Suppose initially that two assets, A and B, will each make a single guaranteed payment of $400 in 1 year. But asset A has a current price of $280 while asset B has a current price of $320. Instructions: Round your answers to 2 decimal places. a. What are the rates of return of assets A and B at their current prices? Return on assetA= percent Return on asset B = percent Given these rates of return, which asset should investors buy and which asset should they sell? Buy asset (Click to select) ♥ and sell asset [(Click to select) ♥ . b. Assume that arbitrage continues until A and B have the same expected rate of return. When arbitrage ends, will A and B have the same price? (Click to select) Next, consider another pair of assets, C and D. Asset C will make a single payment of $600 in 1 year, while D will make a single payment of $800 in 1 year. Assume that the current price of C is $440 and that the current price of D is $680. c. What are the rates of return of assets C and D at their current prices? Return on asset C [ percent Return on asset D=[ percent Given these rates of return, which asset should investors buy and which asset should they sell? Buy asset (Click to select) and sell asset (Click to select)

Suppose initially that two assets, A and B, will each make a single guaranteed payment of $400 in 1 year. But asset A has a current price of $280 while asset B has a current price of $320. Instructions: Round your answers to 2 decimal places. a. What are the rates of return of assets A and B at their current prices? Return on assetA= percent Return on asset B = percent Given these rates of return, which asset should investors buy and which asset should they sell? Buy asset (Click to select) ♥ and sell asset [(Click to select) ♥ . b. Assume that arbitrage continues until A and B have the same expected rate of return. When arbitrage ends, will A and B have the same price? (Click to select) Next, consider another pair of assets, C and D. Asset C will make a single payment of $600 in 1 year, while D will make a single payment of $800 in 1 year. Assume that the current price of C is $440 and that the current price of D is $680. c. What are the rates of return of assets C and D at their current prices? Return on asset C [ percent Return on asset D=[ percent Given these rates of return, which asset should investors buy and which asset should they sell? Buy asset (Click to select) and sell asset (Click to select)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider two assets with the following cash flow streams: Asset A generates $4 at t=1, $3 at t=2, and $10 at t=3. Asset B generates $2 at t=1, $X at t=2, and $10 at t=3. Suppose X=6 and the interest rate r is constant. For r=0.1, calculate the present value of the two assets. Determine the set of all interest rates {r} such that asset A is more valuable than asset Draw the present value of the assets as a function of the interest rate. Suppose r=0.2. Find the value X such that the present value of asset B is 12. Suppose the (one-period) interest rates are variable and given as follows: r01=0.1,r12=0.2, r23=0.3. Calculate the yield to maturity of asset A. (You can use Excel or ascientific calculator to find the solution numerically.)
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Assume that at the beginning of the year, you purchase an investment for $2,500 that pays $67 annual income. Also assume that the investment's value has decreased to $2,350 at the end of the year. a. What is the rate of return for this investment? b. Is the rate of return a positive or a negative number? Complete this question by entering your answers in the tabs below. Req 1 Req 2 What is the rate of return for this investment? Note: Enter your answer as a percent rounded to 2 decimal places. Input the amount as a positive value. Rate of return % Req 1 Req 2 >
I've invited you to fill out a form: Return on a single asset Find the arithmetic mean and the geometric mean of an asset whose closing prices are as follows: Day CP 1 100 2 108 3 105 4 99 5 102 6 106 7 110 * 1% and 0.97% 2% and 1.97% 2.09% and 1.99% 1.5% and 1.5% 1.70% and 1.60%
Assume the returns from holding an asset are normally distributed. Also assume the average annual return for holding the asset a period of time was 15.3 percent and the standard deviation of this asset for the period was 33.2 percent. Use the NORMDIST function in Excel® to answer the following questions. a. What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 3 decimal places, e.g., 32.161.) b. What is the approximate probability that your money will triple in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 8 decimal places, e.g., 32.16161616.)
Assume the returns from holding an asset are normally distributed. Also assume the average annual return for holding the asset a period of time was 16.3 percent and the standard deviation of this asset for the period was 33.5 percent. Use the NORMDIST function in Excel® to answer the following questions. a. What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 3 decimal places, e.g., 32.161.) b. What is the approximate probability that your money will triple in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 8 decimal places, e.g., 32.16161616.) a. b. X Answer is complete but not entirely correct. Probability Probability 0.624 % 0.00000200 X %
Assume the returns from holding an asset are normally distributed. Also assume the average annual return for holding the asset a period of time was 16.3 percent and the standard deviation of this asset for the period was 33.5 percent. Use the NORMDIST function in Excel® to answer the following questions. a. What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 3 decimal places, e.g., 32.161.) b. What is the approximate probability that your money will triple in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 8 decimal places, e.g., 32.16161616.) a. b. Probability Probability Answer is not complete. 0.624 % %
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $288,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $36,000. The company's minimum desired rate of return for net present value analysis is 12%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Compute the following: a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place. 8 X %
ok Assume the returns from holding an asset are normally distributed. Also assume the average annual return for holding the asset a period of time was 15.4 percent and the standard deviation of this asset for the period was 33.3 percent. Use the NORMDIST function in Excel to answer the following questions. a. What is the approximate probability that your money will double in value in a single year? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 3 decimal places, e.g., 32.161. b. What is the approximate probability that your money will triple in value in a single year? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 8 decimal places, e.g., 32.16161616. ences a. Probability b. Probability % %
Consider two assets with the following cash flow streams:Asset A generates $4 at t=1, $3 at t=2, and $10at t=3. Asset B generates $2 at t=1, $X at t=2, and $10at t=3.Suppose X=6 and the interest rate r is constant. (a)For r=0.1, calculate the present value of the two assets. (b)Determine the set of all interest rates {r} such that asset A is more valuable than asset B. (c)Draw the present value of the assets as a function of the interest rate. (d)Suppose r=0.2.Find the value X such that the present value of asset B is 12. (e)Suppose the (one-period) interest rates are variable and given as follows: r01=0.1, r12=0.2, r23=0.3. Calculate the yield to maturity of asset A.
Cullumber Inc. owns and operates a number of hardware stores in the Atlantic region. Recently, the company decided to open another store in a rapidly growing area of Nova Scotia. The company is trying to decide whether to purchase or lease the building and related facilities. Currently, the cost of funds for Cullumber is 10%. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,840,000. An immediate down payment of $405,000 is required, and the remaining $1,435,000 would be paid off over five years with payments of $347,000 per year (including interest payments made at the end of the year). The property is expected to have a useful life of 12 years, and then it will be sold for $590,000. As the owner of the property, the company will pay $51,000 in occupancy expenses at the end of each year. Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for…
Assume the returns from holding an asset are normally distributed. Also assume the average annual return for holding the asset a period of time was 15.2 percent and the standard deviation of this asset for the period was 33.1 percent. Use the NORMDIST function in Excel to answer the following questions. a. What is the approximate probability that your money will double in value in a single year? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 3 decimal places, e.g., 32.161. b. What is the approximate probability that your money will triple in value in a single year? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 8 decimal places, e.g., 32.16161616. a. Probability b. Probability % %