Answer:
Poses a problem for marketers
Explanation:
When there is a shift from mass marketing to a more targeted approach, there will be a need for different promotional tools to reach each target audience.
For example use of social media to get to youths, use of magazines and newspapers to get to the more mature customers.
If the promotional tools become many with different messages, customers tend to get confused about what the product can offer them.
They will tend to move to other companies that communicate clearly the benefits of their products.
Assume that no correcting entries were made at December 31, 2020. Ignoring income taxes, by how much will retained earnings at December 31, 2021 be overstated or understated?
a. $ 2,000 understated
b. $15,000 overstated
c. $15,000 understated
d. $18,000 understated
Answer; a. $ 2,000 understated
Explanation;
Inventory is usually self correcting so the overstatement in 2020 will not affect 2021. Only relevant effects will be the Depreciation in both years and inventory in 2021.
The Depreciation overstatement of $12,000 in 2020 had the effect of reducing Net income as it increased expenses so retained earnings will be understated.
In 2021, an understatement of Depreciation will overstate income as it understates expenses. The overstatement of Ending Inventory will lead to an understatement of Cost of Goods sold which will overstate Income as well.
2020 = $12,000 understatement
2021 = 6,000 + 4,000 = $10,000 overstatement
= 12,000 - 10,000
= $2,000 understatement
Abbott Landscaping purchased a tractor at a cost of $36,000 and sold it three years later for $18,000. Abbott recorded depreciation using the straight-line method, a five-year service life, and a $2,000 residual value. Tractors are included in the Equipment account.
1- Record the sale of equipment.
2- Assume the tractor was sold for $11,200 instead of $18,000. Record the sale.
Answer:
1. Record sale of equipment for $18,000
Date Account Title and Explanation Debit Credit
Cash $18,000
Accumulated Depreciation $20,400
Equipment $36,000
Gain on sale of Equipment $2,400
(To record sale of equipment)
Workings
Accumulated depreciation = (Cost - Residual Value/ Useful life ) * Number of years used
= ($36,000 - $2,000 / 5) * 3
= $20,400
2. Record sale of Equipment for $11,200
Date Account Title and Explanation Debit Credit
Cash $11,200
Accumulated Depreciation $20,400
Gain on sale of Equipment $4,400
Equipment $36,000
(To record sale of equipment)
Prepare an amortization schedule for a five-year loan of $67,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments.
Answer:
Amortization schedule for a five-year loan
Year 1
Principle $11,195.19
Interest $6,030.00
Balance $55,804.81
Year 2
Principle $12,202.76
Interest $5,022.43
Balance $43,602.04
Year 3
Principle $13,301.01
Interest $3,924.18
Balance $30,301.03
Year 4
Principle $14,498.10
Interest $2,727.09
Balance $15,802.93
Year 5
Principle $15,802.93
Interest $1,422.26
Balance $0.00
Explanation:
First Calculate the equal annual payments, Pmt of the loan as follows :
Pv = $67,000
n = 5
r = 9.00 %
p/yr = 1
Fv = $ 0
Pmt = ?
Using a financial calculator, the equal annual payments, Pmt is - $17,255.19
Then Construct the amortization schedule :
This can be obtained from a financial calculator as SHIFT AMORT
Which UL rating and surge suppressor grade would be best when ordering new surge strips for a small business?
Answer:
Class A
-UL 1449
Explanation:
In simple words, Class A chemical compounds have a fire spreading ranking between null and 25. Such products are safe toward extreme exposure to flames. Class B flame resistant get a flame range ranking about 26 and 75. Fully Differential products have a fire distribution level of more than 500.
UL 1449 relates to the Safety Standard besides Survey resistant Devices (SPD) for bureau . Surge is a sudden rise in currents and voltages which can happen along AC or DC electrical loads and can affect the equipment connected to such circuits.
