Arrange the following investments from lowest historical risk premium to highest historical risk premium.1. U.S. Treasury Bills2. Long-term corporate bonds3. Large-company stocks4. Small-company stocks
Solution 1
Following investments from lowest historical risk premium to highest historical risk premium is U.S. Treasury Bills, Long-term corporate bonds, Large-company stocks, Small-company stocks.
What are Treasury Bills?
Treasury bills, often known as T-bills, are short-term debt securities issued by the Government of India and are now available in three tenors: 91 days, 182 days, and 364 days. T-bills are money market instruments. An investor is making a loan to the government when they purchase a Treasury Bill. The US government needs the funds to service its debt and cover ongoing costs like wages and military supplies. T-Bills can be purchased in denominations starting at $1,000 (the norm) and going as high as $5 million. Let's use an investor buying a $1,000 T-Bill with a $950 competitive bid as an example. The investor receives $1,000 when the T-Bill matures, earning $50 in interest on their original investment.
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📚 Related Questions
The second lesson from studying capital market history states that greater the potential reward, the less the risk.
What are capital markets?
In the capital market, bonds, stocks, and other financial instruments are bought and sold by buyers and sellers. Participants in the trade include both individuals and institutions. Most securities traded on the capital market are long-term ones. In contrast to a money market, where short-term debt is purchased and sold, a capital market is a financial market where long-term debt or equity-backed securities are bought and sold. Borrowers, stockholders, and savers—also known as investors—are the three key players in the capital markets. The stock market, bond market, and other associated markets are all included in the phrase capital market.
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A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the master budget.
What is the master budget?
A master budget is a financial plan that details how much money an organisation expects to bring in and spend within a fiscal year. Normally, this document presents financial data in quarters or months. To create a master budget that provides a complete view of a firm's finances, for example, a corporation might include its sales budget, the cost of goods sold, selling and administrative costs, cash budget, capital expenditures, inventory, total assets, and accounts payable. The master budget, which also includes budgeted financial statements, a cash projection, and a financing plan, is the culmination of all lower-level budgets created by a company's numerous functional departments.
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Many managers believe that being empowered to create their own self-imposed budgets is the most effective method of budget preparation.
What is budget?
A budget is an estimate of income and expenditures for a given future period of time, and it is often created and updated on a regular basis. A individual, a group of people, a corporation, a government, or pretty much anything else that makes and spends money can all have budgets.
Budgeting is essential if you want to control your monthly spending, be ready for life's unforeseen events, and be able to buy expensive products without falling into debt. It doesn't have to be tedious, you don't have to be good at math, and keeping track of your income and expenses doesn't mean you can't buy the things you want. It simply means that you will be more aware of where your money is going and that you will have more financial control.
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False , Point transfers cannot be initiated for frequent flyer/guest accounts whose account names differ from MR Account.
What does MR Account mean?
MR Account is an abbreviation for Money Reimbursement Account. It is a type of bank account used to hold funds set aside for the purpose of reimbursing employees or customers for specific expenses incurred. This type of account enables businesses to easily manage, track, and control the expenses for which they are responsible.
What is an Bank Account?
A bank account is a financial account held at a financial institution, usually a bank, that allows the account holder to deposit and withdraw funds. Bank accounts are used to save money and make payments. They are also used to gain access to other financial services such as overdraft protection, loans, and credit cards.
Therefore the answer will be False as point tranfer cannot be initiated for frequently flyer guest account whose name differ from MR account.
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600
720
1080
1200
1440
Julie put half of her savings in a savings account. The amount of Julie initial saving in both accounts is 1200.
Since simple interest is calculated only on the principal, the simple interest income per year will be half of the simple interest income after two years. So a simple interest account earns $60 in the first year and another $60 in the second year.
In the second year, the compound interest account will earn the remaining $66, while the simple interest account will only earn $60. The difference of $6 between simple and compound interest earned on the same amount two years later is due to the interest earned in compound interest.
Calculating the problem:
Now, calculate the interest rate using the interest earned on interest for the compound interest account.
The $6 interest earned on the interest was calculated out of the total interest earned on the first year, which is 60$.
Divide 6 by 60 to find the interest rate: (6 ÷ 60) x 100 = 10%.
Given that interest rate is 10%, Julie's investment in the simple interest account is
Interest = Principal x Rate x Time
120 = P x 10% x 2
120 = P x 20%
120 = P x 20/100
P = 120 x 100/20
P = 600
Hence, the initial investment in both accounts was 1200 (600 + 600).
Simple interest:
Simple interest is calculated by multiplying the daily interest rate by the principal amount by the number of days until the next payment. Simple interest benefits consumers who pay their loans on time or at the beginning of each month. Auto loans and short-term personal loans are usually simple interest loans.
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11,000
11025
11075
11200
11250
The amount Anna will owe if she doesn't make any payments and her bank charges 10% annual interest compounded semiannually = $11,025
Option B is correct .
What is simple interest?
Simple interest is a quick and easy way to calculate interest on a loan. Simple interest is the daily interest rate multiplied by the principal multiplied by the number of days until the next payment. This type of interest is typically applied to auto and short-term loans, but some mortgages use this method of calculation.
Evaluating the simple interest :
Compound interest is calculated on the principal plus interest already accrued.
Balance= P[tex](1+r/n)^{t}[/tex]ⁿ
, where
P = Principal,
r = Interest rate (in %),
n = number of times per year,
t = number of years.
