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Homework answers / question archive / 1) Launch If a business plan is to be used to raise capital, then why would the entrepreneur want to advertise the firm's major risks by detailing them in the business plan? Please post your response with at least 250 words and respond to at least two of your classmates with 150 words each
1) Launch If a business plan is to be used to raise capital, then why would the entrepreneur want to advertise the firm's major risks by detailing them in the business plan? Please post your response with at least 250 words and respond to at least two of your classmates with 150 words each.
2)Suppose a ten-year, $1,000 bond with an 8.9% coupon rate and semiannual coupons is trading for $1,035.05. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.9% APR, what will be the bond's price?
3)A company spends €98,000 a week to pay bills and maintains a lower cash balance limit of €75,000. The standard deviation of the disbursements is €12,200. The applicable interest rate is 4.36 percent and the fixed cost of transferring funds is €38. What is the optimal initial cash balance based on the BAT model?
4)
Using daily close data, please plot the following two exchange rates on the same chart:
i) exchange rate between VEF (Venezuelan Bolivar) and USD from 1 July 2013 to 30 June 2020;
ii) exchange rate between Bitcoin (BTC) and USD from 1 July 2013 to 30 June 2020; Indicate one specific point on each of these two lines where the trend changes, and provide some reason(s) why this is the case.
Please clearly mark the description and the relevant information on the axes, and provide data sources. Use the left axis for the VEF/USD exchange rate, and the right axis for the BTC/USD exchange rate.
1)
Solution;-
There are two reasons for a firm to mention the risks they face in the business plan :
a). It is dealing in good faith. Firms should put all cards on the table while dealing with the potential investors to gain their support and trust.
b). It attracts investors. Have you heard of the phrase "more risks ,more gain "? Mentioning the risks makes it a project that has the potential to earn more in the long term which is an attractive proposal for a potential investor. All companies face risk in some way ,but mentioning them and devising a plan to tackle those ,is what makes business plan attractive.
2)
No of periods = 10 years * 2 = 20 semi-annual periods
Coupon per period = (Coupon rate / No of coupon payments per year) * Face value
Coupon per period = (8.9% / 2) * $1000
Coupon per period = $44.5
a)
Bond Price = 
Coupon / (1 + YTM / Compounding frequency )period + Face value / (1 + YTM / Compounding frequency )period
$1035.05 = $44.5 / (1 + YTM / 2)1 + $44.5 / (1 + YTM / 2)2 + ...+ $44.5 / (1 + YTM / 2)20 + $1000 / (1 + YTM / 2 )20
Using Texas Instrument BA 2 Plus Calculator
SET N = 20, PMT = 44.5, FV =1000, PV = -1035.05
CPT I/Y = 4.1878
YTM / 2 = I/Y
YTM / 2 =4.1878
YTM = 8.3756%
b)
Bond Price = Coupon / (1 + YTM / Compounding frequency )period + Face value / (1 + YTM / Compounding frequency )period
Bond Price = $44.5 / (1 + 9.9% / 2)1 + $44.5 / (1 + 9.9% / 2)2 + ...+ $44.5 / (1 + 9.9% / 2)20 + $1000 / (1 + 9.9% / 2 )20
Using PVIFA = (1 - (1 + Interest rate)- no of periods / interest rate to value coupons
Bond Price = $44.5 * (1 - (1 + 9.9% / 2)-20) / (9.9% / 2) + $1000 / (1 + 9.9% / 2 )20
Bond Price = $556.93 + $380.50
Bond Price = $937.42
Using Texas Instrument BA 2 Plus Calculator
SET N = 20, PMT = 44.5, FV =1000, I/Y = 9.9 / 2
CPT PV = -937.42
Bond Price = $937.42
3)
Answer : Optimal Initial Cash Balance :
Optimal Cash Balance = {[ (2 * Annual Spending * Fixed Cost of Transferring) / Applicable Interest Rate]}^(1/2)
= {[2 * (98000 * 52) * 38] / 0.0436}^(1/2)
= {8882935779.81}^(1/2)
= 94249.33
4)
Venezuelan Bolivar or bolívar soberano (sovereign bolivar symbolized as Bs.S) has been the main currency of Venezuela since 20 August 2018 only. It replaced the bolívar fuerte (VEF - symbolized as Bs.F) after a transition period. The primary reason for replacement, at a rate of 1 Bs.S. to 100,000 Bs.F, was tocontrol hyperinflation.
Hence it is ambiguous to want to compare USD/VEF vs bitcoin/usd from the year 2013.
THE POSSIBLE CHART WOULD BE:
DATA SOURCE:
for USD/VEF - https://in.investing.com/currencies/usd-vef-historical-data?end_date=1593455400&st_date=1372617000
for Bitcoin/ USD - https://in.investing.com/crypto/bitcoin/btc-usd-historical-data
please see the attached file
