1. You purchased a new 20-year bond three years ago for its face value of $100. The bond pays a coupon of 15%, with interest paid at the end of each year. You have already received the third year's interest payment. a. At what price could you sell the bond today if it is priced to yield 10%? (5 marks) N= 20-3= 17 M= $100 Coupon rate=15% PMT= 100x15%= $15 M B. - I[PVIFA(N, k.)] +- BO (Bond price)= (1+k) PVIFA= 1-1/(1+10%)^17 \ 10% = 8.0215 15(8.0215) + 100\(1+10%)^17 = $140.1069 Will be sold at the price of $140.1069 b. E plain why operating leverage decreases as a company increases sales and hifts away from the break-even point. (5 marks) high operation levels than break-even point, the percentage change in operating income like the unit volume. It is a mathematical reason as when operating income goes high, the leverage goes down when the cost is almost fixed. c. It's Time, Inc. manufactures novelty clocks. The clocks sell for $40 each and cost the firm $34 to make. The firm has fixed operating costs of $180,000 and pays an annual interest expense of $100,000. Its CEO wants to know what impact a recession might have on the firm if sales fall to as low as 70,000 units from the normal 100,000 units sold per year. (10 marks) ii. Calculate the Degree of Operating Leverage. iii. Calculate the Degree of Financial Leverage. iv. Calculate the Degree of Total Leverage