Calculate the simple interest given terms, add it to the principal,
Calculates simple interest and adds it to the principal,
Simple interest = Principal Amount x Interest Rate x Time
Simple interest = 10,000 x 10/100 x 1
Simple interest = 10,000 x 1/10
Simple interest = 1000
Now add simple interest to the principal amount to find the balance after one year.
Balance = 10,000 + 1000
Balance = 11000
After compounding the interest, the balance after one year will be 11,000. Compound interest is only slightly more than simple interest,
Add 5% to the principal to find the balance after 6 months, then add another 5% calculated from the new balance.
Balance after 6 months = 10,500
Add 5% of 10,500:
10,500 + 5%10,500
= 10,500 + 525
= 11,025.
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360
371
752
1083
1445
Nathan deposited $4,500 into a savings account . The interest he earn in 1 year is 360
Calculating the problem:
Compound interest is calculated on the principal amount, as well as on any interest already earned.
P = Principal, r = Interest rate (in %), n = number of times per year, t = number of years.
Simple interest = Principal Amount x Interest Rate x Time
Simple interest = 4500 x 8/100 x 1
Simple interest = 45 x 8
Simple interest = 360
How can I make money with compound interest?
Compound interest is calculated by multiplying the initial principal amount by 1 and adding the annual interest rate minus the number of compounding periods. After that, the total amount of the first loan is subtracted from the resulting value.Compound interest is adding interest to the principal of a loan or deposit, i.e. principal plus interest.
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Example:
John takes out a $10,000 loan at an annual interest of 12%, compounded semiannually. what will be the balance of the loan at the end of the year?
Notice the following:
1) Interest rate = 12% annual
2) Time - 1 year
3) Compound - semiannually. Interest is calculated after six months, then again at the end of the year.
John interest after 6 months = $10,600 and balance at the end of year = $11,236 .
Compound interest :
Compound interest is adding interest to the principal of a loan or deposit, i.e. principal plus interest. This can be done by reinvesting the interest, adding it to the principal borrowed instead of repaying it, or requiring the borrower to pay and earn interest on the principal plus previously accrued interest in the next period. Compound interest is the norm in finance and economics.
Calculating the interest amount :
Six months later, John's loan has reached half the annual interest rate, or 6%.
The balance of the loan after six months would be :
$10,000 + 10,000·6%
= 10,600.
The remaining interest accrues on this balance at the end of the year. Another 6%.
The year-end balance sheet is as follows:
10,600 + 10,600·6%
= $11,236.
Consider that the interest rate for every 6-month period is 6% - half of the 12% annual rate.
Interest....6%
Principal= $10,600....
$10,600(1+6%)
$10,600 + 636
=$11,236
Compound interest is in contrast to simple interest. With simple interest, there is no compound interest because previously accrued interest is not added to the principal for the current period. APR is the amount of interest per period multiplied by the number of periods per year.
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Sure.
In the beginning of 1997, Priscilla invested $5,000 in a savings account that that pays 8% annual income, compounded quarterly. If Priscilla makes no further deposits into or withdrawals from the account, approximately how much money will she have in the account two years later, at the end of 1998?
$800
$858
$5,800
$5,858
$10,000
In the beginning of 1997, Priscilla invested $5,000 in a savings account. She have in the account two years later, at the end of 1998 is $5,800
Option D is correct.
Calculating the problem:
Interest rate = 8% annual
Time - 2 years
Compound - quarterly.
P = $5,000, r = 8%, n = 4 times a year (compounded quarterly), t = 2 years.
Balance after two years will be 5,000(1 + 8%/4)4×2
5,000(1.02)8.
A 8% annual simple interest on a principal of $5000 will give
5,000×8%
= 5,000 × 8 / 100
= 50 × 8
= $400 a year.
Over two year, the savings account will earn 2×$400 = $800 using simple interest, and the balance at the end of 1998 will be 5000+800 = $5800.
Why is it called compound interest?
Compound interest is interest on a deposit calculated on both the principal amount and the accumulated interest from previous periods. Or, more simply put, compound interest is interest earned on interest. Interest can be compounded according to different frequency schedules such as daily, monthly, and yearly.
Why is compound interest important?
Compound interest allows your money to grow faster because interest is calculated based on accrued interest over time, not just the original principal. Compound interest can create a snowball effect as the original investments and the income from those investments grow together.
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1) Interest rate - usually given as a %
2) Time - How long the interest is calculated for.
3) Compounded - Annually, semi-annually (every six months), quarterly, monthly.
Simple Interest formula = Principal × Rate × Time
Use simple interest in the following cases:
1) The question explicitly use the phrase "simple interest"
2) The calculation time for the interest is shorter than the stated interest period. e.g. 12% annual interest calculated after a 6-month time period.
The above puzzle is done To Sum up the simple interest compounded annually or semi annually.
What is simple and compound interest?
Interest can be calculated in two ways: Simple interest is calculated on the principal or original amount of the loan. Compound interest may be considered "interest" because it is calculated on the principal plus interest accrued in previous periods.
What is simple interest?
Simple interest is based on the principal amount of the loan or initial deposit amount in a savings account. Simple interest earns no interest. In other words, the creditor pays interest only on the balance of the principal and the borrower does not have to pay interest on the previously accumulated interest.
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