Define interest rate risk. How does a bond's level of interest rate risk depend on its maturity?
What will be an ideal response?
Interest rate risk is the risk of changing (especially falling) bond prices from changing (especially rising) interest rates.
If interest rates rise the bond's cash flows are discounted at a higher rate, thus the present value of its cash flows fall,
thus its price falls. The longer the maturity, the greater the interest rate risk, because the distant cash flows are
discounted a greater number of periods, and thus lose more value (or gain more value if interest rates fall).
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In the financial statements, the balance of the Petty Cash account and the balance of the Cash account are shown separately
Indicate whether the statement is true or false
Roseland Company uses the periodic method of accounting for inventory. Unfortunately, the sales manager of Roseland Company failed to record a valid sale on account of merchandise that had been shipped to a customer prior to the end of the current year. However, he did exclude the merchandise from inventory at the end of the current year. As a result of this error, Roseland Company's
a. total assets are overstated for the current year. b. total expenses are understated for the current year. c. net income is overstated for the current year. d. total assets are understated at the end of the current year. e. none of the above
Which of the following best describes a merger?
A) Two corporations are combined to form a new third corporation, and the original two corporations cease to exist B) One corporation sells substantially all of its assets to a second corporation, with both corporations retaining their separate legal existence C) Two corporations jointly purchase a third corporation and operate it as a joint venture D) Two corporations are combined, with one of the original corporations surviving and the other ceasing to exist E) One corporation acquires all of the shares of a second corporation, with both corporations retaining their separate legal existence, the second a subsidiary of the first
The PV, AC and CV are all required to assess the current status of the project.
Answer the following statement true (T) or false (F)