36. (0.2 point)
An example of an investment grade corporate bond would be one rated

(a) B.

(b) D.

(c) BBB.

(d) BB.

37. (0.2 point)
Among similar corporate bonds, the one with the highest market price would be the one with a rating of

(a) A.

(b) CCC.

(c) B.

(d) BBB.

38. (0.2 point)
The major factor resulting in a decrease in a bond's rating is
(a) decrease in marketability.

(b) increase in default risk.
(c) the call provision.

(d) an increase in its coupon rate.

Consider the following time series data.

a. Use α = 0.2 to compute the exponential smoothing forecasts for the time series.

Compute MSE. (Round your answer to two decimal places.)

MSE =  

b. Use a smoothing constant of α = 0.4 to compute the exponential smoothing forecasts.

Does a smoothing constant of 0.2 or 0.4 appear to provide more accurate forecasts based on MSE? Explain.

The exponential smoothing using α = 0.4 provides a better forecast since it has a larger MSE than the exponential smoothing using α = 0.2.

The exponential smoothing using α = 0.2 provides a better forecast since it has a larger MSE than the exponential smoothing using α = 0.4.    

The exponential smoothing using α = 0.4 provides a better forecast since it has a smaller MSE than the exponential smoothing using α = 0.2.

The exponential smoothing using α = 0.2 provides a better forecast since it has a smaller MSE than the exponential smoothing using α = 0.4.

1. The Public Good Problem A national park that costs MC = 80 dollars to provide to society has been privatized and handed over to a private firm; the firm is mandated to price at marginal cost. There are two types of consumers, a group of high demand consumers (group A) that have an aggregate demand function equal to MB = 100 – Q, and a low demand group of consumers (group B) with aggregate demand equal to MB = 50 – Q, where Q is thousands of acres.

A. How many acres will be provided by the firm when pricing at MC, assuming that the low-demand group will free-ride on the high-demand group?

B. What is the aggregate demand curve for the national park? (Hint: the aggregate demand curve for a public good is the vertical aggregation of the individual demand curves.)

C. Calculate the aggregate consumer surplus for the two types of consumers when the firm prices at MC. (Hint: in this case, the group B is free riding, and they can gain extra consumer surplus)

D. If the national park is provided by the government, how many acres SHOULD be provided?

Springfield Acting Co. is a professional actor training group that trains stage actors and is headquartered in Los Angeles. The CEO of the company, Milhouse Van Houton, is considering expanding and opening an office in New York City but he just received an interesting business opportunity in the San Francisco area to partner with a movie production company located there. Milhouse knows he can only accept one of these opportunities at the current time. He has already purchased his non-refundable ticket to New York, but his hotel reservation is still cancelable. The cost of each trip is outlined below.

Required:

1. What are the relevant costs of each trip?
2. What is the incremental cost?
3. Without considering qualitative factors (thus use numbers to analyze), which alternative should Milhouse choose? Why?
4. What are two qualitative factors that Milhouse might consider?

Park Corporation is planning to issue bonds with a face value of $2,400,000 and a coupon rate of 9 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 7.5 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

Required:

1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

   
    
2. Prepare the journal entry to record the interest payment on June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answer to whole dollars.)

3. How will Park present its bonds on its June 30 balance sheet? (Round your final answer to whole dollars.)

1. The Public Good Problem

A national park that costs MC = 80 dollars to provide to society has been

privatized and handed over to a private firm; the firm is mandated to price at

marginal cost. There are two types of consumers, a group of high demand

consumers (group A) that have an aggregate demand function equal to MB = 100 –

Q, and a low demand group of consumers (group B) with aggregate demand equal to

MB = 50 – Q, where Q is thousands of acres.

1. How many acres will be provided by the firm when pricing at MC, assuming that the low-demand group will free-ride on the high-demand group?

2. What is the aggregate demand curve for the national park? (Hint: the aggregate demand curve for a public good is the vertical aggregation of the individual demand curves.)

3. Calculate the aggregate consumer surplus for the two types of consumers when the firm prices at M (Hint: in this case, the group B is free riding, and they can gain extra consumer surplus)

4. If the national park is provided by the government, how many acres SHOULD be provided?

1. Assume that a national park has recently allowed people to drive all terrain vehicles on trails throughout the park. These vehicles create noise that scare the park’s wildlife lessening the quality of visits for other park enthusiasts.   You are asked to conduct a study to show the change in the park’s value.

a) What specific valuation method should you use?

b) How would you use that method?

c) What are some problems that might results from your use of that method?

2. In order to increase economic activity a city proposes to allow diesel powered delivery vehicles to operate in residential neighborhoods.   Diesel exhaust contains soot which is a major cause of asthma and other respiratory ailments leading to a decrease in the quality of life in these neighborhoods.   A neighborhood group opposed to this proposal hires you to conduct a valuation study to show the decrease in the quality of life.  

a) What specific valuation method should you use?

b) How would you use that method?

c) What are some problems that might results from your use of that method?

Park Corporation is planning to issue bonds with a face value of $790,000 and a coupon rate of 7.5 percent. The bonds mature in 6 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a discount account. Assume an annual market rate of interest of 8.5 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.)

Required: 1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare the journal entry to record the interest payment on June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. What bond payable amount will Park report on its June 30 balance sheet? (Enter all amounts with a positive sign.)

Park Corporation is planning to issue bonds with a face value of $3,400,000 and a coupon rate of 7 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Park uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 6.0 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

Required:

1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare the journal entry to record the interest payment on June 30 of this year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answer to whole dollars.)

3. How will Park present its bonds on its June 30 balance sheet? (Round your final answer to whole dollars.)