Answer: decision makers in the market fail to include the cost of their behavior to third parties
Explanation:
An externality simply means the effect of a particular economic decision that's taken by an individual or a firm on a third party or someone who isn't involved in the decision. This externality can either be positive or negative.
Private markets fail to account for externalities because decision makers in the market fail to include the cost of their behavior to third parties.
Externality can bring about market failure which has to do with not allocating resources efficiently in the market. This is one reason why government intervene in the market.
The historical returns for the past three years for Stock B and the stock market portfolio are Stock B: 24 percent, 0 percent, 24 percent; market portfolio: 10 percent, 12 percent, 20 percent. Calculate the beta for Stock B.
Answer:
stock B's beta = 0.125
Explanation:
a stock's beta = covariance / variance
covariance = how the stock performs relative to the portfolio
variance = how the stock performs relative to its mean
using an excel spreadsheet, the covariance between stock B and the market portfolio = 0.0016 (=COVARIANCE.P function)
again using excel, the variance of stock B = 0.0128 (=VAR.P function)
stock B's beta = 0.0016 / 0.0128 = 0.125
The Lo Sun Corporation offers a 5.9 percent bond with a current market price of $816.50. The yield to maturity is 8.21 percent. The face value is $1,000. Interest is paid semiannually. How many years until this bond matures
Answer:
11.79 years
Explanation:
using the yield to maturity formula we can determine the number of periods until maturity:
YTM = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]
0.0821/2 = {29.5 + [(1,000 - 816.5)/n]} / [(1,000 + 816.5)/2]
0.04105 = {29.5 + [(1,000 - 816.5)/n]} / 908.25
0.04105 x 908.25 = {29.5 + [(183.5)/n]
37.2837 = 29.5 + [(183.5)/n]
7.7837 = 183.5/n
n = 183.5 / 7.7837 = 23.57 / 2 (years) = 11.79 years
Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. This ______.
Answer:
D) is attempting to convert consumer surplus into producer surplus.
Explanation:
These are the options for the question
A) is trying to reduce its costs and therefore increase its profit.
B) is engaging in an illegal activity that is prohibited by the Sherman Antitrust Act.
C) is attempting to convert producer surplus into consumer surplus.
D) is attempting to convert consumer surplus into producer surplus.
E) Both A and C are correct.
From the question, we are told that Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. In this case, By engaging in the above practice, the firm is attempting to convert consumer surplus into producer surplus.
consumer surplus in finance is regarded as the difference in the amount paid by the consumer for a particular goods/service and the price they are willing to pay for the goods/services. producer surplus on the other hand is the difference between price the seller is willing to give out the goods/service and the price they can take for giving the product out at market price. Therefore as the firm charges a higher price to men and a lower price to women, they are trying to convert consumer surplus into producer surplus.
Marry will start to save in equal annual installments of $4,000 each year in 4 years (she will make her first savings payment 4 years from today). If she continues to save and earns interest of 4.7% and continues to make $4,000 savings contributions each year, how much will she have saved in 9 years from today after making her final contribution
Answer:
the amount saved is $27,003.07
Explanation:
The computation of the amount saved is shown below:
= Annual Payment × [{(1 + rate)^number of years - 1} ÷ rate]
= $4000 × [{(1 + 0.047)^6 - 1} ÷ 0.047]
= $4000 × [0.3173 ÷ 0.047]
= $4000 × 6.7508
= $27,003.07
hence, the amount saved is $27,003.07
We simply applied the above formula
And, the same is to be considered
Which of these is NOT an appropriate descriptive e-mail subject line? Employment Opportunity Week 2 Assignment Assistance ANSWER ME NOW! CPT Renewal Request
Answer:
The Inappropriate Descriptive Email Subject Line is:
ANSWER ME NOW!
Explanation:
This subject line sounds harsh. It is not courteous. It does not convey any message but it is a command that demands obedience. It is not appropriate. In addition, it is very unclear with regard to the matter under discussion. The receiver may not understand the message without reading the body of the email.
ABC company had the following final balances after the first year of operations: assets, $35,000; stockholders' equity, $14,200; dividends, $2,600; and net income, $10,900. What is the amount of ABC's liabilities?
