-What Is Market Value of the One-Year CD If All

question 106

Multiple Choice

$$\begin{array} { | l | r | l | l | r | l | } \hline \text { Assets } & \begin{array} { l } \text { Amount } \\\text { (\$ millions) }\end{array} & \begin{array} { l } \text { Annual } \\\text { Rate }\end{array} & \text { Liabilities } & \begin{array} { l } \text { Amount } \\\text { (\$ millions) }\end{array} & \begin{array} { l } \text { Annual } \\\text { Rate }\end{array} \\\hline \text { 1-year bonds } & \$ 60 & 7 \% & \text { 1-year CD } & \$ 50 & 5 \% \\\hline \text { 10-year loan } & \$ 40 & 12 \% & \text { 2-year CD } & \$ 40 & 6 \% \\\hline & & & \text { Equity } & \$ 10 & \\\hline \text { Total } & \$ 100 & & \text { Total } & \$ 100 & \\\hline\end{array}$$
-What is market value of the one-year CD if all market interest rates increase by 2 percent?

• A)$49.065 million.
• B)$50.481 million.
• C)$49.528 million.
• D)$50.971 million.
• E)$50.000 million.

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Definitions:

Profit Centers

Divisions or segments within a company that are directly responsible for generating profits, evaluated based on their performance.

Net Income

The remaining profit after deducting all expenses, taxes, and costs from the total revenue.

Service Department Cost

Expenses associated with the functions that support the production or selling activities of a business, such as maintenance, cleaning, and security services.

Macro Division

A segment within a company or industry that focuses on the broad, overall management and strategies rather than individual components or products.