Create a graphic organizer or infographic that helps explain accounting concepts useful in classifying costs.

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Managerial Accounting & Cost Concepts

Managerial accounting deals with information that is for internal use. It helps managers to control costs, price, and make other relevant decisions. View the following YouTube video about managerial accounting:

  • ACCT 205 Chapter 1 Managerial Accounting & Cost Concepts. (n.d.). Www.youtube.com. Retrieved July 19, 2022, from https://youtu.be/A9r8TuCvlKg

Then, create a graphic organizer or infographic that helps explain:

  • The purpose of managerial accounting
  • Accounting concepts useful in classifying costs
  • Manufacturing activities and the flow of manufacturing costs

What is the Macaulay duration and modified duration of the zero-coupon bond with the yield to maturity of 6% maturing on 30th June 2027?

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Multiple Choice Questions

Instructions:

  1. There are 10 questions. Choose the best answer to each question and write your answer choice (A, B, C, D or E) on Canvas. Each question is worth 10 points.
  2. The questions will be graded according to the Course Syllabus. Your Excel spreadsheet files will serve as evidence of your work.
  3. Submit the answers together with your Excel spreadsheets file on Canvas.
  4. Make sure you do your works CLEARLY and NEATLY. Untidy work will result in a 1 point penalty per question.

Questions                                                   

Questions 1 and 2 are directed at Task 1

  1. What is the invoice price when the settlement date is 30th June 2021?
  1. 932.68
  2. 933.49
  3. 940.63
  4. 943.15
  5. 951.18

 

  1. What is the invoice price when the settlement date is 5th September 2021?
  1. 932.68
  2. 933.49
  3. 940.63
  4. 943.15
  5. 951.18

 

Questions 3 to 8 are directed at Task 2

  1. What is the Macaulay duration and modified duration of the zero-coupon bond with the yield to maturity of 6% maturing on 30th June 2027?
  1. Macaulay duration = 6.0000, modified duration = 5.6604
  2. Macaulay duration = 6.1113, modified duration = 5.9333
  3. Macaulay duration = 5.3532, modified duration = 5.1972
  4. Macaulay duration = 8.4740, modified duration = 8.2272
  5. Macaulay duration = 5.0290, modified duration = 4.8825

 

  1. What is the Macaulay duration and modified duration of the 4% semi-annual coupon payment bond with the yield to maturity of 6% maturing on 30th June 2027?
  1. Macaulay duration = 6.0000, modified duration = 5.6604
  2. Macaulay duration = 6.1113, modified duration = 5.9333
  3. Macaulay duration = 5.3532, modified duration = 5.1972
  4. Macaulay duration = 8.4740, modified duration = 8.2272
  5. Macaulay duration = 5.0290, modified duration = 4.8825

 

  1. What is the Macaulay duration and modified duration of the 7% semi-annual coupon payment bond with the yield to maturity of 6% maturing on 30th June 2027?
  1. Macaulay duration = 6.0000, modified duration = 5.6604
  2. Macaulay duration = 6.1113, modified duration = 5.9333
  3. Macaulay duration = 5.3532, modified duration = 5.1972
  4. Macaulay duration = 8.4740, modified duration = 8.2272
  5. Macaulay duration = 5.0290, modified duration = 4.8825

 

  1. Holding time to maturity and yield to maturity constant, what can you infer about a bond’s Macaulay duration and modified duration as the coupon rate decreases from 8% to 4%?
  1. Macaulay and modified durations remain unchanged.
  2. Macaulay and modified durations increase.
  3. Macaulay and modified durations decrease.
  4. Macaulay duration increases while modified duration decreases.
  5. Macaulay duration decreases while modified duration increases

 

  1. Suppose the bond’s annual coupon rate is 7%. What can you infer about the Macaulay duration as the maturity increases from 30th June 2027 to 30th June 2032?
  1. Macaulay duration stays the same.
  2. Macaulay duration increases.
  3. Macaulay duration decreases.
  4. None of the above.

 

 

  1. Suppose the bond’s annual coupon rate is 7% and the maturity date is 30th June 2027. What can you infer about the Macaulay duration as the yield to maturity decreases from 6% to 5%?
  1. Macaulay duration stays the same.
  2. Macaulay duration increases.
  3. Macaulay duration decreases.
  4. None of the above.

 

Questions 9 and 10 are directed at Task 3

  1. The current yield to maturity is 6%. What is the annualized convexity of the 7% semi-annual coupon payment bond maturing on 30th June 2027?
  1. 149.417
  2. 115.6984
  3. 37.3543
  4. 28.9246
  5. 19.53

 

  1. The yield to maturity rises from 6% to 10%. What is the approximate percentage price change of the bond if you consider both modified duration and convexity?
  1. -19.53%
  2. -17.22%
  3. 0.00%
  4. 17.22%
  5. 19.53%

S&S Air is planning for a growth rate of 12% next year. Calculate the EFN for the company assuming the company is operating at full capacity. Can the company’s sales increase at this growth rate? Explain your reasoning.

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Case study

Review “Mini Case: Planning for Growth at S&S Air” in your textbook on page 129, also found at the end of Chapter 4 in your textbook. Then, answer the following questions:

Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? How do you know?

S&S Air is planning for a growth rate of 12% next year. Calculate the EFN for the company assuming the company is operating at full capacity. Can the company’s sales increase at this growth rate? Explain your reasoning.

Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets must be increased in specific amounts because it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a “staircase” or “lumpy” fixed cost structure. Assume S&S Air is currently producing at 100% capacity. As a result, to increase production, the company must set up an entirely new line at a cost of $5,000,000. Calculate the new EFN with this assumption. What does this imply about capacity utilization for the company next year?

