Answer:
Sunland Company
1. Journal Entries:
1) Requisition slips:
Debit Work in Process:
Job 429 $3,040
Job 430 $4,020
Job 431 $4,740
Credit Raw materials $11,800
To record direct materials slips to work in process.
Debit Manufacturing Overhead $900
Credit Raw materials $900
To record indirect materials slip to overhead.
Debit Work in Process:
Job 429 $2,300
Job 430 $3,430
Job 431 $7,870
Credit Direct labor $13,600
To record direct labor tickets to work in process.
Debit Manufacturing Overhead $1,310
Credit Indirect labor $1,310
To record indirect labor tickets to overhead.
Debit Work in Process:
Job 429 $1,426
Job 430 $2,127
Job 431 $4,879
Credit Manufacturing overhead $8,432
To apply 62% of direct labor as overhead to work in process.
Debit Finished Goods $9,186
Credit Work in Process: Job 429 $9,186
To record the completion of Job 429
2. T-accounts:
Work in Process Inventory
Account Titles Debit Credit
Beginning balance $4,210
Raw materials 11,800
Direct labor 13,600
Mfg overhead 8,432
Finished goods $9,186
Ending balance 28,856
Total $38,042 $38,042
Explanation:
a) Data and Calculations:
May 1 Inventory Balances:
Raw materials = $15,700
Work in Process = $4,210
Job No. 429 = $2,420
Job No. 430 = $1,790
During May:
Factory labor cost = $14,710
Job Number Materials Labor Time
Requisition Slips Tickets
429 $3,040 $2,300
430 4,020 3,430
431 4,740 7,870
Sub-total $11,800 $13,600
General use 900 1,310
Total $12,700 $14,910
Job Sheets: Job 429 Job 430 Job 431 Total
Beginning balance $2,420 $1,790 $4,210
Direct materials 3,040 4,020 $4,740 11,800
Labor 2,300 3,430 7,870 13,600
Overhead (62% DL) 1,426 2,127 4,879 8,432
Total costs $9,186 $11,367 $17,489 $38,042
Finished goods ($9,186) $11,367 $17,489 $28,856
True or False: In general, term loans may be created and modified more easily than bond issues because (1) there are fewer parties to the transaction, and (2) the borrower and the lender have the potential to meet directly to reach mutually agreeable terms.
Answer:
False
Explanation:
A term loan can be regarded as monetary loan which is expected to be repaid on regular payments basis over particular period of time. Term loans are one that the lasting duration is
usually between one and ten years, and in some cases could last as long as 30 years . It is a loan that usually encompass unfixed interest rate which could add additional balance to the amount be repaid.
34. A written review request to the insurance carrier is the only way to
resolve incorrectly processed claims.
Answer:
False. That is one of many.
Explanation:
False. That is one of many.
The accounting records of Diego Company revealed the following costs, among others:
Factory insurance $32,000
Raw material used $256,000
Customer entertainment $15,000
Indirect labor $45,000
Depreciation on salespersons' cars $22,000
Production equipment rental costs $72,000
Costs that would be considered in the calculation of manufacturing overhead total:
A. $149,000.
B. $171,000.
C. $186,000.
D. $442,000.
E. some other amount.
Answer:
Option A ($149,000) is the correct alternative.
Explanation:
Given:
Factory insurance,
= $32,000
Indirect labor,
= $45,000
Production equipment rental costs,
= $72,000
Now,
The total manufacturing costs will be:
= [tex]Factory \ insurance+Indirect \ labor+Production \ equipment \ rental \ costs[/tex]
By putting the given values, we get
= [tex]32000+45000+72000[/tex]
= [tex]149,000[/tex] ($)
You want to be a millionaire when you retire in 40 years.
a. How much do you have to save each month if you can earn an annual return of 9.7 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. How much do you have to save each month if you wait 10 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.). How much do you have to save each month if you wait 20 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer:
a. FV = $1,000,000
rate = 9.7%
n = 40 periods
FVIFA = [(1 + 0.097)⁴⁰ - 1] / 0.097 = 407.9960231
annual savings = $1,000,000 / 407.9960231 = $2,451.00
b. FV = $1,000,000
rate = 9.7%
n = 30 periods
FVIFA = [(1 + 0.097)³⁰ - 1] / 0.097 = 155.4306295
annual savings = $1,000,000 / 155.4306295 = $6,433.74
FV = $1,000,000
rate = 9.7%
n = 20 periods
FVIFA = [(1 + 0.097)²⁰ - 1] / 0.097 = 55.35978429
annual savings = $1,000,000 / 55.35978429 = $18,063.65
A measure of risk-adjusted performance that is often used is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard deviation. The standard deviations and returns of the funds over the past 10 years are listed here. Calculate the Sharpe ratio for each of these funds. Assume that the expected return and standard deviation of the company stock will be 16 percent and 58 percent. Calculate the Sharpe ratio for the company stock. How appropriate is the Sharpe ratio for these assets? When would you use the Sharpe ratio?
