The yield to maturity (YTM) on 1-year zero-coupon bonds is 7% and the YTM on 2-year zeros is 8%. The yield to maturity on 2-year-maturity coupon bonds with coupon rates of 11% (paid annually) is 7.7%.

a. What arbitrage opportunity is available for an investment banking firm?

The arbitrage strategy is to buy zeros with face values of $____ and $____ , and respective maturities of one year and two years.

b. What is the profit on the activity?

Multiple Choice

• $2,580,867

• $2,094,400

• $2,859,133

• $2,709,910

• $2,451,823

Colton Enterprises experienced the following events for Year 1, the first year of operation:

1. Acquired $55,000 cash from the issue of common stock.
2. Paid $14,000 cash in advance for rent. The payment was for the period April 1, Year 1, to March 31, Year 2.
3. Performed services for customers on account for $112,000.
4. Incurred operating expenses on account of $45,000.
5. Collected $85,500 cash from accounts receivable.
6. Paid $41,000 cash for salary expense.
7. Paid $36,000 cash as a partial payment on accounts payable.

Adjusting Entries

8. Made the adjusting entry for the expired rent. (See Event 2.)
9. Recorded $6,400 of accrued salaries at the end of Year 1.

Events for Year 2

1. Paid $6,400 cash for the salaries accrued at the end of the prior accounting period.
2. Performed services for cash of $61,000.
3. Purchased $4,800 of supplies on account.
4. Paid $16,500 cash in advance for rent. The payment was for one year beginning April 1, Year 2.
5. Performed services for customers on account for $128,000.
6. Incurred operating expenses on account of $61,500.
7. Collected $109,000 cash from accounts receivable.
8. Paid $59,000 cash as a partial payment on accounts payable.
9. Paid $33,500 cash for salary expense.
10. Paid a $11,000 cash dividend to stockholders.

Adjusting Entries

11. Made the adjusting entry for the expired rent. (Hint: Part of the rent was paid in Year 1.)
12. Recorded supplies expense. A physical count showed that $450 of supplies were still on hand.

d- 3Prepare a balance sheet for Year 1.
d-4. Prepare a statement of cash flows for Year 1. (Amounts to be deducted should be indicated by a minus sign.)
e. Record the entries to close the Year 1 temporary accounts to Retained Earnings in the general journal and post to the T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

f. Prepare a post-closing trial balance for December 31, Year 1.
g. Repeat parts a through f for Year 2. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Statement of Cash Flows only, items to be deducted must be indicated with a negative amount. )

You are considering taking a 1-year certificate in stock trading or a 1-year certificate in financial analytics. The certificate in trading will cost you $25,000 and will increase your salary by $8,000 a year for the next 5 years. The certificate in analytics will cost $40,000, and will increase your salary by $12,000 a year for the next 5 years. Based on your calculation of NPV and IRR and MIRR, which certificate will you choose? Use 10% as your discount rate.

You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual). The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: The term on this ARM is 30 years). There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loan's term. A) $321.64 B) $566.26 C) $506.69 D) $597.21

A project has fixed costs of $2,400 per year, depreciation charges of $300 a year, annual revenue of $21,600, and variable costs equal to two-thirds of revenues.

a. If sales increase by 19%, what will be the percentage increase in pretax profits?

b. What is the degree of operating leverage of this project?

2. B. Prepare a retained earnings statement for the year ended December 31, Year 1. • Refer to the Chart of Accounts for exact wording of account titles. • Refer to the Labels and Amount Descriptions for exact wording of text entries. • You will need to enter the word “Less” or “Add” as necessary.

Income Statement data:

Advertising expense $150,000

Cost of merchandise sold 3,700,000

Delivery expense 30,000

Depreciation expense-office buildings and equipment 30,000

Depreciation expense-store buildings and equipment 100,000

Dividend revenue 4,500 Gain on sale of investments 4,980

Income from Pinkberry Co. investment 76,800

Income tax expense 140,500

Interest expense 21,000

Interest revenue 2,720

Miscellaneous administrative expense 7,500

Miscellaneous selling expense 14,000

Office rent expense 50,000

Office salaries expense 170,000

Office supplies expense 10,000

Sales 5,254,000

Sales commissions 185,000

Sales salaries expense 385,000

Store supplies expense 21,000

Retained earnings and balance sheet data:

Accounts payable $194,300

Accounts receivable 545,000

Accumulated depreciation—office buildings and equipment 1,580,000

Accumulated depreciation—store buildings and equipment 4,126,000

Allowance for doubtful accounts

8,450 Available-for-sale investments (at cost) 260,130

Bonds payable, 5%, due 20Y2 500,000

Cash 246,000

Common stock, $20 par (400,000 shares authorized; 100,000 shares issued, 94,600 outstanding) 2,000,000

Dividends:

Cash dividends for common stock 155,120

Cash dividends for preferred stock 100,000

Goodwill 500,000 Income tax payable 44,000

Interest receivable 1,125

Investment in Pinkberry Co. stock (equity method) 1,009,300

Investment in Dream Inc. bonds (long term) 90,000

Merchandise inventory (December 31, Year 1), at lower of cost (FIFO) or market 778,000

Office buildings and equipment 4,320,000

Paid-in capital from sale of treasury stock 13,000

Excess of issue price over par:

-Common 886,800

-Preferred 150,000

Preferred 5% stock, $80 par (30,000 shares authorized; 20,000 shares issued) 1,600,000

Premium on bonds payable 19,000

Prepaid expenses 27,400

Retained earnings, January 1, Year 1 9,319,725

Store buildings and equipment 12,560,000

Treasury stock (5,400 shares of common stock at cost of $33 per share) 178,200

Unrealized gain (loss) on available-for-sale investments (6,500)

Valuation allowance for available-for-sale investments (6,500)

Year (year) 2013 2014
Sales (Sales) $ 740 $ 782
Cost of Goods and
Services)
430 455
Interest Payment (Interest) 33 30
Dividends 16 17
Depreciation 250 215
Cash (Cash) 70 76
Accounts Receivable 563 502
Current Liabilities 390 405
Inventory 662 640
Long-Term Debt 340 410
Net Fixed Assets 1,680 1,425
Common Stock 700 235
Tax Rate 35% 30%
(1) How much net working capital has increased or decreased between 2013 and 2014?
(2) What is the net capital spending in 2014?
(3) What is the operating cash flow in 2014?
(4) What is the total cash flow of the enterprise in 2014?

On January 1, Year 1, a lessee signed a five-year equipment lease with annual payments of $100,000 beginning December 31, Year 1. The lessee treated this transaction as a capital lease. The five lease payments have a present value of $379,000 at January 1, Year 1, based on interest of 10%. What amount should the lessee report as interest expense for the year ended December 31, Year 1?