A double line drawn under the figures in a money column shows that the computation is complete.
a. True
b. False
Answer:
a. True
Explanation:
The double line figures are usually presented in Statement of Financial Position under the Total Assets amounts and Total Equity and Liabilities amounts to show that computations are complete for that section.
ABC Company made two purchases at the beginning of Year 1:
• Inventory costing $100
• Land costing $700
Both were sold during Year 1:
• Inventory for $110
• Land for $900
How much gain would ABC Company show on its Year 1 Income Statement?
a) $200
b) $10
c) $210
d) $0
Answer:
c) $210
Explanation:
Calculation for how much gain would ABC Company show on its Year 1 Income Statement
Using this formula
Gain=Amount purchased-Amount sold
Let plug in the formula
Inventory Gain=Inventory costing $100-Inventory sold $110
Inventory Gain=$10
Land Gain=Land costing $700- Land sold $900
Land Gain=$200
Hence, the gain for both inventory and land gain will be:
Land Gain $200 +Inventory Gain $10
=$210
Therefore the amount of gain that ABC Company would show on its Year 1 Income Statement will be $210
A branding strategy in which a firm uses the same brand for all or most of its products is called __________ branding.
Answer:
Umbrella branding
Explanation:
A branding strategy in which a firm uses the same brand for all or most of its products is called UMBRELLA branding.
Umbrella branding occurs when all or most of a firm's product mix features the same brand name. It is also known as family branding.
Umbrella Branding depends on a single brand name for the sale of multiple related products. The parent brand acts as an umbrella accommodating numerous products under its name.
A flexible budget is based on a single predicted amount of sales or other activity measure.
a) true
b) false
Answer:
The answer is false
Explanation:
A flexible budget is a budget that changes with the level of volumes or revenue. It is not a single predicted amount of sales like fixed budget but a numerous budgets prepared for different levels of activities.
One of the advantages is that it is a goods metric to measure manager's
performance.
And one of the advantages is that it is complex to prepare.
At which price and quantity combination would the government regulate this firm to get as close as possible to the most efficient point for society
Answer:
Point C and G. Refer to the attached image.
Explanation:
According to the attached image, the price and quantity combination the government would regulate this firm to get as close as possible to the most efficient point for society is C and G because, this is the point where marginal cost MC and Average Total Cost intercept and form lower equilibrium point.
This means that if company sell at this point they will not run at shortage and also for buying society, the quantity they will buy is also at the increase making it the most efficient point for the society.
Suppose the interest on a foreign government bonds is 7.5%, and the current exchange rate is $0.03571/foreign currency (i.e. 28 foreign currencies per dollar). If the forward exchange rate is $0.03508/foreign currency (i.e. 28.5 foreign currencies per dollar), and the current US risk-free rate is 4.5%, if the effective foreign risk-free rate is 6.366%. Which of the following is most likely to be correct?
A) The foreign government bond is a superior investment than the US Treasury bond.
B) The foreign government bond is less risky than the US Treasury bond.
C) The implied country risk premium of the foreign government bond is positive.
D) The fluctuation of $/foreign currency exchange rate will not affect the risk premium of the foreign government bond.
E) The capital markets between the US and the foreign country must be fully integrated.
Answer: C) The implied country risk premium of the foreign government bond is positive.
Explanation:
Given that the effective foreign risk-free rate is 6.336% and the interest on the foreign Govt. bonds is 7.5%, this would mean that the foreign govt. is offering higher on it's bonds than its risk free rate which means there is a premium.
The premium is;
= 7.5% - 6.366%
= 1.134%
This means that the implied country risk premium of the foreign government bond is positive.
A portfolio has three stocks — 110 shares of Yahoo (YHOO), 210 shares of General Motors (GM), and 100 shares of Standard and Poor's Index Fund (SPY). If the price of YHOO is $20, the price of GM is $20, and the price of SPY is $130, calculate the portfolio weight of YHOO and GM.
