements in the auto industry.
On the other hand, there are also some potential drawbacks to consider. For example, if foreign auto plants were to receive significant tax incentives or other subsidies from the government, this could be seen as unfair by some Americans who believe in free market principles. Additionally, there is always the risk that foreign auto plants could eventually move their operations elsewhere if conditions in the U.S. become less favorable.
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A company purchases a 21.250-square-foot building for $767,000. The building has two separate rental units. Unit A. which has the desirable location on the corner and contains 6,250 square feet, will be rented for $3.20 per square foot Unit B contains 15,000 square feet and will be rented for $200 per square foot Compute the amount of joint cost that should be allocated to Unit B using the value basis of allocation Multiple Choice $460.200 $306,800. 5613.600 $460,200 $306.800 S613,600 $383.500 S498,550
To compute the amount of joint cost that should be allocated to Unit B using the value basis of allocation, we need to determine the proportion of the total value of the building that Unit B represents.
The total value of the building is $767,000, and Unit B has 15,000 square feet. Unit B's proportion of the total value can be calculated as follows:
Value of Unit B = Total value of the building * (Square footage of Unit B / Total square footage)
Value of Unit B = $767,000 * (15,000 / 21,250)
Value of Unit B = $767,000 * 0.70588
Value of Unit B = $541,323.96
Therefore, the amount of joint cost that should be allocated to Unit B using the value basis of allocation is $541,323.96.
Based on the given options, the closest value is $498,550, which is the correct answer.
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Ask plc. is about to issue a £200 bond to raise additional capital for a new project. The bond conveys a right to convert into 90 ordinary shares which are presently trading at £2. Calculate the bond's conversion price and conversion premium.
The bond's conversion price is £2.22 per share, and the conversion premium is £22.
How to calculate bond's conversion price and conversion premium?To calculate the bond's conversion price and conversion premium, we need to use the given information:
Bond face value: £200
Number of shares bond can convert into: 90
Current trading price of ordinary shares: £2
Conversion Price = Bond Face Value / Number of Shares
Conversion Premium = (Conversion Price - Current Trading Price) * 100
Substituting the values into the formulas:
Conversion Price = £200 / 90 = £2.22 (rounded to two decimal places)
Conversion Premium = (£2.22 - £2) * 100 = £22
Therefore, the bond's conversion price is £2.22 per share, and the conversion premium is £22.
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You have been asked by one of your friends to explain some of the items included in the Statement of Financial Position of the Air New Zealand Group. For each of the items listed, and using the table provided below, you are required to:
1 describe what the item represents;
2 indicate according to the accounting policy how the item is measured (no answer is required for one of the items, which is indicated in the table);
3 provide the total value of the item from the 2021 financial statements;
4 give details (including the relevant note number) of where the information on the item is located (i.e., how it is classified) within the 2021 financial statements; and
5 provide reasons for the classification of the item as either a current or non-current asset/liability or equity item using only the information provided in the financial statements or lecture recordings.
List of the items:
i. Inventory
ii. Property, Plant and Equipment
iii. Revenue received in advance
Your answers should relate specifically to the Air New Zealand Group, and should not contain a general description of each item.
Note that with regard to the Statement of Financial Position of Air New Zealand Group. the table answer questions 1- 5 is attached accordingly.
What is Statement of Financial Position?A statement of financial position is a financial record that reports a company s assets, liabilities, and equity at a specific point in time.
The total value of inventory for Air New Zealand Group as of December 31, 2021 was NZ$1,487 million. This amount is located in Note 1, Property and equipment of the 2021 financial statements.
The total value of PP&E for Air New Zealand Group as of December 31, 2021 was NZ$1 ,956 million. This amount is located in Note 1, Property and equipment of the 2021 financial statements.
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Two friends growing vegetables in their backyard decide to trade. Mary, is able to work 8 hours per day, and can harvest 1 pound of tomatoes every two hours, and/or harvest 6 pounds of peppers every 4 hours. Her friend Chloe has 6 hours per day to harvest 1 pound of tomatoes in 2 hours or harvest 1 pound of peppers every 1 hour. If the two decide to trade, what is the maximum number of peppers that Chloe can give to Mary for a pound of tomatoes, and what is the minimum number of tomatoes that Mary will accept to give a pound of tomatoes to Chloe?
