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An editor of the Financial Analysts Journal reviewed an earlier edition of this book and asserted:
Broadly speaking, accounting numbers are of two types: those that can be measured and those that have to be estimated. Investors who feel that accounting values are more real than market values should remember that, although the estimated numbers in the accounting statements often have a greater impact, singly or together, than the measured numbers, accountants" estimates are rarely based on any serious attempt by accountants at business or economic judgment. The main reason accountants shy away from precise statements of principle for the determination of asset values is that neither they nor anyone else has yet come up with principles that will consistently give values plausible enough that, if accounting statements were based on these principles, users would take them seriously.
Required:
a. Describe what is meant by measurement in accounting.
b. According to this editor, what are the kinds of measurements investors want?
c. Discuss whether objectives of accountants and investors regarding accounting measurement are reconcilable.
Current mortgage rates are 8 percent. Interest is compounded monthly and all payments are due at the end of the month. What is the monthly mortgage payment?
1. Debt: 240,000 bonds with 7.5% coupon rate outstanding, 20 years maturity, sold at 94% of par, the par value is $1,000 and make semiannual payments.
Communicate in a manner that is professional and consistent with expectations for members of the business professions.
What long position in the stock is necessary to hedge a long put option when the strike price is $32? Give the number of shares purchased as a percentage of the number of options purchased option.
Find the comparable interest rate compounded monthly if it is 15% per year compounded quarterly.
A stock priced at 50 can go up or down by 10 percent over two periods. The risk-free rate is 4 percent. What is the correct price of an American put with an exercise price of 55?
What is an income statement, why is understanding an income statement important to both the investor and the company executives?
Explain why management should be concerned about priority systems in manufacturing and service organizations.
Use the information in the previous problem and consider a portfolio with weights of .60 in stocks and .40 in bonds.
Determine the expected return on a portfolio if an equal amount is invested in each stock? What would be expected return if 50% of your funds.
Your friend, Wendy, plans to open a hair salon. Wendy states that she does not have time to develop and implement a system of internal controls.
Your parents will retire in 28 years. They currently have $280,000, and they think they will need $1,250,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?
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