Consider the following time series data.

Quarter Year 1 Year 2 Year 3

1 4 6 7

2 2 3 6

3 3 5 6

4 5 7 8

1.plot with line dot chart.

2.What type of pattern exists in the data?

a.Upward Trend Patter,

b. Downward Trend Pattern

c. Horizontal Pattern With Seasonality.

3.Use a multiple regression model with dummy variables as follows to develop an equation to account for seasonal effects in the data. Qtr1 = 1 if Quarter 1, 0 otherwise; Qtr2 = 1 if Quarter 2, 0 otherwise; Qtr3 = 1 if Quarter 3, 0 otherwise. If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank. (Example: -300)

a. Value = ( )  + ( ) Qtr1 + ( )  Qtr2 + ( ) Qtr3 +  t

4.Compute the quarterly forecasts for next year. If required, round your answers to two decimal places.

1. Quarter 1 forecast =
2. Quarter 2 forecast =
3. Quarter 3 forecast =
4. Quarter 4 forecast =

4. Consider the following time series:

a. Construct a time-series plot. What type of pattern exists in the data? Is there an indication of a seasonal pattern? (10 points)

b. Use multiple linear regression model with dummy variables as follows to develop an equation to account for seasonal effects in the data. Qtr1 = 1 if quarter 1, 0 else; Qtr2 = 1 if quarter 2, 0 else; Qtr3 = 1 if quarter 3, 0 else. (20 points)

c. Compute the quarterly forecasts for next year. (10 points)

1. Given the following government bond yields: one-year, 2% and four-year, 9.5%. What is the two-year government bond yield one would linearly interpolate from this information?

2. A 15 year coupon bond, that makes payments annually, has a coupon rate of 5%. The market discount rate on the bond is 8%. If interest rates were to rise by 100 bps today, how long would it take before the reinvested coupon payments offset the capital loss?

3. Yield spreads are often calculated as the difference between the interest rate on a risky bond and the interest rate on:

4. A fixed income analyst is likely to conduct an independent analysis of the credit risk because credit rating agencies:
   1. Often lag the market in pricing credit risk
   2. Rating agencies may make mistakes
   3. Some risks are difficult to capture in credit ratings
   4. All of the above.

5. Investment Grade bonds are rated _______/______ or higher by Moody’s/S&P. (Looking for the definition here, not just a true statement)

LO 2) Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projected numbers. She presents the following projected information.

Estimated fair value at December 31, 2017:

Other information at December 31, 2017:

The corporation has never used robotic equipment before, and Warren assumed an accelerated method because of the rapidly changing technology in robotic equipment. The company normally uses straight-line depreciation for production equipment.

Aston explains to Warren that it is important for the corporation to show a $7,000,000 income before taxes because Aston receives a $1,000,000 bonus if the income before taxes and bonus reaches $7,000,000. Aston also does not want the company to pay more than $3,000,000 in income taxes to the government.

Instructions

(a)  

What can Warren do within GAAP to accommodate the president's wishes to achieve $7,000,000 in income before taxes and bonus? Present the revised income statement based on your decision.

(b)  

Are the actions ethical? Who are the stakeholders in this decision, and what effect do Warren's actions have on their interests?

LO 2) Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projected numbers. She presents the following projected information.

Estimated fair value at December 31, 2017:

Other information at December 31, 2017:

The corporation has never used robotic equipment before, and Warren assumed an accelerated method because of the rapidly changing technology in robotic equipment. The company normally uses straight-line depreciation for production equipment.

Aston explains to Warren that it is important for the corporation to show a $7,000,000 income before taxes because Aston receives a $1,000,000 bonus if the income before taxes and bonus reaches $7,000,000. Aston also does not want the company to pay more than $3,000,000 in income taxes to the government.

Instructions

(a)  

What can Warren do within GAAP to accommodate the president's wishes to achieve $7,000,000 in income before taxes and bonus? Present the revised income statement based on your decision.

(b)  

Are the actions ethical? Who are the stakeholders in this decision, and what effect do Warren's actions have on their interests?

LO 2) Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projected numbers. She presents the following projected information.

Estimated fair value at December 31, 2017:

Other information at December 31, 2017:

The corporation has never used robotic equipment before, and Warren assumed an accelerated method because of the rapidly changing technology in robotic equipment. The company normally uses straight-line depreciation for production equipment.

Aston explains to Warren that it is important for the corporation to show a $7,000,000 income before taxes because Aston receives a $1,000,000 bonus if the income before taxes and bonus reaches $7,000,000. Aston also does not want the company to pay more than $3,000,000 in income taxes to the government.

Instructions

(a)  

What can Warren do within GAAP to accommodate the president's wishes to achieve $7,000,000 in income before taxes and bonus? Present the revised income statement based on your decision.

(b)  

Are the actions ethical? Who are the stakeholders in this decision, and what effect do Warren's actions have on their interests?

Consider the following time series data.

1. Graph this data series (use the X-Y scatter/chart tool in Excel for this plot). What type of pattern(s) exists in the data? Does the graph suggest that these data exhibit seasonality? What is the length of the season in this particular case?
2. Determine the seasonal factors for each quarter using METHOD 1 (multiplicative seasonal model).
3. Compute the quarterly forecasts for next year (Year 4)?

Consider the following time series data.

1. Graph this data series (use the X-Y scatter/chart tool in Excel for this plot). What type of pattern(s) exists in the data? Does the graph suggest that these data exhibit seasonality? What is the length of the season in this particular case?
2. Determine the seasonal factors for each quarter using METHOD 1 (multiplicative seasonal model).
3. Compute the quarterly forecasts for next year (Year 4)?

Suppose the sales in the first year, R, are $100 and they grow every year at a growth rate of g = 10%. Also, suppose that the net margin is 40%. This means that earnings in the first year are going to be 0.4*100 = $40. Assuming that the discount rate, d, is 25%. What is the present value of earnings assuming that the company survives for 10 years?