Answer:
11.34% and 21.65%
Explanation:
The computation of the portfolio weight of YHOO and GM is shown below:
(a) (b) (a × b)
Shares Price Number of shares Total value Weight
YHOO $20 110 shares $2,200 11.34%
GM $20 210 shares $4,200 21.65%
SPY $130 100 shares $13,000 67.01%
Total $19,400
Pensacola Inc. exchanged old equipment for new equipment in two exchange transactions. Each transaction has commercial substance. Old Equipment Cash Book Value Fair Value Received Equipment A $ 74,100 $ 81,600 $ 11,100 Equipment B $ 61,900 $ 55,600 $ 10,000 For Equipment B, Pensacola would record a gain/(loss) of:
Answer:
Loss of 6300
Explanation:
Give the following :
Equipment - -- B/Val - - F/Value - - cash Received Equipment A - - 74,100 - - 81,600 - - 11,100 Equipment B - - 61,900 - - 55,600 - - 10,000
Book value of equipment B = 61,900
Loss / gain :
(Fair value - book value ) = (55,600 - 61,900)
Loss / gain = - 6,300
Loss = (6300)
Jorge Company bottles and distributes B-Lite, a diet soft drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 78 cents per bottle. For the year 2014, management estimates the following revenues and costs.
Sales $1,804,000 Selling expenses—variable $69,800
Direct materials 428,000 Selling expenses—fixed 65,800
Direct labor 354,000 Administrative expenses—variable 64,920
Manufacturing overhead—variable 310,000
Administrative expenses—fixed 64,900
Manufacturing overhead—fixed 288,000
a. Prepare a CVP income statement for 2014 based on management’s estimates.
b. Calculate variable cost per bottle. (Round variable cost per bottle to 2 decimal places, e.g. 0.25.)
c. Compute the break-even point in (1) units and (2) dollars. (Round answers to 0 decimal places, e.g. 1,225.)
d. Compute the contribution margin ratio and the margin of safety ratio. (Round variable cost per bottle to 2 decimal places, e.g. 0.25 and final answers to 0 decimal places, e.g. 25%.)
e. Determine the sales dollars required to earn net income of $240,852. (Round answer to 0 decimal places, e.g. 1,225.)
Answer:
a. CVP income statement for 2014 based on management’s estimates.
Sales $1,804,000
Less Variable Costs :
Selling expenses—variable $69,800
Direct materials $428,000
Direct labor $354,000
Administrative expenses—variable $64,920
Manufacturing overhead—variable $310,000 ($1,226,720)
Contribution $577,280
Less Fixed Costs
Selling expenses—fixed $65,800
Administrative expenses—fixed $64,900
Manufacturing overhead—fixed $288,000 ($418,700)
Net Income / (Loss) $158,580
b. $0.34
c. (1) 2,616,875 bottles and (2) $1,308,438
d. contribution margin ratio = 32 % and margin of safety ratio = 27 %
e. $2,061,100
Explanation:
Number of Units Sold = Total Revenue ÷ Selling Price per unit
= $1,804,000 ÷ $0.50
= 3,608,000 bottles
Variable Cost per bottle = Total Variable Costs ÷ Number of Units Sold
= $1,226,720 ÷ 3,608,000
= $0.34
Break-even point in (units) = Fixed Costs ÷ Contribution per unit
= $418,700 ÷ ($0.50 - $0.34)
= 2,616,875 bottles
Break-even point in (dollars) = Fixed Costs ÷ Contribution Margin Ratio
= $418,700 ÷ ($0.16 / $0.50)
= $1,308,438
Contribution Margin Ratio = Contribution / Sales × 100
= ($0.50 - $0.34) / $0.50 × 100
= 32 %
Margin of safety ratio = (Expected Sales - Break Even Sales) / Expected Sales × 100
= ($1,804,000 - $1,308,438) / $1,804,000 × 100
= 27.470 OR 27 %
Sales to Reach Target Profit = (Target Profit + Fixed Costs) ÷ Contribution Margin Ratio
= ($240,852 + $418,700) ÷ 0.32
= $2,061,100
For the year 2014, management estimates the following revenues and costs is :
A: Net Income / (Loss) $158,580
B:The variable cost per bottle is $0.34.
