Assuming a Forward Contract Was Entered into on December 16

question 38

Multiple Choice

Assuming a forward contract was entered into on December 16, what would be the net impact on Car Corp.'s 2018 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge.The present value for one half-month at 12% is .9950.

• A) $ 700 (gain).
• B) $ 700 (loss).
• C) $ 995 (gain).
• D) $ 300 (loss).
• E) $ 298 (gain).

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Definitions:

Availability of Substitutes

The presence of alternative products or services that can satisfy the same needs or wants as the original product.

Own Price Elasticity

Measures the responsiveness of the quantity demanded of a good to a change in its own price.

Anne's Apple Pies

A fictional or specific business entity known for producing or selling apple pies.

Market Share

The portion of a market controlled by a particular company or product.