Consider how long term planning and growth is affected by location in the world. Discuss how you would advise S&S Air about planning and growth in your own country and expansion into other countries?

Explain which bond will trade at a higher price in the market and why? What happens to the market price of each bond if the interest rates in the economy go up? Elaborate on your rationale.

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DISCUSSION ESSAY

Two bonds A and B have the same credit rating, the same par value, and the same coupon rate.

Bond A has 30 years to maturity and bond B has 5 years to maturity.

  • Explain which bond will trade at a higher price in the market and why?
  • What happens to the market price of each bond if the interest rates in the economy go up? Elaborate on your rationale.
  • Which bond would have a higher percentage price change if interest rates go up? Explain.

Substantiate your argument with numerical examples.

  • As a bond investor, if you expect a slowdown in the economy over the next 12 months, what would be your investment strategy?

Calculate the expected return on a venture fund given specific parameters and assumptions.

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Fund Return Calculation

You will be requested to calculate the expected return on a venture fund given specific parameters and assumptions. The deliverable is an excel sheet model and a 1-2 page document with the description of your analysis.

Assumptions
The management fee is calculated on total committed capital, not remaining capital. 2.5% annual management fee, with decreasing amount after 7 years:
7th = 2.25%

8th =2%

9th =1.75%

10th=1.5%

Fund expenses: include legal, accounting and back-office, audit, taxes, diligence expenses.

For a 10M fund,

Legal = 20K/year
Back Office= 40K/year
Audit = 25K/year
Taxes = 1K/year
Diligence Expenses = 14K/year

Waterfall:
Up to 3x, 80/20
>3x and <6x, 75/25
6x+, 70/30

Construct a portfolio and financial model to find a scenario for a
FUND SIZE: $50M
Target # of portfolio companies: 30
WHERE:
LP gets 3x return for his/her committed capital
(ignore GP 1%)

Immediately after you make your initial purchases, rates fall to 8%. If you do not rebalance your portfolio, what is your realized yield after three years? What is the duration of the portfolio after the drop in interest rates without rebalancing?

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Week 7 – Bond Portfolios

Round your answers to two decimal points, and don’t round intermediate calculations.

Problem 1.
Suppose that you have decided to fund a three–year liability with a portfolio consisting of positions in a two– interest rate level is 10%.

  • a) Compute the price of both bonds.
  • b) Since our liability is a three–year liability, we want to immunize our portfolio by duration matching. Set up the portfolio, describing how many dollars you have to invest into each bond.
  • c) Immediately after you make your initial purchases, rates fall to 8%. If you do not rebalance your portfolio, what is your realized yield after three years?
  • d) What is the duration of the portfolio after the drop in interest rates without rebalancing?
  • e) How would you have to rebalance your portfolio?

Problem 2.
A 30–year maturity bond has an 8.5% coupon rate, paid annually. It sells today for $871.17. A 20–year maturity bond has an 8.0% coupon rate, also paid annually. It sells today for $894.50. A bond market analyst forecasts that in five years, 25–year maturity bonds will sell at yields to maturity of 9.5% and 15–year maturity bonds will sell at yields of 9.0%. Because the yield curve is upward sloping, the analyst believes that coupons will be invested in short–term securities at a rate of 7%.

  • a) Calculate the annualized expected rate of return of the 30–year bond over the 5–year period.
  • b) Calculate the annualized expected rate of return of the 20–year bond over the 5–year period.

Problem 3.
Consider a 7.4% coupon bond with face value of $1,000, making annual coupon payments, that has three years until maturity.

  • a) Find the duration of the bond if the yield to maturity is 7.4%.
  • b) Repeat your calculation, but instead consider a bond paying semiannually instead of annually.

Problem 4.
A five–year bond with a yield of 11% pays an 8% coupon at the end of each year.

  • a) What is the bond’s price?
  • b) What is the bond’s duration?
  • c) Use the duration to calculate the effect on the bond’s price of a 0.2% decrease in its yield.
  • d) Recalculate the bond’s price on the basis of a 10.8% per annum yield, and compare.

Explain how assets, liabilities and net worth fit together.

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Discussion Post

Explain how assets, liabilities and net worth fit together.

Describe various sources of health care revenue.

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Discussion Post

Describe various sources of health care revenue.

Explain current and long term assets and current and long term liabilities. Give at least one example of each.

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Discussion Post

Explain current and long term assets and current and long term liabilities. Give at least one example of each.

Create a budget for a financial plan using Microsoft Excel, ensuring that the information is organized, accurate, and complete. Identify a personal savings goal and a time frame for reaching it.

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Touchstone 2: Creating a Personal Financial Plan

SCENARIO: Imagine that you are in a position where you need to move – this could be because of a change in job, a need to modify your living arrangements, or something else. In addition to searching for different housing, you want to begin saving for a specific financial goal.

You will use the Assignment Template (an Excel file) to create a budget that satisfies the scenario. You’ll also answer reflection questions related to your goals.

ASSIGNMENT: This assignment has two parts. In part 1, you will create a financial plan based on the scenario described above. You’ll use your productivity skills to organize your plan, and you’ll use your problem solving skills to determine a reasonable rate of savings to reach your goals. Finally, you’ll apply your technology skills to ensure that your budget is balanced, and expenditures (like housing) don’t exceed your employment income.

In part 2, you will answer reflection questions about the decisions you made and the skills you leveraged while building your plan.

For this assignment, you will:

  • Create a budget for a financial plan using Microsoft Excel, ensuring that the information is organized, accurate, and complete.
  • Identify a personal savings goal and a time frame for reaching it.
  • Explain how your choice of housing will help you achieve your personal savings goal.
  • Align your expenditures to support your goal.
  • Reflect on how creating a step-by-step and organized approach to the assignment helps you adjust the financial priorities in your plan.