What are the five basis principles of finance? Briefly explain them
What are the five basis principles of finance? Briefly explain them
Evaluate the statement “Accounting is all about numbers.”. Using the definition of accounting to
justify your answer.
The financial year for Drip Dry Cleaning Services ends on 30 June. Using the following information,
make the necessary
1. On 15 February, Danielle Drip’s business borrowed $16 000 from Northern Bank at 8% interest.
The principal and interest are payable on 15 August.
2. Drip Dry Cleaning Services purchased a 1-year insurance policy on 1 March of the current year for
$660. A 3-year policy was purchased on 1 November of the previous year for $2700. Both
purchases were recorded by debiting Prepaid Insurance.
3. The business has two part-time employees who each earn $220 a day. They both worked the last
3 days in June for which they have not yet been paid.
4. On 1 June, the Highup Hotel paid the business $2100 in advance for doing their dry cleaning for
the next 3 months. This was recorded by a credit to Unearned Dry Cleaning Revenue.
5. The supplies account had a $280 debit balance on 1 July. Supplies of $1560 were purchased during
the year and $190 of supplies are on hand as at 30 June.
Required:
Prepare the necessary adjusting entries at 30 June
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an
additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years,
and 6.5%, compounded annually, for the last five years.
Required:
a) What is the effective annual interest rate (EAR) you would get for your investment in the first 10
years?
b) How much money do you have in your account today?
c) If you wish to have $85,000 now, how much should you have invested 15 years ago?
Rachel is a financial investor who actively buys and sells in the securities market. Now she has a
portfolio of all blue chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and
$5,500 of Share D.
Required:
a) Compute the weights of the assets in Rachel’s portfolio?
b) If Rachel’s portfolio has provided her with returns of 9.7%, 12.4%, -5.5% and 17.2% over the past
four years, respectively. Calculate the geometric average return of the portfolio for this period.
c) Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The risk
premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflation
rate was 2.7%. Calculate the risk-free
(CAPM).
d) Following is
expected return, variance and standard deviation of the portfolio.
State of economy Probability Rate of returns
Mild Recession 0.35 - 5%
Growth 0.45 15%
Strong Growth 0.20 30%
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