Answer:
$12,500
Explanation:
We will get the value for ABC's liabilities using the accounting equation.
Assets = liabilities + Equity
Given that;
Stockholder's equity = $14,200
Net income = $10,900
Dividends = ($2,600)
Total equity = $22,500
Assets = $35,000
Recall that ;
Assets = Liabilities + Equity
$35,000 = Liabilities + $22,500
Liabilities = $35,000 - $22,500
Liabilities = $12,500
ABC's liabilities is $12,500
Selected accounts with a credit amount omitted are as follows Work in Process Apr. 1 Balance 7,500 Apr. 30 Goods finished X 30 Direct materials 69,400 30 Direct labor 191,600 30 Factory overhead 57,480 Finished Goods Apr. 1 Balance 15,900 30 Goods finished 306,800 What was the balance of Work in Process as of April 30
Answer:
$19,180
Explanation:
Calculation for the balance of Work in Process as of April 30
Balance of work in process as of April 30 = 7,500+69,400+191,600+57,480-306,800
Balance of work in process as of April 30 = =$19,180
Therefore the balance of Work in Process as of April 30 will be $19,180
3) Suppose the household earns 40% of their income by selling a cash crop, spends nothing on inputs, and consumes none of the cash crop. Rest of the 60% of their income received by selling their family labor. If the price of the cash crop rises by 20 percent and wage rate increases by 15%, calculate: a. Net rice sales as fraction of total consumption expenditure
Answer:
8 / 69
Explanation:
Fraction = Net rice sales / Total consumption expenditure
Fraction = 8 / 69
Working
Total Income = 100 ( In which he saves 40 % and spend 60 % which is left )
Net Rice sales = New - Old
Net Rice sales = (40*1120%) - 40
Net Rice sales = 48 - 40
Net rice sales = 8
Total consumption expenditure = New + Old
Total consumption expenditure = (60 x 15%) + 60
Total consumption expenditure = 9 + 60
Total consumption expenditure = 69
This type of CV is custom-made to suit the needs of a specific employer that you are reaching out to:
Answer:
targeted
Explanation:
The full form CV is Curriculum Vitae. It is a Latin term which means course of life. It is a document which is presented to the employer by the job seekers which shows his educational and work experience background.
It is the CV based on which an employer gets to know about the job seeker or his potential employee, about his achievements and interests in life. A CV is first mode of contact or introduction between the employer and the potential employee.
A CV can be custom based so as to suit the targeted job profile and the organization. A job seeker can customize his CV according to the need of the job if he or she possesses those required qualifications and work experience.
You plan to purchase a $330,000 house using either a 30-year mortgage obtained from your local savings bank with a rate of 8.00 percent, or a 20-year mortgage with a rate of 7.00 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate the amount of interest and, separately, principal paid on each mortgage. What is the difference in interest paid
Answer:
30 year mortgage
down payment = $330,000 x 20% = $66,000
debt = $330,000 - $66,000 = $264,000
monthly payment = $264,000 / 136.2834 (PV annuity factor, 360 periods, 0.667%) = $1,937.14
total payments = $1,937.14 x 360 = $697,370.40
total interest paid = $697,370.40 - $264,000 = $433,370.40
20 year mortgage
down payment = $330,000 x 20% = $66,000
debt = $330,000 - $66,000 = $264,000
monthly payment = $264,000 / 128.9825 (PV annuity factor, 240 periods, 0.583%) = $2,046.79
total payments = $2,046.79 x 240 = $491,229.60
total interest paid = $491,229.60 - $264,000 = $227,229.60
the 20 year mortgage charges $433,370.40 - $227,229.60 = $206,140.80 less interest
, Inc. retires a $15 million (face value) bond issue when the carrying value of the bonds is $13 million, but the market value of the bonds is $16 million. The entry to record the retirement will include: Select one: a. A gain of $2 million b. A loss of $2 million c. A loss of $4 million d. A gain of $4 million e. A loss of $3 million
Answer:
Loss on bond redemption = $3 million
Explanation:
Given:
Face value = $15 million
Carrying value = $13 million
Cash paid = $16 million
Find:
Profit / loss
Computation:
Loss on bond redemption = Carrying value - Cash paid
Loss on bond redemption = $13 million - $16 million
Loss on bond redemption = $3 million
The entry to record the retirement will include option E. A loss of $3 million. To understand the calculation see below.
