ccra

agarwalla.harsha
Posts: 7
Joined: Tue Jul 14, 2015 6:55 am

ccra

Postby agarwalla.harsha » Mon Oct 26, 2015 11:53 am

a) on may 15 your firm receives 20 cases of designer pens. on june 30 your firm pays rs 3250 for the pens. on july 15 the pens are sold on credit for 10500.on september 10 your firm collects the receivable in full.if each transaction occures at the end of the business day how many days are in cash cycle?

b) a two year bond has a 5% annual coupon. if a one year zero coupon is priced at $96 and a two year zero coupon is priced at $92. calculate the price of the two year bond?

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: ccra

Postby edupristine » Tue Oct 27, 2015 12:15 pm

1.Cash Conversion Cycle= Operating Cycle – days of A/P outstanding
days Accounts Receivables outstanding = September, 10 - July, 15
= 16+ 31 + 10 = 57 Days
days Inventories = July, 15 - May, 15
= 16 + 30 + 15 = 61 days
operating cycle = 57 + 61 days= 118 days
Cash Conversion Cycle = Operating Cycle - days of Accounts Payable outstanding
days of A/P outstanding: June, 30 - May, 15 =16 + 30= 46 days
cash conversion cycle = 118 – 46 days = 72 days

2.
1 year spot rate-
=> 1+R1 = 100/96
=> R1= 1.04166 - 1
=> R1= 4.16%
2 year spot rate- (1+R2)^2 = 100/92
=> (1+R2) = (1.087)^(1/2)
=> R2 = 1.0425 - 1
=> R2= 4.25%

Price of two year bond:
= 5/1.0416 + 105/(1.0425)^2 = 101.4137


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