Bart Simpson is considering two alternative investments. The first alternative is to invest in an instrument that matures in two years
The second alternative is to invest in an instrument that matures in one year and at the end of one year, reinvest the proceeds in
a one-year instrument. He believes that one-year interest rates one year from now will be higher than they are today and therefore is leaning in favor of the second alternative. What would you recommend to Bart Simpson?
Bart has two choices. Choice 1 is to buy a 2-year instrument. Choice 2 is to buy a one-year instrument and then reinvest its value by purchasing another one-year instrument. With choice 1, the Bart will realize the 2-year spot rate and that rate is known with certainty. In contrast, with choice 2, the Bart will realize the one-year spot rate, but the one-year rate one year from now is unknown. Therefore, for choice 2, the rate that will be earned over two years is not known with certainty. The one-year forward rate is the rate that will make the two choices equal. This rate is referred to as the market's expected future one-year spot rate one year from now. By knowing this rate, Bart can make a decision as to what he thinks about future spot rates. For example, suppose the Bart expects that one year from now, the one year spot rate will be higher than the forward rate. If so, then the Bart will choose choice 2 . However, this rate must be higher than the forward rate and not just higher than the rate Bart may have in mind. Thus, Bart should be careful. It is just not enough to believe rates will be higher. There is a certain threshold (the forward rate) that must be met before anyone considers a rollover strategy connected with alternative 2 .
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Pablo and Socorro are married. Pablo works in a city that is a full-day drive from home and Socorro works in a city 30 miles in the other direction from home. Often, Pablo stays in the city where he works during the week and only goes home of weekends and holiday, due to a combination of distance and the fact that he could not find a job in his line of work near home. What sort of family are Pablo and Socorro?
A. primary-parent B. blended C. nuclear D. commuter
Downstream marketing channel partners, such as wholesalers and retailers, form a vital link between the firm and its customers
Indicate whether the statement is true or false
Applied overhead of a company exceeds actual overhead when the
A) Overhead account has a credit balance. B) journal entry to account for the difference involves a debit to Cost of Goods Sold. C) Overhead account has a debit balance. D) company has overspent in the overhead cost area.
Which of the following ratios does NOT measure liquidity?
a. Net cash flow to current liabilities b. Working capital to total assets c. Current ratio d. Quick ratio