In: Accounting
Date of lookup data: | March 1st, 2019 | ||||
Money Market Rates, etc. | U.S. Treasurys [†,1] | ||||
Security | Yield | T-Bill, Note, Bond | Yield | ||
1-month Euro LIBOR | -0.41% | 1-month T-Bill | 2.44% | ||
1-month U.S T-Bill | 2.39% | 2-month T-Bill | 2.46% | ||
1-month LIBOR | 2.48% | 3-month T-Bill | 2.44% | ||
Federal Funds | 2.40% | 6-month T-Bill | 2.52% | ||
Federal Reserve Discount Rate | 1.00% | 1-Year T-Bill | 2.55% | ||
Negotiable CDs | 2.69% | 2-Year T-Note | 2.55% | ||
U.S Commercial Paper | 2.40% | 3-Year T-Note | 2.54% | ||
Overnight Repos | 2.40% | 5-Year T-Note | 2.56% | ||
Banker's Acceptance | 6.62% | 7-Year T-Note | 2.67% | ||
Eurodollar Deposits | 2.84% | 10-Year T-Note | 2.76% | ||
Euro CP | data … | 20-Year T-Bond | 2.97% | ||
Eurozone Prime Rate | 0.00% | 30-Year T-Bond | 3.13% | ||
U.S. Prime Rate | 5.50% |
from previous question, copy over the following U.S Treasury Yields. Specify the maturity in months
Using the looked-up U.S Treasury Yields from the previous question, plot its Yield Curve. Hint: you might want to use Excel's Chart Wizard, using the XY (scatter plot) option. which is a result of Treasury prices transacted in the market. These prices are "bootstrapped" to derive its. Spot Rates z1, z2, z10, …, z30.
Maturity(months) | 1 | 2 | 3 | 6 | 12 | 24 | 36 | 60 | 84 | 120 | 240 | 360 |
Yield | fill in data | fill in data | fill in data | fill in data | fill in data | fill in data | fill in data | fill in data | fill in data | fill in data | fill in data | fill in data |
z1mth | z2mth | z3mth | z6mth | z1 | z2 | z3 | z5 | z7 | z10 | z20 | z30 |
solution :
given that Rundle Freight Company owns a truck that cost $33,000.
also given that Currently, the truck’s book value is $27,000, and its expected remaining useful life is five years
mentioned in gi ven indormation that
Rundle has the opportunity to purchase for $28,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $7,000 per year more than fuel cost for the new truck.
some other given information The old truck is paid for but, in spite of being in good condition, can be sold for only $16,000.
Calculating the total relevant costs:
retaining truck | replacing truck | |
cost of the new truck | $- | $28000 |
additional fuel cost (5*7000) | $35000 | $- |
oppurtunity cost | $16000 | $- |
total cost | $51000 | $28000 |
final decision of retaining old truck :
the purchase cost of ol;d truck and book value are irrelevant
they are sunk cost
therefore they should not be considered
the comparision cost of replacing and retaining truck are given above
from the above table
the company should replace the old truck as it would cost $28000 in replacement as against the cost of reraining truck of $51000