Immunization problem. A liability of $20,000 is to be paid att=6. years. Assume the current interest rate is 5%. Fully immunizeby buying two zero coupon bonds with maturities at times t=2 andt=12.
Immunization problem. A liability of $20,000 is to be paid att=6. years. Assume the current interest rate is 5%. Fully immunizeby buying two zero coupon bonds with maturities at times t=2 andt=12.
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Ratio of Liabilities to Stockholders' Equity and Times InterestEarned
The following data were taken from the financial statements ofHunter Inc. for December 31 of two recent years:
Current Year | Previous Year | |||
Accounts payable | $522,000 | $140,000 | ||
Current maturities of serial bonds payable | 320,000 | 320,000 | ||
Serial bonds payable, 10% | 1,300,000 | 1,620,000 | ||
Common stock, $1 par value | 60,000 | 70,000 | ||
Paid-in capital in excess of par | 670,000 | 680,000 | ||
Retained earnings | 2,330,000 | 1,850,000 |
The income before income tax was $469,800 and $411,100 for thecurrent and previous years, respectively.
a. Determine the ratio of liabilities tostockholders' equity at the end of each year. Round to one decimalplace.
Current year | |
Previous year |
b. Determine the times interest earned ratiofor both years. Round to one decimal place.
Current year | |
Previous year |
c. The ratio of liabilities to stockholders'equity has improved and the times interest earnedratio has improved from the previous year. Theseresults are the combined result of a larger incomebefore income taxes and lower interest expense inthe current year compared to the previous year.