Answer:
If a Dollar is worth $ 0.7809 Euros in New York, and $ 0.7793 Euros in Paris, the way in which foreign exchange traders could obtain an economic profit through this difference would be by buying Euros in Paris, and selling them again in New York. Thus, they would obtain $ 0.016 of profit for each Euro traded in the market, with which, for example, if $ 1,000,000 of Euros were traded, a total profit of $ 16,000 would be obtained. In turn, trading the same amount in both Paris and New York, traders would not make any profit, equating both exchange rates.
Assume you just deposited $1,000 into a bank account. The current real interest rate is 7.00% and inflation is expected to be 8.00% over the next year. What nominal interest rate would you require from the bank over the next year? How much money will you have at the end of one year? If you are saving to buy fancy bicycle that currently sells for $1,050, will you have enough money to buy it?
Answer:
a) The nominal interest rate that I would require from the bank over the next year is 15%.
b) At the end of one year, I will have $1,150.
c) If I am saving to buy a fancy bicycle that currently sells for $1,050, I will have enough money ($1,150) to buy it. It will be costing $1,134 ($1,050 * 1.08) with inflation rate of 8% in one year's time.
Explanation:
The nominal interest rate (15%) is higher than the real interest rate (7%) when inflation is positive because the real interest rate is adjusted for inflation (at 8%). The real interest rate is the rate without inflation while the nominal interest rate factors in the inflation rate.
A company sells a plant asset which originally cost $354000 for $124000 on December 31, 2018. The Accumulated Depreciation account had a balance of $146000 after the current year's depreciation of $39000 had been recorded. The company should recognize a
Answer:
d. $45.000 loss on disposal.
Explanation:
a. $84000 gain on disposal. b. $84000 loss on disposal. c. $230000 loss on disposal. d. $45.000 loss on disposal.
Book Value on the Date of sale = Cost - Accumulated Depreication -Current year Depreciation
Book Value on the Date of sale = $354,000 - $146,000 - $39,000
Book Value on the Date of sale = $169,000
Gain (Loss) on disposal of the Asset= Selling Price - Book Value
Gain (Loss) on disposal of the Asset = $124,000 - $169,000
Loss on disposal of the Asset = $45,000
A friend asks to borrow $635.52 today and promises to repay you $1,000 with interest compounded annually at 12%. How many years (compounding periods) will pass before you receive the payment
Answer:
4 years
Explanation:
We can calculate the years (compounding periods that) will pass before you receive the payment by calculating the PV factor at 12% as follows.
DATA
Amount borrowed = $635.52
future amount = $1,000
Interest rate = 12%
Time period (n) = ?
Solution
Amount borrowed = future amount x Present value factor (12%, n)
$635.52 = $1,000 x PV factor(12%, n)
0.63552 = PV factor(12%, n)
If you see in a discount table yu wi see 0.63552 in the fourth row of 12% rate that means it will take 4 years to receive the payment.
Project L costs $70,000, its expected cash inflows are $16,000 per year for 8 years, and its WACC is 13%. What is the project's discounted payback?
Answer:
6.89 years
Explanation:
The discounted payback period can be calculated by using the following table
Year Cash flows PV(13%) Cumulative Cash flows
0 (70000) (70000) (70000)
1 16000 14159.29 (55840.71)
2 16000 12530.35 (43310.36)
3 16000 11088.80 (32221.56)
4 16000 9813.10 (22408.46)
5 16000 8684.16 (13724.30)
6 16000 7685.10 (6039.20)
7 16000 6800.97 761.77
8 16000 6018.56 6780.33
Discounted Payback = 6 years + 6039/ 6801
Discounted Payback = 6.89 years
Prices for airline tickets change on average about once per month. This would suggest that airline ticket prices are
Answer:
relatively flexible
Explanation:
Flexible pricing is when there is room for negotiation of prices of a product between the buyers and sellers.
So the price is prone to change in short amount of time.
Sticky price on the other hand tends to be non negotiable and the does not change over time.in the given scenario prices for airline tickets change on average about once per month.
So there is constant change of the price every month. Meaning the buyer can convince the seller to change his offering price.
The price is relatively flexible