Comparing the productivity of the two friends, Chloe cannot give any peppers to Mary for a pound of tomatoes, and Mary will accept a minimum of 1 pound of tomatoes in exchange for a pound of tomatoes from Chloe.
Mary can harvest 6 pounds of peppers in 4 hours, which means she has a productivity rate of 6 pounds / 4 hours = 1.5 pounds of peppers per hour.
On the other hand, Chloe can harvest 1 pound of peppers in 1 hour, which means she has a productivity rate of 1 pound of peppers per hour.
Since Mary's productivity rate is higher (1.5 pounds per hour compared to Chloe's 1 pound per hour), it wouldn't make sense for Mary to accept any number of peppers from Chloe in exchange for a pound of tomatoes. Therefore, Chloe cannot give any peppers to Mary in this trade.
Now, let's determine the minimum number of tomatoes that Mary will accept to give a pound of tomatoes to Chloe. We need to compare the productivity of each friend in terms of tomatoes.
Mary can harvest 1 pound of tomatoes in 2 hours, which means she has a productivity rate of 1 pound of tomatoes per 2 hours, or 0.5 pounds of tomatoes per hour.
Chloe, on the other hand, can harvest 1 pound of tomatoes in 2 hours, which means she also has a productivity rate of 0.5 pounds of tomatoes per hour.
Since both friends have the same productivity rate for tomatoes, the minimum number of tomatoes that Mary will accept to give a pound of tomatoes to Chloe would be 1 pound of tomatoes.
In summary, Chloe cannot give any peppers to Mary for a pound of tomatoes, and Mary will accept a minimum of 1 pound of tomatoes in exchange for a pound of tomatoes from Chloe.
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Question 5 of 10 Check My Work ellook Problem 13-06 Your broker offers to sell for $1,187 a AAA-rated bond with a coupon rate of 6 percent and a maturity of seven years. Given that the interest rate on comparable debt is 3 percent, calculate the bond's price. Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ Is your broker fairly pricing the bond? -Select- so the bond -Select- be purchased. stions Navigation Menu Check My Work
The price οf the bοnd is apprοximately $1,187.51.
How tο calculate the price οf the bοnd?Tο calculate the price οf the bοnd, we can use the present value fοrmula:
Bοnd Price = Cοupοn Payment x [(1 - (1 + Interest Rate[tex])^{(\text{-Number of Periods)}[/tex]) / Interest Rate] + Face Value / (1 + Interest Rate[tex])^{(\text{-Number of Periods)}[/tex]
Given that the cοupοn rate is 6% and the interest rate οn cοmparable debt is 3%, and assuming the face value is $1,000, we can substitute these values intο the fοrmula:
Cοupοn Payment = $60 (6% οf $1,000 face value)
Interest Rate = 3% οr 0.03
Number οf Periοds = 7
Face Value = $1,000
Bοnd Price = $60 x [(1 - (1 + 0.03)⁻⁷) / 0.03] + $1,000 / (1 + 0.03)⁷
Bοnd Price = $60 x [(1 - 1.03⁻⁷) / 0.03] + $1,000 / (1.03)⁷
Bοnd Price ≈ $1,187.51
Therefοre, the price οf the bοnd is apprοximately $1,187.51.
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Which of the following is an advantage for employers that use Internet recruiting?
A) guaranteed compliance with EEOC laws
B) oversight by the U.S. Department of Labor
C) quick responses from many job applicants
D) screening of unqualified applicants
The advantage for employers that use Internet recruiting is: C) quick responses from many job applicants
Using Internet recruiting allows employers to receive a large number of responses quickly, as job postings are easily accessible and job seekers can submit their applications online.
The advantage for employers that use Internet recruiting is quick responses from many job applicants. This allows employers to efficiently and effectively reach a large pool of potential candidates, making it easier to fill open positions. While there may be some screening of unqualified applicants, it is ultimately up to the employer to determine which candidates are the best fit for the job.