10-YEAR ANNUAL RETURN STANDARD DEVIATION
Bledsoe S&P 500 Index Fund 10.15% 23.85%
Bledsoe Small Cap Fund 14.83 29.62
Bledsoe Large Company Stock Fund 11.08 26.13
Bledsoe Bond Fund 8.15 10.34
Answer:
Explanation:
Sharpe ratio is the measure of the excess return per unit of risk in an investment asset or trading strategy.
To calculate the Sharpe of the following annual return using the formula:
Sharpe ratio = [tex]\dfrac{R_p-R_f}{\sigma _p}[/tex]
where;
[tex]R_p[/tex] = return of portfolio asset
From the given information, the risk-free rate [tex]R_f[/tex] wasn't given, So let's assume that the risk-free rate [tex]R_f[/tex] = 3.2%
∴
For Bledsoe S&P 500 Index fund
Sharpe Ratio = [tex]\dfrac{10.15\%-3.2\%}{23.85\%}[/tex]
= 0.2914
Small-cap Funs Sharpe Ratio = [tex]\dfrac{14.83\%-3.2\%}{29.62\%}[/tex]
= 0.3926
Large company stock Fund Sharpe Ratio = [tex]\dfrac{11.08\%-3.2\%}{26.13\%}[/tex]
= 0.3016
Bond Fund Sharpe Ratio = [tex]\dfrac{8.15\%-3.2\%}{26.13\%}[/tex]
= 0.1894
10-Year Standard Sharpe Ratio
Annual Return deviation
Bledsoe S&P - 10.15% 23.85% 0.2914
500 Index fund
Small Cap Fund 14.83% 29.62% 0.3926
Large Company - 11.08% 26.13% 0.3016
Stock Fund
Bond Fund 8.15% 10.34% 0.1894
As depicted in the table above, the small-cap fund has the highest return per unit of risk, and company stock has the lowest return per unit of risk.
The ratio is clearly appropriate for the index funds. The whole risk is reflected by the Sharpe ratio, which is believed to be completely diversified, and systemic risk is reduced.
It is good for other stock funds since the overall risk is crucial for small investors who cannot readily diversify.
It is also acceptable to invest in bond funds since we may compare their Sharpe ratio to stock funds and take a financial investment decision.
We would take and make use of the Sharpe ratio when:
Comparing various assets with differing risks, then the Sharpe ratio would be applied to alter the "unit."We are concerned about any type of volatility.The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities have the same positive interest rate.
a. An annuity that pays $1,000 at the end of each year
b. An annuity that pays $500 at the end of every six months
c. An annuity that pays $1,000 at the beginning of each year
d. An annuity that pays $500 at the beginning of every six months
An ordinary annuity selling at $7,715. 86 today promises to make equal payments at the end of each year for the next three years (N). If the annuity's appropriate interest rate (I) remains at 5. 00% during this time, what will be the value of the annual annuity payment (PMT)?
a. $4,108. 33
b. 2673.54
c. 3541.66
d. 2833.33
Answer:
1. c. An annuity that pays $1000 at the beginning of each year
2. d. 2833.33
Explanation:
1. Based on the information given 10-year annuities has the greatest PRESENT VALUE (PV) Assuming that all annuities have the same positive interest rate will be
AN ANNUITY THAT PAYS $1000 AT THE BEGINNING OF EACH YEAR
2. Calculation to determine what will be the value of the annual annuity payment (PMT).
Using finanical calculator
put in calculator -
FV 0
PV ($7,715. 86)
I 4%
N 3 years
PMT=?
Hence,
PMT=$2833.33
Therefore the value of the annual annuity payment (PMT) is $2833.33
In order to calculate the amount of money needed to maintain a standard of living 20 years from now, you attempt to calculate an FV (20 years from now) of today's living expenses. What would be most appropriate for you to use as the interest rate?