Bond RedemptionWe are provided with the information about :
Face value = $15 million
Carrying value = $13 million
Cash paid = $16 million
We need to find profit or loss. The difference between Carrying value and Cash paid is the profit or loss.
Carrying Value - Cash paid
$13 million - $16 million
-$3 million, the answer is negative hence there is loss.
Therefore, the correct option is E. A loss of $3 million.
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g you have just taken out a 5 year car loan. The amount of the loan is $20,000 and the interest rate on the loan is 6% per year. What will be the amount of your monthly car loan payments
Answer:
Amount to be paid monthly for the period of 5 years is $446
Explanation:
Here, we want to calculate the amount to pay on the loan per year.
This is a case of a loan amount compounded yearly;
Loan amount = P( 1 + r)^t
r = 6% = 6/100 = 0.06
P is the amount borrowed = $20,000
t is the number of years = 5
So we have ;
A = 20,000( 1 + 0.06)^5
A = 20,000(1.06)^5
A = 26,764.5 which is approximately $26,765
This is the total amount to pay back
The number of months in 5 years is 5 * 12 = 60 months (12 months in a year)
So the amount to payback per month will be;
$26,765/60 = $446.083 which is approximately $446
A manufacturer has one hundred memory chips in stock, 4% of which are likely to be defective. A random sample of 20 chips is selected and shipped to a factory that assembles laptops. Let X denote the number of computers that are receive faulty memory chips. Find E(X).
Answer:
E(x) = 0.8
Explanation:
Given:
Selected chips = 20
Defective rate = 4%
Number of fault chips computer = x
Find:
Number of fault chips computer
Computation:
Number of fault chips computer (x) = Selected chips x Defective rate
Number of fault chips computer (x) = 20 x 4%
Number of fault chips computer (x) = 0.8
E(x) = 0.8
Sheffield Corp. had revenues of $344000, expenses of $184000, and dividends of $45000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a
Answer: CREDIT of $160,000.
Explanation:
Income summary being closed to the Retained earnings account means that the income for the year is sent to the Retained earnings account.
Inventory is paid from the Retained earnings so will not feature in the amount sent from the Income statement.
Income = Revenues - expenses
= 344,000 - 184,000
= $160,000
As the Retained earnings will increase, this is a CREDIT of $160,000.
Exhibit 24-7 Price Quantity Total Cost $10 10 $80 9 15 85 8 20 95 7 25 110 6 30 140 5 35 175 4 40 215 Refer to Exhibit 24-7. A monopolistic competitive firm that seeks to maximize profits will sell __________ units and charge a price of __________ . a. 30; $6 b. 15; $9 c. 25; $7 d. 10; $10 e. 35; $5
Answer:
The correct option is c. 25; $7.
That is, a monopolistic competitive firm that seeks to maximize profits will sell 25 units and charge a price of $7.
Explanation:
Note: This the data in this question are merged together. They are therefore sorted before answering the question. See the attached pdf file for the complete question with the sorted data.
The explanation to the answer is now given as follows:
In economics, a monopolistic competitive firm maximizes profit at a point where its Marginal Cost (MC) equals its Marginal Revenue (MR), i.e. where MC = MR.
Note: See the attached excel file for the calculation of the Marginal Cost (MC) equals its Marginal Revenue (MR).
In the attached excel file, we use the following formula:
Total revenue = Price * Quantity
Marginal cost = Current total cost - Previous total cost
Marginal revenue = Current total revenue - Previous total revenue
In the attached excel file, Marginal Cost (MC) equals Marginal Revenue (MR) equals $15 (i.e. MC = MR = $15) at the point where Price is $7 and Quantity is 25 (This is indicated in bold red color)
Therefore, the correct option is c. 25; $7. That is, a monopolistic competitive firm that seeks to maximize profits will sell 25 units and charge a price of $7.
osina purchased a 15-year bond at par value when it was initially issued. The bond has a coupon rate of 7 percent and matures 13 years from now. If the current market rate for this type and quality of bond is 7.5 percent, then Rosina should expect:
Answer:
the current market price of the bond is:
PV of face value = $1,000 / (1 + 7.5%)¹³ = $390.56
PV of coupon payments = $70 x 8.12584 (PV annuity factor, 7.5%, 13 periods) = $568.81
market value = $959.37
Since the coupon rate is lower than the market rate, the bond will sell at a discount. Therefore, Osina should expect to lose money if she decides to sell her bond, it would classify as a long term capital loss.
