Assume that the value of a share of QQ Company ordinary stock at the expiration date is either US $30 or US $45.What is the difference in the net payoff on the portfolio because of a difference in the stock price at the maturity date?
Answer(s): D
If the stock price at the maturity date is US $30, AA Company will have a share of stock worth US $30 and a put option worth US $10 $40 exercise price $30 stock price). The call option will be worthless. Hence, the net payoff is US $40 $30 + $10). If the stock price at the maturity date is US $45, the share of stock will be worth US $45, the put will he worthless, and the loss on the call will be US $5 $45 - $40). Thus, the net payoff will be US $40 $45 - $5). Consequently, the difference in the net payoff on the portfolio because of a difference in the stock price at the maturity date is US $0 $40 - $40).
Which of the following securities is likely to o e the least risk?
First-mortgage bonds are backed by fixed assets.
The correct equation for calculating the approximate percentage cost, on an annual basis, of not taking trade discounts is
Answer(s): A
The first term of the formula represents the periodic cost of the trade discount, calculated as the cost per unit of trade credit discount %) divided by the funds made available by not taking the discount 100 - discount %). The second term represents the number of times per year this cost is incurred. The multiple of these terms is the approximate annual percentage cost of not taking the trade discount. A precise formula would incorporate the effects of compounding when calculating the annual cost.
An entity obtaining short-term financing with trade credit will pay a higher percentage financing cost, everything else being equal, when the:
If the discount period is longer, the days of extra credit obtained by forgoing the discount are fewer. Assuming other factors are constant, the result is that the cost of trade credit, that is, the cost of not taking the discount, is greater.
An entity has accounts payable of US $5 million with terms of 2% discount within 15 days, net 30 days 2115 net 30 It can borrow funds from a bank at an annual rate of 12%, or it can wait until the 30th day when it will receive revenues to cover the payment If it borrows funds on the last day of the discount period in order to obtain the discount, its total cost will be:
Answer(s): B
The interest cost of borrowing US $4,900,000 $5,000,000 98%) to take advantage of the discount is US $24,500 [$4,900,000 x 12% 15 - 360)], and the total cost will be US $4,924,500. The total cost if the discount is not taken will be 5,000,000, a difference of US $75,500.
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