Money market rate
Expected inflation rate
Average market rates of return
Average market return + inflation
Answer:
Expected inflation rate
Explanation:
Expected Inflation rate would be the most appropriate rate to use as interest rate in the calculation because it gives a somewhat accurate picture of how prices will behave in the coming years, and therefore, of how cost of living will evolve, and how much money will be needed to maintain your living standards 20 years from now.
Expected inflation is never a completely accurate measure though, and it can be sensitive to economic or political shocks, so it should be used with caution and keeping that in mind.
Agreements between an exporter and an agent and agreements between an exporter and a distributor are called distribution contracts.
a. True
b. False
Answer: True
Explanation:
The statement that the agreements between an exporter and an agent and the agreements between an exporter and a distributor are called the distribution contracts is true.
It should be noted that the distribution comtract is the contract that takes place between the supplying company and the other company which sells the products. The contract gives the distributor the right to sell and market the product of the supplier.
Wallaby Kite Company, a small Melbourne firm that sells kites on the Web, wants a master budget for the three months beginning January 1, 2012. It desires an ending minimum cash balance of $20,000 each month. Sales are forecast at an average wholesale selling price of $8 per kite. Merchandise costs average $4 per kite. All sales are on credit, payable within 30 days, but experience has shown that 60 percent of current sales are collected in the current month, 30 percent in the next month, and 10 percent in the month thereafter. Bad debts are negligible.
In January, Wallaby Kite is beginning just-in-time (JIT) deliveries from suppliers, which means that purchases will equal expected sales. On January 1, purchases will cease until inventory decreases to $24,000, after which time purchases will equal sales. Purchases during any given month are paid in full during the following month. Monthly operating expenses are as follows:
Wages and salaries....$60,000
Insurance expired...........500
Depreciation.................1,000
Miscellaneous.............10,000
$1,000/month + 10% of quarterly sales over
Rent...........................$40,000
Cash dividends of $6,000 are to be paid quarterly, beginning January 15, and are declared on the 15th of the previous month. All operating expenses are paid as incurred, except insurance, depreciation, and rent. Rent of $1,000 is paid at the beginning of each month, and the additional 10 percent of sales is paid quarterly on the 10th of the month following the end of the quarter. The next rent settlement date is January 10.
The company plans to buy some new fixtures for $12,000 cash in March.
Money can be borrowed and repaid in multiples of $2,000. Management wants to minimize borrowing and repay rapidly. Simple interest of 10 percent per annum is computed monthly but paid when the principal is repaid. Assume that borrowing occurs at the beginning, and repayments at the end, of the months in question. Compute interest to the nearest dollar.
Answer:
ask brainly lol
Explanation:
The Taylor Rule specifies that the federal funds rate target should be equal to:_________ a) equilibrium federal funds rate + inflation rate +1 b) interest rate - expected inflation rate. c) 1.5 (inflation rate) + 0.5 (GDP gap) + 1. d) 0.5 (inflation rate) +1.5 (GDP gap) + 1
Answer:A
Explanation:The Taylor Rule specifies that the federal funds rate target should be equal to O equilibrium federal funds rate + inflation rate +1 interest rate - expected inflation rate. 1.5 (inflation rate) + 0.5 (GDP gap) + 1. 0.5 (inflation rate) +1.5 (GDP gap) + 1
Cane Company manufactures two products called Alpha and Beta that sell for $130 and $90, respectively. Each product uses only one type of raw material that costs $5 per pound. The company has the capacity to annually produce 102,000 units of each product. Its average cost per unit for each product at this level of activity are given below: Alpha Beta Direct materials $ 25 $ 10 Direct labor 22 21 Variable manufacturing overhead 17 7 Traceable fixed manufacturing overhead 18 20 Variable selling expenses 14 10 Common fixed expenses 17 12 Total cost per unit $ 113 $ 80 The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars. 9. Assume that Cane expects to produce and sell 82,000 Alphas during the current year. A supplier has offered to manufacture and deliver 82,000 Alphas to Cane for a price of $88 per unit. What is the financial advantage (disadvantage) of buying 82,000 units from the supplier instead of making those units
Answer:
Cane Company
The financial advantage of buying 82,000 units from the supplier instead of making those units is:
= $656,000.