True or False: It is more economically efficient in the market for pollution for the government to distribute the tradable permits than to auction them off.
Answer:
False
Explanation:
When there is an economic efficiency in the market with respect to the pollution than it is not relevant. Here the difference would occurs when the government is able to make the money in the case when the auction permits off as permitting allows to cut the taxes that ultimately reduced the deadweight loss arise from taxation
Also there is an extra deadweight loss arise in the case when the company use resources for lobby the extra permits
Therefore the given statement is false
Assume ABC Corp. pays the dividend of $4.55 this year. For the next 30 years, the firm's dividend will grow by 5.4%, then will grow by 4.7% each year afterwards. The required rate of return for the firm's industry is 10.8%. What is the present value of the firm's stock under the Dividend Discount Model?
Answer:
$86.42
Explanation:
Div₀ = $4.55
using an excel spreadsheet I determined the next 29 dividends:
Div₁ = $4.80
Div₂ = $5.05
Div₃ = $5.33
Div₄ = $5.62
Div₅ = $5.92
Div₆ = $6.24
Div₇ = $6.57
Div₈ = $6.93
Div₉ = $7.30
Div₁₀ = $7.70
Div₁₁ = $8.11
Div₁₂ = $8.55
Div₁₃ = $9.01
Div₁₄ = $9.50
Div₁₅ = $10.01
Div₁₆ = $10.56
Div₁₇ = $11.13
Div₁₈ = $11.73
Div₁₉ = $12.36
Div₂₀ = $13.03
Div₂₁ = $13.73
Div₂₂ = $14.47
Div₂₃ = $15.25
Div₂₄ = $16.08
Div₂₅ = $16.94
Div₂₆ = $17.86
Div₂₇ = $18.82
Div₂₈ = $19.84
Div₂₉ = $20.91
Div₃₀ = $4.55 x (1 + 5.4%)³⁰ = $22.0409
Div₃₁ = $22.0409 x 1.047 = $23.08
first we must determine the terminal value at year 30 = $23.08 / (10.8% - 4.7%) = $378.36
again I used an excel spreadsheet to discount the 30 future dividends using a 10.8% discount rate = $68.97 + $378.36/1.108³⁰ = $86.42
A state imposes a minimum wage of $10 per hour when the equilibrium price is $7. The resulting labor surplus is greater in the long run than in the short run: long-run unemployment (LR) is greater than short-run unemployment (SR). Why does this occur
Answer:
With a minimum wage that is higher than the equilibrium price, firms, in the short-run, would still have to hire many workers in order to meet their production obligations and customer demand.
However, because hiring has now become more expensive than it should be, firms will start to invest more in capital, and to look for ways to replace workers with capital investments, for example, machinery.
This will in turn reduce the demand for labor even more in the long-run, leading to a higher labor supply surplus in the long-run than in the short-run.
The F. Mercury, Capital account has a credit balance of $43,000 before closing entries are made. Total revenues for the period are $61,200, total expenses are $42,800, and withdrawals are $11,400.
Required:
What is the correct closing entry for the revenue accounts?
Answer:
Dr Revenue accounts $61,200
Cr Income Summary $61,200
Explanation:
Based on the information given we were told that the Total revenues for the period was the amount of $61,200 which means that the correct closing Journal entry for the revenue accounts will be to Debit Revenue accounts with the amount of $61,200 and to credit Income Summary with the same amount of $61,200.
Dr Revenue accounts $61,200
Cr Income Summary $61,200
Foster Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries $ 162,000 Other expenses 61,000 Total $ 223,000 Distribution of resource consumption: Activity Cost Pools Making Bouquets Delivery Other Total Wages and salaries 45% 25% 30% 100% Other expenses 30% 45% 25% 100% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Activity Making bouquets 140,308 bouquets Delivery 12,700 deliveries What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round to the nearest whole cent.)
