Question

please answer the following:

The current interest rates are at 8.50%. The bond you are holding pays you $45 semi-annually for the next ten years. What is the present value of your bond, which has a maturity value of $1,000? (please show work)

Which of the following would indicate improvement in a company's financial position, holding other things constant?

a. The EBIT (operating) profit margin

decreases

b. The interest coverage ratio decreases

c. Payable days increases

d. Days sales outstanding increases

e. The debt to equity ratio increases

All else held constant, which will increase the present value of an annuity?

I. Increase in the number of payments

II. Decrease in the interest rate

III. Increase in the interest rate

IV. Increase in the payment amount

a. I and II only

b. I and III only

c. II and IV only

d. I, II, and IV only

e. I, III, and IV only

Answer 1

Calculate the present value of the bond as follows:

Current value of the bond is $1,033.24.

----------------------------------------------------------------------------------------------------

Payable days increases

Financial position will be improved when payable days increased.

----------------------------------------------------------------------------------------

d. I, II, and IV only