Explanation:
a) Data and Calculations:
Alpha Beta
Selling price $130 $90
Annual production capacity 102,000 102,000 units
Direct materials per unit $25 $10
Direct labor 22 21
Variable manufacturing overhead 17 7
Traceable fixed manufacturing overhead 18 20
Variable selling expenses 14 10
Common fixed expenses 17 12
Total cost per unit $ 113 $ 80
Cost of Alphas Make Buy Difference
Direct materials per unit $25
Direct labor 22
Variable manufacturing overhead 17
Traceable fixed manufacturing overhead 18
Variable selling expenses 14
Total cost per unit $ 96 $ 88 $ 8
Expected production/sales and purchase 82,000 82,000 82,000
Total cost or producing or buying $7,872,00 $7,216,000 $656,000
In a firm that manufactures clothing, the department that is responsible for actually assembling the garments could best be described as a(n):
Answer:
Operating or production department.
Explanation:
Operating or production department Deals with production and efficiency.
It should be noted that in a firm that manufactures clothing, the department that is responsible for actually assembling the garments could best be described as Operating or production department.
If a firm is privately owned, and its stock is not traded in public markets, then we cannot measure its beta for use in the CAPM model, we cannot observe its stock price for use in the dividend growth model, and we don't know what the risk premium is for use in the bond-yield-plus-risk-premium method. All this makes it especially difficult to estimate the cost of equity for a private company. True False
Answer: True
Explanation:
Beta enables us to be able to calculate the risk of a stock in relation to how the market is moving. This is known as the systematic risk. Beta, needs to be calculated on based on the trading data of the stock.
If the stock is not publicly traded, it would not have the trading data required to find the beta. As we cannot get the beta, we would be unable it to calculate the return on stock and therefore the dividend growth model.
Assess the implications for Alaska of specialising in seafood
Answer:
ring db socialistukal all am cm all am so all all cm all si di cmm cm iam
If we are covering labor and overhead costs of an item in a Managerial Accounting course, we are referring to which concepts?
Answer: D. Manufacturing cost
Explanation:
Manufacturing costs include all costs related to the production of a good. This includes direct costs such as direct labor and material and also manufacturing overheads such as assembly line manager salary.
When talking about both labor and overhead costs in relation to a good in managerial accounting, the relevant concept is therefore manufacturing costs as it envelops the two terms.
Conrad Company reported the following balances at June 30, 2018:
Sales Revenue $16,200
Sales Returns and Allowances 600
Sales Discounts 300
Cost of Goods Sold 7,500
Net sales for the month is:___.
a. $15,600.
b. $16,200.
c. $7,800.
d. $15,300.
Answer:
d. $15,300
Explanation:
Calculation to determine what Net sales for the month is
Using this formula
Net sales=Sales Revenue -Sales Returns and Allowances-Sales Discounts
Let plug in the formula
Net sales=$16,200-$600-$300
Net sales=$15,300
Therefore Net sales for the month is $15,300
The "Truth in Savings Law" requires banks to advertise their rates on investments such as CDs and savings accounts as annual percentage yields (APY).
a) true
b) false
Top Knot, Inc. is expected to pay a $2.50 per share dividend next year. The dividends are anticipated to maintain a 5% growth rate forever. If the stock currently sells for $48 per share, what is the cost of equity
Answer:
10.21
Explanation:
Dividend= 2.50
The growth rate is 5%
The current stock price is $48
Therefore the cost of equity can be calculated as follows
= 2.50/48 +5/100
= 0.0521 + 0.05
= 0.1021×100
= 10.21
Hence the cost of equity is 10.21
Cullumber Corporation recently reported an EBITDA of $30.70 million and net income of $9.7 million. The company had $6.8 million in interest expense, and it's average corporate tax rate was 35 percent. What was its depreciation and amortization expense
Answer:
$9.7 million
Explanation:
Calculation to determine depreciation and amortization expense
EBITDA 30.7 million
Less:Depreciation and amortization expense(balance) ($8976923.08,)
(30.7-21.7230769)
EBIT $8976923.08
(14.9230769+6.8)
Less:interest expense (6.8 million)
EBT 14.9230769 million
(100%)(9.7/0.65)
Less:tax 35%(14.9230769*35%) 5.2230769 million
Net income(65%) 9.7 million
Therefore depreciation and amortization expense will be 9.7 million
Angle Company started business on January 1. During the year, the company purchased merchandise with an invoice price of $500,000. Angle also paid $20,000 freight on the merchandise. During the year, Angle also returned $80,000 of the merchandise to its suppliers. All purchases were paid for in a timely manner, and a $10,000 cash discount was taken. $418,000 of the merchandise was sold for $627,000. What is the December 31 balance in the Inventory account
Answer:
$12,000
Explanation:
Given the above information, the ending balance in inventory account is computed as seen below
= Merchandise purchased - merchandise withdrawn - Merchandise returned to suppliers + Cash discount taken
= $500,000 - $418,000 - $80,000 + $10,000
= $12,000
Therefore, the balance on the inventory account as at December 31 is $12,000
X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used. Multiple choice question. Debit Purchases $300; credit Cash $300. Debit Merchandise Inventory $300; credit Cash $300. Debit Merchandise Inventory $300; credit Sales $300. Credit Merchandise Inventory $300; debit Cash $300.