C:The break-even point in units is 2,616,875 bottles and dollars is $1,308,438.
D:The contribution margin ratio = 32 % and margin of safety ratio = 27 %
E:The sales dollars required to earn net income of $240,852 is $2,061,100.
"Revenues and Cost"
Part A:
CVP income statement for 2014 based on management’s estimates.
Sales $1,804,000
Less Variable Costs :
Selling expenses—variable $69,800
Direct materials $428,000
Direct labor $354,000
Administrative expenses—variable $64,920
Manufacturing overhead—variable $310,000 ($1,226,720)
Contribution $577,280
Less Fixed Costs
Selling expenses—fixed $65,800
Administrative expenses—fixed $64,900
Manufacturing overhead—fixed $288,000 ($418,700)
Net Income / (Loss) $158,580
Part B :
The variable cost per bottle is :
Number of Units Sold = Total Revenue ÷ Selling Price per unit
Number of Units Sold = $1,804,000 ÷ $0.50
Number of Units Sold = 3,608,000 bottles
Variable Cost per bottle = Total Variable Costs ÷ Number of Units Sold
Variable Cost per bottle = $1,226,720 ÷ 3,608,000
Variable Cost per bottle = $0.34
The variable cost per bottle is $0.34.
Part C:The break-even point in (1) units and (2) dollars is :
Break-even point in (units) = Fixed Costs ÷ Contribution per unit
Break-even point in (units) = $418,700 ÷ ($0.50 - $0.34)
Break-even point in (units) = 2,616,875 bottles
Break-even point in (dollars) = Fixed Costs ÷ Contribution Margin Ratio
Break-even point in (dollars) = $418,700 ÷ ($0.16 / $0.50)
Break-even point in (dollars) = $1,308,438
The break-even point in units is 2,616,875 bottles and dollars is $1,308,438.
Part D:The contribution margin ratio and the margin of safety ratio is :
Contribution Margin Ratio = Contribution / Sales × 100
Contribution Margin Ratio = ($0.50 - $0.34) / $0.50 × 100
Contribution Margin Ratio = 32 %
Margin of safety ratio = (Expected Sales - Break Even Sales) / Expected Sales × 100
Margin of safety ratio = ($1,804,000 - $1,308,438) / $1,804,000 × 100
Margin of safety ratio = 27.470 OR 27 %
The contribution margin ratio = 32 % and margin of safety ratio = 27 %
Part E:
The sales dollars required to earn net income of $240,852 is :
Sales to Reach Target Profit = (Target Profit + Fixed Costs) ÷ Contribution Margin Ratio
Sales to Reach Target Profit = ($240,852 + $418,700) ÷ 0.32
Sales to Reach Target Profit = $2,061,100
The sales dollars required to earn net income of $240,852 is $2,061,100.
Learn more about "Revenue":
https://brainly.com/question/25402993?referrer=searchResults
Olinick Corporation is considering a project that would require an investment of $324,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.): Sales $ 200,000 Variable expenses 27,000 Contribution margin 173,000 Fixed expenses: Salaries 34,000 Rents 47,000 Depreciation 42,000 Total fixed expenses 123,000 Net operating income $ 50,000 The scrap value of the project's assets at the end of the project would be $24,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (
Answer:
Payback period = 3.5 years
Explanation:
Net income $50,000.00
Add: Depreciation expense $42,000.00
Net annual cash inflow $92,000.00
Payback period = Initial investment / Annual cash inflows
= $324,000 / $92,000
= 3.5 years
What should a manager ideally do after implementing a solution to a given work-related problem?
Answer:
After implementing a solution to a given work-related problem, the manager should EVALUATE THE OUTCOME OF THE SOLUTION.
