What is the term structure of interest rates, and what are its three facts?
200 words in length© BrainMass Inc. brainmass.com October 17, 2018, 10:32 am ad1c9bdddf
The term structure of interest rates, which is also sometimes called the yield curve, is a graph that plots the yields of similar-quality bonds against their maturities, from shortest to longest. This graph shows the different yields that are currently being offered on bonds with various maturities, which allow investors to quickly and easily compare the ...
The solution for this problem includes a detailed explanation of term structure of interest rates, the three possible shapes of the graph curve and what each one means as it relates to interest rates. The solution is comprised of 228 words of text.
Finance: Lease Agreement and Capital Budgeting
At the beginning of its accounting year Alice plc leases a machine from Louise Leasing plc. The following information relates to the lease agreement:
1. The term of the lease is 5 years, and the lease agreement is non-cancellable, requiring equal rental payments of £9,276 at the beginning of each year;
2. The machine has a fair value at the inception of the lease of £40,000, an estimated economic life of 5 years, and no residual value;
3. Alice plc's incremental borrowing rate is 10% per year;
4. Alice plc depreciates similar equipment that it owns on a straight-line basis;
5. Louise Leasing plc has set the annual rental to earn a rate of return on its investment of 8% per year; this fact is known to Alice plc.
(a) Should the above lease agreement be accounted for as a finance or an operating lease? Give reasons to justify your answer.
(b) Prepare the journal entries for Alice plc that relate to the above lease agreement during years 1 and 2 for each of the following assumptions:
(i) The lease is classified as a finance lease;
The actuarial method should be used to allocate finance charges to accounting periods during the lease term.
(ii) The lease is classified as an operating lease.
(c) With reference to (b) discuss the extent to which the distinction between a finance lease and an operating lease is important for financial reporting and analysis.
2-a) Describe the factors that should be taken into consideration by firms when forming their capital structure.
2-b) Describe the "Efficient Market Hypothesis" (EMH). Explain how the "Efficient Market Hypothesis" is used to explain the stock market behaviour.View Full Posting Details