ACTL10001 Chapter Notes - Chapter 5: Countable Set, Financial Transaction, Effective Interest Rate

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orangemole587

11 Jul 2020

School

University of Melbourne

Department

Actuarial Studies

Course

ACTL10001

Professor

Shuanming Li

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Document Summary

Uncertainties that may arise when valuing a series of payments: Uncertain about the number of payments to be made. Uncertain about the amounts of a known number of payments. A discrete random variable can take only one of a countable set of values. The probability function of a discrete random variable x is represented by pr(x=x) where x is a possible value of the random variable. The expected value of a random variable x (e(x)) s defined by the summation of xpr(x=x) over all possible values. E(k(x)) = summation of tpx from t=1 to infinity. If a payment under an insurance policy, or any other financial transaction, depends on the occurrence of a certain event, we call the event a contingent event. The principle of equivalence says that the fair value of the amount paid now is the expected value of the probability distribution.

Related Questions

1. âThese days in particular, international stocks are toovolatile to hold in a diversified portfolio.â Discuss.

2. You work for a publicly traded company that is considering abid for another firm. As part of this work, you have been taskedwith valuing this âtargetâ firm. The target firm is closely held bya single family; the firm is the only valuable asset that thefamily holds. What is the role of idiosyncratic risk in preparingan initial bid for the target firm?

3. True, False or Uncertain (Justify your answer). An economicdownturn may cause many firms to âstreamlineâ their productionactivities, focusing on a single product line. In thosecircumstances, the CAPM is less useful than it would be otherwise,when firms have more diversified lines of business.

4. True, False or Uncertain (Justify your answer). I have theopportunity to hold an equally-weighted portfolio of 10,000investment projects which are uncorrelated with each other, or theeconomy. The investment projects are extremely volatile. Inequilibrium, I should expect to earn approximately the risk-freerate.

salmonlouse941

1. Beginning inventory plus purchases equals:

a) cost of goods sold

b) goods available for sale

c) net purchases

d) ending inventory

2. Accounts receivable:

a) arise from the purchase of goods or services on credit

b) are amounts owed to a business by its customers.

c) are reported on the income statement.

d) will be collected within the discount period or when due.

3. A perpetual inventory system will always give updated balances for:

a) goods available for sale and sales revenue

b) inventory and cost of goods sold

c) accounts receivable and inventory

d) Inventory and sales revenue

4. What is the primary goal of internal controls for cash payments?

a) To make payments as quickly as possible

b) To ensure that payments are made only for properly authorized transactions

c) To independently verify cash payments

d) To ensure the lowest prices possible are paid

olivecrocodile635

Helen Bowers, owner of Helen's Fashion Designs, is planning to request a line of credit from her bank. She has estimated the following sales forecasts for the firm for parts of 2016 and 2017:

may 2016	$186,000
june	186,000
july	372,000
august	540,000
september	720,000
october	360,000
november	360,000
december	90,000
january 2017	180,000

Estimates regarding payments obtained from the credit department are as follows: collected within the month of sale, 10%; collected the month following the sale, 75%; collected the second month following the sale, 15%. Payments for labor and raw materials are made the month after these services were provided. Here are the estimated costs of labor plus raw materials:

may 2016	$90,000
June	90,000
july	126,000
august	881,000
september	307,000
october	234,000
november	162,000
december	90,000

a.General and administrative salaries are approximately $26,000 a month. Lease payments under long-term leases are $9,000 a month. Depreciation charges are $36,000 a month. Miscellaneous expenses are $2,600 a month. Income tax payments of $63,000 are due in September and December. A progress payment of $180,000 on a new design studio must be paid in October. Cash on hand on July 1 will be $132,000, and a minimum cash balance of $90,000 should be maintained throughout the cash budget period.

Prepare a monthly cash budget for the last 6 months of 2016. If no entry required, enter "0". Use minus sign to enter losses, loans outstanding or any other negative amounts.

collecions and purchases worksheet

sales (gross)

collections

during month of sale

during 1st month after sale

during 2nd month after sale

total collections

purchases

labor and raw materials

payments for labor and raw materials

cash gain or loss for month

collections

payments for labor and raw materials

general and administrative salaries

lease payments

miscellaneous expenses

income tax payments

design studio payment

total payments

net cash gain (loss) during month

Loan Requirement or cash surplus

cash at start of month

cumulative cash

target cash balance

cumulative surplus cash or loans outstanding to maintain $90,000 target cash balance

b. Prepare monthly estimates of the required financing or excess funds - that is, the amount of money Bowers will need to borrow or will have available to invest. Round your answers to the nearest dollar. Enter loans outstanding with minus sign.

July	$
august	$
september	$
october	$
november	$
december	$

rosewhale311

ACTL10001 Chapter Notes - Chapter 5: Countable Set, Financial Transaction, Effective Interest Rate

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