...
focus on other problems.
evaluate the outcome of the solution.
analyze the experience of the decision-making process.
evaluate the performance of all employees involved in the problem-solving process.
Answer:
Evaluate the outcome of the solution
Explanation:
Correct in Edmentum! I took the test!
Pepci co. is issuing a $1,000 par value bond that pays 7 percent annual coupon and mature in 15 years. Investors are expected to pay $925 for the bond. The company is in a 40 percent tax bracket. What will be the firm’s after tax cost of debt?
Answer:
1,678660
Explanation:
On January 1, 2020, the ledger of Pharoah Company contains the following liability accounts.
Accounts Payable $53,900
Sales Taxes Payable 7,000
Unearned Service Revenue 15,800
During January, the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling $20,520, which includes 8% sales taxes.
12 Performed services for customers who had made advance payments of $10,000. (Credit Service Revenue.)
14 Paid state revenue department for sales taxes collected in December 2019 ($7,000).
20 Sold 810 units of a new product on credit at $50 per unit, plus 8% sales tax.
21 Borrowed $31,500 from Girard Bank on a 3-month, 8%, $31,500 note.
25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes
Journalize the January transactions
Answer:
Jan. 5
Cash $20,520 (debit)
Sales tax $1,642 (credit)
Sales Revenue $18,878 (credit)
Jan 12
Unearned Service Revenue $10,000 (debit)
Service Revenue $10,000 (credit)
Jan 14
Sales Tax Control $7,000 (debit)
Cash $7,000 (credit)
Jan 20
Trade Receivables $43,740 (debit)
Sales tax $3,240 (credit)
Sales revenue $40,500 (credit)
Jan 21
Cash $31,500 (debit)
Note Payable : Girard Bank $31,500 (credit)
Jan 25
Cash $12,420 (debit)
Sales tax $994 (credit)
Sales Revenue $11,426 (credit)
Explanation:
The Sales Tax is an amount collected by the Firm on behalf of the tax authorities and as such must not be included in the revenue amount.
At the end of the period the sales tax collected and the sales tax paid by the entity are reconciled and the amount of tax to be paid to tax authorities is established
The step in the 5S approach in which standardized procedures for maintaining an orderly work environment are developed and implemented is:
Answer:
Standardize
Explanation:
The 5s approach includes
1. Sort
2. Systemize
3. Set in order
4. Shine
5. Sustain
The answer to this question is standardize and it has to do with orderliness, that is the continued cleaning and maintaining by carrying out shine, sort and set in order.
Foxhound Capital, LLC has the following being reported on the financial statements on December 31, 2014: Sales $120,000; Total Expenses $98,000; Net Income $22,000; Interest Expense $2,174; Income Tax $4,000. Calculate the time interest earned ratio (round to the nearest whole number).
Answer:
13%
Explanation:
We can calculate the time interest earned ratio by dividing the income before interest and tax with total interest expense
DATA
Net income = 22,000
Interest expense = 2,174
Tax = 4,000
Calculation
Income before interest and tax = 22,000 + 2,174 + 4,000
Income before interest and tax = 28,174
Interest earned ratio = Income before interest and tax / Interest expense
Interest earned ratio = 28,174 / 2,174
Interest earned ratio = 12.95 or 13%
Which of the following trends has been observed in the world population in terms of aging? A) As nations have advanced economically, birthrates have increased in proportion to the growing world population. B) The world's population aged 80 and over is projected to decrease 233% by 2040. C) People aged 65 and older will soon outnumber children under age 5 for the first time in history. D) The world's population is growing older, but at a slower rate than it did in comparison with the previous two centuries.
Answer:
C) People aged 65 and older will soon outnumber children under age 5 for the first time in history
Explanation:
The world population refers to a number of populations in a word. it shows the approximation number of population in the world. It could be in millions, billions, etc
In terms of aging as we can see that the people who are aging of 65 or older would be soon more numerous than the children who comes under the age of 5 for the first time in history
Hence, the correct option is C.
