1. Explain why you agree or disagree with the following statement: “All municipal bonds are exempt from federal income taxes.”

2. Explain why you agree or disagree with the following statement: “All municipal bonds are exempt from state and local taxes.”

3. What is the difference between a tax-backed bond and a revenue bond?

1. Assume that your parents wanted to have $ 100,000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount each year on your birthday and earned 7.5 % per year on their investments.

a. How much would they have to save each year to reach their goal? (Round to the nearest cent.)

b. If they think you will take five years instead of four to graduate and decide to have $ 140,000 saved just in case, how much would they have to save each year to reach their new goal? (Round to the nearest cent.)

2. A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $ 1 comma 000. Each year after that, you will receive a payment on the anniversary of the last payment that is 7 % larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15 % per year.

a. What is today's value of the bequest? (Round to the nearest​ dollar.)

b. What is the value of the bequest immediately after the first payment is made? (Round to the nearest​ dollar.)

Suppose you are wondering whether to invest in the shares of Amazon (Security 1) or Southwest (Security 2). You decide that Security 1 offers an expected return of 10.0% and Security 2 offers an expected return of 15.0%. After looking back at the past variability of the two stocks, you also decide that the standard deviation of returns is 26.6% for Security 1 and 27.9% for Security 2.

Calculate the expected portfolio return and standard deviation for different values of x₁ and x₂, assuming the correlation coefficient ρ₁₂ = 0. Repeat the problem for ρ₁₂ = +0.25. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Background:

When Ava started her Business Accounting firm 2 years ago, with 10 employees. This company of hers offers both accounting and bookkeeping services to businesses and is busy between December and April (5 months). Today, her company has 80 employees, supported by a team of 3 Information Technology staff. Her company has a local area network, capable of supporting 100 users/employees. In order to maintain data integrity and security, all data records are accessed via a database server running on the company’s local area network. The database server, of course, enables real-time access to data records. (Hence, no data records are stored on the employee’s computer.)

In the last 2 months, her company lost several bids on potential business projects due to the lack of IT resources, specifically the lack of storage capacity. Ava has decided to adopt the necessary the cloud computing service in order to resolve this issue. In other words, she has decided to shifte from assess-based physical IT resources to service-based virtual resources.

Your task:

1. Research and study to understand the key business operations of Accounting and the key business operations of Bookkeeping. 2. Create a screening rubric (in MS Word or MS Excel) to be used to evaluate/select the cloud service provider for resolving the abovementioned issue for Ava’s Business Accounting firm.

Hints:  You need to determine the cloud service that may resolve the issue before you can create the screening rubric.  Due to data sensitivity (integrity and security), Ava’s business can only use the private cloud model.  Using the rubric created by you, can you select a cloud service provider that can meet Ava’s business requirements?

1. The present value of a series of 50 payments starting at 100 at the end of the first year and increasing by 1 each year thereafter is equal to 2X. The annual effective rate of interest is 9%. Calculate X.

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $3 million as a result of an asset expansion presently being undertaken. Fixed assets total $3 million, and the firm plans to maintain a 50% debt-to-assets ratio. Rentz's interest rate is currently 8% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 13% of total sales, and the federal-plus-state tax rate is 40%.

1. What is the expected return on equity under each current assets level? Round your answers to two decimal places.
   

   Restricted policy		%
   Moderate policy		%
   Relaxed policy		%

2. 
   
3. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
   1. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.
   2. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.
   3. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.
   4. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.
   5. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.
   
   -Select-IIIIIIIVVItem 4

Suppose your company needs to raise $18 million and you want to issue 27-year bonds for this purpose. Assume the required return on your bond issue will be 5 percent, and you're evaluating two issue alternatives: a 5 percent semiannual coupon bond and a zero-coupon bond. Your company's tax rate is 31 percent.

a. You will need to issue 18.000 of the coupon bonds to raise the $18 million. You will need to issue.........of the zeroes to raise the $18 million. (Round your answers to the nearest whole number. (e.g., 32))

b. In 27 years, your company's repayment will be $........... if you issue the coupon bonds. (Do not include the dollar sign ($).)

If you issue the zeroes, your company's repayment will be $...................... (Do not include the dollar sign ($). Do not round your intermediate calculations. Round your answers to the nearest whole number. (e.g., 32))

c. Your after-tax cash outflow for the first year will be $621.000 if you issue the coupon bonds, and a cash inflow of $ ............... if you issue the zeroes. (Do not include the dollar signs ($). Do not round your intermediate calculations. Round your answers to the nearest whole number. (e.g., 32))

>> If numbers already given, then that means that these are the correct answers already. Everywhere with "............" are numbers that are still missing and need to be solved.

You recently completed transactions in Germany and Great Britain and the profits from these transactions were €1,000,000 and £2,000,000, respectively. How many U.S. dollars did you receive if the bid and the ask for the Pound Sterling were $1.21/£ and $1.23/£, respectively and the bid and the ask were $1.07/€ and $1.09/€, respectively?

1. Define each of the following:
   1. Loss reserves
   2. Unearned premium reserves
   3. Loss-adjustment expenses (balance sheet item)
   4. Policyholder’s surplus
   5. Loss ratio
   6. Expense ratio
   7. Combined ratio
   8. Investment income ratio
   1. Overall operating ratio
2. What are the three regulatory objectives of ratemaking?
3. Explain each of the following in the context of ratemaking.
   1. Judgement rating
   2. Class rating
   3. Pure premium method
   4. Loss ratio method
   5. Merit rating
   6. Schedule rating
   7. Experience rating
   8. Retrospective rating

Special Note: Please answer all three questions as they are short. Thank you.

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