Answer:
Debit Merchandise Inventory $300; credit Cash $300
Explanation:
The journal entry to record the given transaction is shown below:
Merchandise inventory Dr $300
To Cash $300
(being cash paid is recorded)
Here the merchandise inventory is debited as it increased the assets and credited the cash as it decreased the assets
Q2. With the help of book please elaborate What is the difference between a corporate strategy and a competitive strategy? Give three examples of each. (Words limit up to 150)
Answer and Explanation:
Competitive and corporate strategy are very important for the success and good management of a business. Competitive strategy is one that allows a company to promote elements capable of making it different from its competitors. Examples of competitive strategy are offering lower prices, higher quality products and negotiation between customers.
Corporate strategy, on the other hand, is one that allows the company to generate elements that will increase its profit and strengthen its capacity to be more competitive. Examples of this type of strategy are the acquisition of subsidiary companies, the merger of competing companies and the restructuring of the company.
Assume that you have a three-year-old daughter and you have come to appreciate the power of saving and investing. Can you open up and put money into a Roth IRA in your child's name so that she can benefit from many years of compounding
Answer:
No.
You cannot open up and put money into a Roth IRA in your child's name.
Explanation:
The IRS allows that any child, regardless of age, can contribute to an IRA if they have earned income. This means that only a child that has earned income can have an IRA opened for him or her. As the child is still underage, the IRA must be set up as a custodial account by the parent or another adult. This implies that the child cannot operate the account during the period she is underage but can have money saved in the account from her earned income.
6. Guillermo and Nora adopted a little boy in 2020 and incurred a total of $18,000 qualified adoption expenses. Their modified AGI is $220,000. What is the amount of adoption credit they can take
Answer:
Guillermo and Nora
The amount of adoption credit that they can take is limited to:
= $14,300 in 2020.
Explanation:
a) Data and Calculations:
Modified AGI of Guillermo and Nora = $220,000
Total amount of qualified adoption expenses incurred in 2020 = $18,000
Limit of adoption credit available to the couple in 2020 = $14,300
Lost adoption expenses = $3,700 ($18,000 - $14,300)
b) The couple will not be able to take adoption credit amounting to $3,700 because the amount they spent on adoption expenses exceeded the adoption credit limit for 2020.
Explain characteristics of a business?
Answer:
Self made
Explanation:
Here are selected 2017 transactions of Akron Corporation.
Jan. 1 Retired a piece of machinery that was purchased on January 1, 2007. The machine cost $62,000 and had a useful life of 10 years with no salvage value
June 30 Sold a computer that was purchased on January 1, 2015. The computer cost $36,000 and had a useful life of 3 years with no salvage value. The computer was sold for $5,000 cash
Dec. 31 Sold a delivery truck for $9,000 cash. The truck cost $25,000 when it was purchased on January 1, 2014, and was depreciated based on a 5-year useful life with a $4,000 salvage value.
Required:
Journalize all entries required on the above dates, including entries to update depreciation on assets disposed of, where applicable. Akron Corporation uses straight-line depreciation.
Answer:
Akron Corporation
Journal Entries:
Jan. 1 Debit Assets Disposal $62,000
Credit Equipment $62,000
To transfer the cost of equipment to the Assets Disposal account.
Debit Accumulated Depreciation $62,000
Credit Assets Disposal $62,000
To transfer the accumulated depreciation to the Assets Disposal account.