On most points along a short run phillips curve, expectations of inflation are generally:_______
a. greater than actual inflation because people tend to overreact to inflationary predictions.
b. lower than actual inflation because of the money illusion.
c. not equal to actual inflation.
d. equal to actual inflation.
Answer: lower than actual inflation because of the money illusion.
Explanation:
The Phillips curve states that there is an inverse but stable relationship between inflation and unemployment. This theory posits that inflation is caused by economic growth which leads to employment opportunities for people and in turmy, reduces unemployment.
On most points along a short run phillips curve, expectations of inflation are generally lower than actual inflation because of the money illusion.
A cost center is a unit of a business that incurs costs but does not directly generate revenues. Which of the following would definitely not be considered a cost center?A. Accounting department.B. Purchasing department.C. Research departmentD. Advertising department.E. All of these could be considered cost centers.
Answer:
E. All of these could be considered cost centers.
Explanation:
A cost center is a unit of a business that incurs costs but does not directly generate revenues. Generally, cost center in an organization is typically saddled with the responsibility of controlling and allocation of costs but not the generation of revenues like a profit center such as sales department.
Hence, the following departments would definitely be considered a cost center;
A. Accounting department.
B. Purchasing department.
C. Research department
D. Advertising department.
On January 1, Falk Company signed a contract to lease space in a building for three years. The current value of the three lease payments is $270,000.
Required: Prepare entries for Falk to record (a) the lease asset and obligation at January 1, and (b) the $90,000 straight-line amortization at December 31 of the first year.
Answer:
part a
Right of use asset $270,000 (debit)
Lease Obligation $270,000 (credit)
part b
Lease obligation $90,000 (debit)
Cash $90,000 (credit)
Explanation:
During initial recognition, the Lease Obligation is measured at the present value of lease payments whilst the Right of use asset is measured at the amount at which the Lease Obligation was initially recognized plus any other costs directly incurred in placing the assets in the location and condition intended for use by managers in terms of (IAS 16).
In the subsequent years, the Lease obligation will be amortized, this means the amount of liability increase by the amount cash flow set on the lease that comprises of interest and capital repayment.
lectronically filed tax returns: a. May not be transmitted from a taxpayer's home computer. b. Constitute less than 50 percent of the returns filed with the IRS. c. Offer faster refunds than paper returns. d. Have error rates similar to paper returns.
Answer: c. Offer faster refunds than paper returns.
Explanation:
The IRS has stated that people who submit their tax returns electronically or use the Direct debit facility will see their refunds faster than those using paper returns.
This has been most recently blamed on the current pandemic which has forced the IRS to reduce its staff in adherence with Corona virus prevention tips. As a result, the available staff cannot process the paper returns as fast.
It is therefore better to use the electronic or the Direct debit facilities if one wants their returns processed fast and their refunds released earlier.
If an investor thinks that a stock's expected return exceeds its required return, the investor should _____.
Answer:
Buy the stock because it is underpriced and investor will make money in the near future.
Explanation:
Required rate of return is defined as the estimated return am investor wants to gain for taking on a certain amount of risk when investing in securities.
The higher the risk the higher the required rate of return.
If the expected rate of return exceeds the required rate of return then the investor will consider the share underpriced and experiencing supernormal growth.
For example if a stock has required rate of return as 10% and expected rate of return as 15%, it means that the stock will perform above its peer stock in the market and the price will rise in the future.
Answer:
If an investor thinks that a stock's expected return exceeds its required return, the investor should _____.
buy the stock.
Explanation:
By purchasing the stock, the investor increases his returns. This is because the expected return is said to exceed the investor's required return. The expected return is the income that the stock will generate after weighing-in or considering other market variables. This expected return may be based on percentage terms or dollar dollars. It is better for the investor that the expected return exceeds the investor's required return.