Answer:
$5.35 per delivery
Explanation:
Overhead costs:
Wages and salaries $162,000
Other expenses $61,000
Total $223,000
Activity Cost Pools Wages and salaries Other expenses
Making Bouquets 45% 30%
Delivery 25% 45%
Other 30% 25%
Total 100% 100%
Activity Cost Pool Activity
Making bouquets 140,308 bouquets
Delivery 12,700 deliveries
total overhead costs assigned to delivery:
Wages and salaries $162,000 x 25% = $40,500
Other expenses $61,000 x 45% = $27,450
total = $67,950
cost per delivery = $67,950 / 12,700 deliveries = $5.35 per delivery
The overall activity rate for the deliveries activity cost pool $5.35 per delivery .
Overhead costs:Wages and salaries $162,000
Other expenses $61,000
Total= $223,000
Activity Cost Pools Wages and salaries Other expenses Making Bouquets 45% 30% Delivery 25% 45% Other 30% 25%
Total 100% 100%
Activity Cost Pool Activity:
Making bouquets 140,308 bouquets Delivery 12,700 deliveries
Total overhead costs assigned to delivery:
Wages and salaries $162,000 x 25% = $40,500 Other expenses $61,000 x 45% = $27,450 Total = $67,950
Cost per delivery = $67,950 / 12,700 deliveries
Cost per delivery= $5.35 per delivery
The overall activity rate for the deliveries activity cost pool $5.35 per delivery .
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Costs to rent a vehicle for a short period of time after an auto dealer fails to deliver a purchased vehicle would be
Answer:
Incidental damages.
Explanation:
Incidental damages can be defined as any charges that an individual may charge another for a breach of a contractual arrangement between the two parties or for defaulting in remittance.
In this scenario, costs to rent a vehicle for a short period of time after an auto dealer fails to deliver a purchased vehicle would be incidental damages.
3D printers can use ________ electricity to produce a part than would have been used to produce the same part by nonadditive manufacturing.
Answer:
100 times more
Explanation:
3D printing can simply be define as a way of/for producing a three dimensional digital model, mostly and usually by laying down many successive thin layers of a material. 3D printing is the commonly known for the correct manufacturing term of additive manufacturing.
Electricity is known to be a type/form of energy determine/cause by the movement of electrons.
Whipple Corp. just issued 255,000 bonds with a coupon rate of 5.87 percent paid semiannually that mature in 20 years. The bonds have a YTM of 6.31 percent and have a par value of $2,000. How much money was raised from the sale of the bonds
Answer:
Amount Raised = $484,702,949.4 or 484.703 million
Explanation:
To calculate the amount of money raised from the sale of bonds, we must first calculate the price at which bonds were sold.
To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,
Coupon Payment (C) = 2000 * 0.0587 * 6/12 = $58.7
Total periods (n) = 20 * 2 = 40
r or YTM = 0.0631 * 6/12 = 0.03155 or 3.155%
The formula to calculate the price of the bonds today is attached.
Bond Price = 58.7 * [( 1 - (1+0.03155)^-40) / 0.03155] + 2000 / (1+0.03155)^40
Bond Price = $1900.79588 rounded off to $1900.80
The amount of money raised from the sale of 255000 bonds is,
Amount Raised = 255000 * 1900.79588
Amount Raised = $484,702,949.4 or 484.703 million
During regular economic times in the United States, the maximum length of time a worker can collect unemployment insurance is 26 weeks. During recessions, however, Congress often increases the length of time in which workers can collect benefits. During the recent financial crisis, workers could collect benefits for up to 99 weeks in some states. This system will:
Answer:
the options are missing:
a) encourage people to search longer for a job.
b) provide workers with an adequate safety net.
c) prolong the amount of time a person stays out of work.
d) increase the number of workers looking for work.
e) allow more people to start businesses.
The answer is:
b) provide workers with an adequate safety net. c) prolong the amount of time a person stays out of work.This type of actions can be considered humane and necessary due to certain special circumstances, but it has two effects, one good and one bad:
The good effect is that it provides workers' families with an adequate safety net. I.e. it allows a lot families in need to cover some of their basic necessities which helps them avoid a lot of suffering.
