Question

please give explanations for each question:

1.Which of the following statements is most likely incorrect?

a.A current dollar is worth more than a future dollar.

b.The current dollar can be invested and earn interest between now and the future date.

c.The value of an investment after some time has passed is called the time value.

d.Inflation erodes the purchasing power of the future dollar.

2.Which of the following statements is most likely incorrect?

a.A premium bond trades above par value.

b.The bond indenture will specify the par or face value of the bond, but not its price.

c.For a discount bond, the yield to maturity is less than the coupon rate.

3.A company has sales of $45,000 and total costs of $25,000, including depreciation and interest expenses. The average tax rate is 25%.

Total assets are $70,000 and total equity is $40,000.

What is the profit margin?

a.21%

b.33%

c.37.5%

Answer 1

Answer to 1 Option :-

Option C :Incorrect , Value of a investment after some time is passed is Future Value investment .

Option :A :-True ,The time value of money (TVM) is the concept that money you have now is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received Hence A current dollar is worth more than a future dollar.

Option B:-True , This is core principle of finance which says Dollar today morth worth than received any time after as it can fetch additional interest .

Option : D-True , Inflation erode the Purchasing power of future dollar .

Answer 2:- Option :C Incorrect ,For a discount bond, the yield to maturity is More than the than the coupon rate.

Option A: True ,A bond that is trading above its par value in the secondary market is a premium bond. A bond will trade at a premium when it offers a coupon (interest) rate that is higher than the current prevailing interest rates being offered for new bonds

Option B :True ,The bond indenture will specify the par or face value of the bond, but not its price.

Answer to 3 Option B : Correct ,Profit Margin will be the 33 % As Calculated below .

Sales - Totol cost -Tax 25 % =Net profit after tax /45000 * 100

45000 - 25000 - 5000 =15000 /45000 * 100

=33 %

Option A and C : incorrect

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