Explain why a financial asset can be viewed as a package of zero-coupon instruments
What will be an ideal response?
A financial asset generates cash flows over time. The value of the asset is the present value of all the cash flows. Because each cash flow can occur at a different point in time, each cash flow should be valued in today's dollar using a discount rate that reflects the required rate of return associated with that time period. Thus, each cash flow is like a zero-coupon bond where today's value for the zero-coupon bond is the discounted value of the zero-coupon's promised maturity value (e.g., cash flow at a point in time). The discount rate for the zero-coupon bond is its spot rate which can differ from one time period to the next. So too, the cash flows generated by the financial asset should have discount rates that differ from one time period to the next.
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The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as a(n)
A) capital B) asset C) contra asset D) liability
A discount merchandiser is likely to have a higher inventory turnover than more upscale stores with higher merchandise prices.
Answer the following statement true (T) or false (F)
It is obvious that an error occurred in the preparation and/or posting of closing entries if:
A. the income summary account is debited for the amount of net income for the period. B. all balance sheet accounts have zero balances. C. the owner's capital account is debited for the amount of the net loss for the period. D. only permanent accounts appear on the post-closing trial balance. E. all revenue and expense accounts have zero balances.
Your company sells $50,000 of bonds for an issue price of $48,000. Which of the following statements is correct?
A. The bond sold at a price of 48, implying a premium of $4,000. B. The bond sold at a price of 48, implying a premium of $2,000. C. The bond sold at a price of 96, implying a discount of $4,000. D. The bond sold at a price of 96, implying a discount of $2,000.