Question1. Adjusting entries made by companies each period frequently involves the use of estimates. Examples would include computing depreciation of long-lived assets, finding out the amount of accounts receivable which are uncollectible, or estimating the impairment of assets which are no longer worth the amount paid for them. How does the use of estimates affect the financial statements of the company? In your opinion, does the use of estimates make opportunities for companies to affect financial reporting?
Question2. Miller Corporation has premium bond making semi-annual payments. The bond pays a coupon of the 10 percent, has an YTM of 8 percent, and has 14 years to maturity. The Modigliani Company has a discount bond making semi-annual payments. This bond pays a coupon of 8 percent, has an YTM of 10 percent, and as well has 14 years to maturity.
a) What is the price of each bond today?
b) If interest rates remain unchanged, what do you anticipate the price of these bonds to be 1 year from now?
- In 4 years?
- In 9 years?
- In 13 years?
- In 14 years?
Question3. In 1971 President Nixon unilaterally suspended the fixed rate between gold and dollar, and effectively moved the US from a fixed rate system to a flexible exchange regime. What do you think was the impact of this move on US economy? Why did the president take such a drastic action?