June 30 Debit Assets Disposal $36,000
Credit Computer $36,000
To transfer the cost of the computer to the Assets Disposal account.
Debit Accumulated Depreciation $30,000
Credit Assets Disposal $30,000
To transfer the accumulated depreciation to the Assets Disposal account.
Debit Cash $5,000
Credit Assets Disposal $5,000
To record the proceeds from the disposal.
Dec. 31 Debit Accumulated Depreciation $12,600
Credit Assets Disposal $12,600
To transfer the accumulated depreciation to the Assets Disposal account.
Debit Assets Disposal $25,000
Credit Delivery Truck $25,000
To transfer the cost of the delivery truck to the Assets Disposal account.
Debit Cash $9,000
Credit Assets Disposal $9,000
To record the proceeds from the disposal.
Dec. 31 Debit Loss on Disposal of Assets $4,400
Credit Assets Disposal $4,400
To record the loss from the disposal of assets.
Explanation:
a) Data and Analysis:
Jan. 1 Accumulated Depreciation $62,000 Assets Disposal $62,000 Assets Disposal $62,000 Equipment $62,000
June 30 Assets Disposal $36,000 Computer $36,000 Accumulated Depreciation $30,000 Assets Disposal $30,000 Cash $5,000 Assets Disposal $5,000
Dec. 31 Accumulated Depreciation $12,600 Assets Disposal $12,600 Assets Disposal $25,000 Delivery Truck $25,000 Cash $9,000 Assets Disposal $9,000
Dec. 31 Loss on Disposal of Assets $4,400 Assets Disposal $4,400
0. Westcomb, Inc. had equity of $150,000 at the beginning of the year. At the end of the year, the company had total assets of $195,000. During the year, the company sold no new equity. Net income for the year was $72,000 and dividends were $44,640. What is the sustainable growth rate?
Group of answer choices
D. 18.01 percent
C. 17.78 percent
B. 18.24 percent
A. 15.32 percent
Answer:
18.24
Explanation:
Sustainable growth rate is the rate of growth a company can afford in the long term
sustainable growth rate = retention rate x ROE
b = retention rate. It is the portion of earnings that is not paid out as dividends
Retention rate = 1 - payout ratio =
payout ratio = dividend / net income
retention rate = 1 - $44,640 / 72,000 = 0.38
Return on equity = net income / average total equity
= 72,000 / 150,000 = 0.48
g = 0.48 x 0.38 = 18.24%
Your company has a policy to use long-term debt to finance inventory and receivables.
A. This is a restrictive short-term financing policy
B. This policy has higher carrying cost
C. This policy has higher shortage cost
D. This policy leads to higher default risk
Answer:
D. This policy leads to higher default risk.
Explanation:
Financing a company's long term debt by its current assets is risky. Current assets are used to run day to day business operations. If the current assets fall below minimum level the working capital of the firm will decline resulting in risk to business operations continuity.
While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals with a long-term investment horizon may still choose to invest in bonds. Is this rational behavior? Why or why not?
Answer:
Stocks and Bonds
Yes. It is a rational behavior for individuals with a long-term investment horizon to choose to invest in bonds rather than investing in stocks despite the overwhelming "evidence that suggests that over long periods of time stocks still outperform bonds."
Rational behavior involves making rational choices that provide optimal levels of benefit or utility for the individual. People who make rational choices would rather choose bonds with lower risks and returns than stocks with higher risks and returns.
Explanation:
Every rational investor would prefer to reduce her risk exposure instead of increasing it. Every investor is also aware that investments with higher risks attract higher returns. However, determining the certainty of the returns is difficult.
Time value of money calculations can be solved using a mathematical equation, a financial calculator, or a spreadsheet. Which of the following equations can be used to solve for the future value of an ordinary annuity?
1) PMT x {1 – [1/(1 + r)nn]}/r
2) PMT x {[(1 + r)nn – 1]/r}
3) FV/(1 + r)nn
4) PMT x {[(1 + r)nn – 1]/r} x (1 + r)
Answer:
b. PMT x {[(1 + r)nn – 1]/r}
Explanation:
The formula that should be calculated for the future value of an ordinary annuity is shown below:
= PMT × {[(1 + r)^n - 1] ÷ r}
Here
PMT denotes the coupon payment
r denotes the rate of interest
n denotes the time period
So as per the given situation, the option b is correct