There is no guarantee of compliance with EEOC laws or oversight by the U.S. Department of Labor when using Internet recruiting. This provides employers with a wider pool of candidates to choose from and helps to streamline the hiring process.
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Find the interest rates earned on each of the following. Round your answers to the nearest whole number. a. You borrow $710 and promise to pay back $781 at the end of 1 year. 10 % b. You lend $710 and the borrower promises to pay you $781 at the end of 1 year. 10 % c. You borrow $73,000 and promise to pay back $93,169 at the end of 5 years. I % d. You borrow $9,000 and promise to make payments of $2,684.80 at the end of each year for 5 years. %
Interest rates earned when you borrow $710 and promise to pay back $781 at the end of 1 year is 10%, Interest rates earned when you lend $710 and the borrower promises to pay you $781 at the end of 1 year is 10%, Interest rates earned when you borrow $73,000 and promise to pay back $93,169 at the end of 5 years is 6% and Interest rates earned when you borrow $9,000 and promise to make payments of $2,684.80 at the end of each year for 5 years is 49%.
a.
You borrow $710 and promise to pay back $781 at the end of 1 year. The interest rate earned can be calculated using the formula:
Interest Rate = (Ending Amount - Principal) / Principal * 100
Interest Rate = ($781 - $710) / $710 * 100
Interest Rate ≈ 10%
b.
You lend $710 and the borrower promises to pay you $781 at the end of 1 year. The interest rate earned can be calculated using the same formula as in the previous case:
Interest Rate = (Ending Amount - Principal) / Principal * 100
Interest Rate = ($781 - $710) / $710 * 100
Interest Rate ≈ 10%
c.
You borrow $73,000 and promise to pay back $93,169 at the end of 5 years. To find the interest rate earned, we can use the formula for compound interest:
Ending Amount = Principal * (1 + Interest Rate)^Time
$93,169 = $73,000 * (1 + Interest Rate)^5
(1 + Interest Rate)^5 ≈ $93,169 / $73,000
(1 + Interest Rate)^5 ≈ 1.277
Taking the fifth root of both sides:
1 + Interest Rate ≈ 1.277^(1/5)
Interest Rate ≈ (1.277^(1/5) - 1) * 100
Interest Rate ≈ 6%
d.
You borrow $9,000 and promise to make payments of $2,684.80 at the end of each year for 5 years. To find the interest rate earned, we can calculate the total payments made over the 5-year period:
Total Payments = Payment Amount * Number of Years
Total Payments = $2,684.80 * 5 = $13,424
Interest Earned = Total Payments - Principal
Interest Earned = $13,424 - $9,000 = $4,424
Interest Rate = Interest Earned / Principal * 100
Interest Rate ≈ ($4,424 / $9,000) * 100
Interest Rate ≈ 49%
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Transportation patterns reflect the flow of people and commerce'. Explain this statement and its significance for transportation systems.
The statement "Transportation patterns reflect the flow of people and commerce" highlights the interconnected relationship between transportation and human activities. People and businesses rely on transportation systems to move goods, services, and themselves from one location to another.
As a result, the transportation patterns that emerge reveal the movement patterns of individuals and the dynamics of commercial activities.
Transportation patterns can be observed through various indicators, such as the volume of vehicles on roads, the utilization of public transit systems, and the distribution of air and sea cargo. These patterns provide valuable insights into how people and goods move within and between regions, cities, and countries. They help transportation planners and policymakers understand travel demands, identify traffic congestion hotspots, plan infrastructure investments, and make informed decisions to optimize transportation systems.
Moreover, transportation patterns have significant implications for urban planning, economic development, and environmental sustainability. Efficient transportation systems can foster economic growth by facilitating trade and commerce, attracting investments, and improving access to job opportunities. Conversely, congestion and inefficient transportation can hamper productivity, increase costs, and negatively impact quality of life.
By analyzing transportation patterns, policymakers can design transportation strategies that enhance mobility, reduce congestion, promote sustainable modes of transportation, and improve overall transportation efficiency. Therefore, understanding and responding to transportation patterns is crucial for building robust and integrated transportation systems that support the needs of people and enable vibrant economies.
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