The bad effect is that it encourages people to not search jobs or only accept certain type of jobs (high paying jobs), which increases the amount of time someone is unemployed. If you are in desperate need for a job you will take any job available, but if you can afford to wait, then you will wait until you get a good job.
If a good or service is scarce, consumers will usually be?
Answer:
B) willing to pay money to get it.
Multiple-choice options for the question
A) unwilling to buy it.
B) willing to pay money to get it.
C) uninterested in owning it.
D) able to get as much of as they want.
B) willing to pay money to get it.
Explanation:
A good or service is said to be scarce if its demand outweighs the supply. Consequently, not every customer willing to buy the product will find it in the market. Scarcity will lead to a 'scramble' for the products every time buyers locate it. The 'scramble' will make customers who greatly desire the products offer higher prices to the sellers. Scarcity makes prices go up as suppliers take advantage of making higher profits.
purchased a new van on January 1, 2019. The van cost $40,000 with an estimated life of 5 years and $10,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the balance in the accumulated depreciation for 2020
Answer:
Accumulated depreciation= $19,200
Explanation:
Giving the following information:
The van cost $40,000 with an estimated life of 5 years and $10,000 salvage value at the end of its useful life.
To calculate the depreciation expense for each year, we need to use the following formula:
Annual depreciation= 2*[(book value)/estimated life (years)]
2019:
Annual depreciation= 2*[(40,000 - 10,000)/5]= 12,000
2020:
Annual depreciation= 2*[(30,000 - 12,000)/5]= 7,200
Accumulated depreciation= 12,000 + 7,200= $19,200
A time standard was set as 0.20 hour per unit based on the 100th unit produced. Assume the task has a 70 percent learning curve. Refer to Exhibit 6.4. What would be the expected time of the 200th, 400th, and 800th units
Answer:
200th unit = 0.70028hrs
400th unit = 0.4902hr
800th unit = 0.343hr
Explanation:
Learning rate = 70% = 0.7 (r)
From the learning curve equation
T(n)= T₁(n)^b
b= ln(r)/ln(2)= ln(0.7)/ln(2)= -0.5146
T(100)= T₁(100)^-0.5146
But T(100)=1
1= T₁×(0.0935)
T₁= 1/(0.0935)
T₁= 10.7
For 200th
T(200)= 10.7(200)^-0.5146= 0.70028hr
For 400th
T(400)= 10.7(400)^-0.5146= 0.4902hrs
800th units
T(800)= 10.7(800)^-0.5146= 0.343hrs
Hanson Inc. has the following direct materials standard to manufacture one Zippy: 1.5 pounds per Zippy at $4.00 per pound Last week, 1,700 pounds of materials were purchased and used to make 1,000 Zippies. The materials cost a total of $6,630. 1. How many pounds of materials should Hanson have used to make 1,000 Zippies? a. 1,700 pounds b. 1,500 pounds c. 1,200 pounds d. 1,000 pounds
Answer:
Total standard quantity= 1,500 pounds
Explanation:
Giving the following information:
Standard= 1.5 pounds per Zippy at $4.00 per pound
Units produced= 1,000 units
To calculate the number of pounds required to make 1,000 units, we need to use the following formula:
Total standard quantity= standard unitary quantity*number of units
Total standard quantity= 1.5*1,000
Total standard quantity= 1,500 pounds
A few months ago, an investor went long a forward contract to purchase EUR 10,000 at a forward price of USD 1.25 per EUR. The contract still has 9 months to maturity. The current 9-month forward price of Euro is USD 1.20 per EUR, and the 9-month interest rate for USD is 3% per annum (continuously compounded). What is the present value of this forward contract to this investor
Answer:
488.88
Explanation:
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument.
DATA
Interest rate = e = 3%
time = 9 months
F1 = 1,2
F0 = 1.25
euro to purchase = 10,000
The present value of this forward contract to this investor = (F1 - F0) x Euro to be purchased x e-r x t
The present value of this forward contract to this investor = USD (1.20 - 1.25) per Euro x 10,000 x 3% x 9/12
The present value of this forward contract to this investor = USD (1.20 - 1.25) x 10,000 x 3% x 9/12
The present value of this forward contract to this investor = - USD 488.88