Which of the following is NOT an example of aggressive accounting practices? Select one or more a. Recording contingent losses that are probable b. Using a lower estimate of bad debts. c. Recording research and development costs as assets d. Increasing the useful life used in calculating depreciation
Answer: a. Recording contingent losses that are probable
Explanation:
Aggressive Accounting strategies are methods of recording company activities that will make it appear as if the company is doing well financially. These include acts such as;
Using a lower estimate of bad debts so that the bad debt expense deducted from income is lessRecording research and development costs as assets so that they are not deducted as expenses from income. Increasing the useful life of assets in depreciation calculations so that the depreciation amount deducted from income is less.Recording contingent losses that are probable on the other hand is a conservative accounting policy.
People decide to save 25 percent of their incomes. The value of the marginal propensity to consume is ________ and the value of the spending multiplier is ________.
Answer:
0.75
4
Explanation:
Marginal propensity to consume is the proportion of income that is consumed.
It is assumed that deposable income is either saved or spent.
So if 25% of income is saved, (100% - 25%) 75% is spent.
Spending multiplier = 1 / marginal propensity to save = 1 / 0.25 = 4
synovec co. is growing quickly. dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 11 percent, and the company just paid a dividend 2.8, what is the current share price?
Answer:
P0 = $90.3328 rounded off to $90.33
Explanation:
The two stage growth model of DDM can be used to calculate the price of the share today. The DDM values a stock based on the present value of the expected future dividends from the stock. The price of this stock under this model can be calculated as follows,
P0 = D0 * (1+g1) / (1+r) + D0 * (1+g1)^2 / (1+r)^2 + D0 * (1+g1)^3 / (1+r)^3
+ [ (D0 * (1+g1)^3 * (1+g2) / (r - g2)) / (1+r)^3 ]
Where,
g1 is the initial growth rate which is 30% g2 is the constant growth rate which is 5% r is the required rate of return
P0 = 2.8 * (1+0.3) / (1+0.11) + 2.8 * (1+0.3)^2 / (1+0.11)^2 +
2.8 * (1+0.3)^3 / (1+0.11)^3 +
[ (2.8 * (1+0.3)^3 * (1+0.05) / (0.11 - 0.05)) / (1+0.11)^3 ]
P0 = $90.3328 rounded off to $90.33
P0 = $13.33
A commercial bank recognizes that its net income suffers whenever interest rates increase. Which of the following strategies would protect the bank against rising interest rates?
a. Entering into an interest rate swap where the bank receives a fixed payment stream, and in return agrees to make payments that float with market interest rates.
b. Purchase principal only (PO) strips that decline in value whenever interest rates rise.
c. Enter into a short hedge where the bank agrees to sell interest rate futures.
d. Sell some of the bank's floating-rate loans and use the proceeds to make fixed-rate loans.
e. Buying inverse floaters.
Answer: c. Enter into a short hedge where the bank agrees to sell interest rate futures.
Explanation:
Futures are a derivative instrument that aims to give stability. It works by the seller of the future agreeing to sell the underlying asset or what it is being traded for a set price in future and at a certain time.
This way even if market conditions cause the price of the asset to change in the market, the parties to this contract will still trade at the price agreed.
If the bank sells interest rate futures, they can lock in a set interest rate for the future that will not change regardless of what happens in the market thereby keeping their Net Income stable.
In Celia's company, employees enroll each year for the set of benefits that makes the most sense for their individual needs. This is referred to as a(n) _______ plan. affordable benefit government-mandated customized benefit collective bargaining cafeteria-style
Answer: Customized benefit
Explanation:
With a Customized Benefit plan, the company is able to pick which benefits to wants to offer it's employees. This enables them to even allow employees choose the set of benefits that makes the most sense for their individual needs thereby creating a personal flexible plan like in Celia's company.
The benefit of this is that your plan will not be full of products that are irrelevant to your health thereby giving the person more value for their money.