Determining Bond Prices, Interest Rates, and Financial Statement Effects Deere \& Company's 2010 10-K reports the following footnote relating to long-term debt. Deere's borrowings include $300 million, 7.125% notes, due in 2031 (bolded below). Long-term borrowings at October 31 consisted of the following in millions of dollars: A recent price quote (from Yahoo! Finance Bond Center) on Deere's 7.125% notes follows. This price quote indicates that Deere's 7.125% notes have a market price of 131.84 (131.84\% of face value), resulting in a yield to maturity of 4.65%. Olnterest rates have increased. OThere is not enough information. Olnterest rates have remained the same. Olnterest rates have declined. (b) Does the change in interest rates since the issuance of these notes affect the amount of interest expense that Deere reports in its income statement? Explain. O Yes, the decline in interest rates results in a decline in interest expense. recognized. OThe change in interest rates only affects the required payment on the liability and, thus, cash flow. ONo, the change in interest rates since Deere issued the notes does not affect interest expense. Round your answer to two decimal places. $ million How would the repurchase affect Deere's current income? Cash and bonds payable both decrease by the same amount. No gain or loss is recognized. OThe repurchase would result in a loss on repurchase of debentures, which would lower current income. The repurchase only affects cash flow, not income. (d) Assuming that the notes remain outstanding until their maturity, at what market price will the notes sell on their due date in 2031 ? \$ million Determining Bond Prices, Interest Rates, and Financial Statement Effects Deere \& Company's 2010 10-K reports the following footnote relating to long-term debt. Deere's borrowings include $300 million, 7.125% notes, due in 2031 (bolded below). Long-term borrowings at October 31 consisted of the following in millions of dollars: A recent price quote (from Yahoo! Finance Bond Center) on Deere's 7.125% notes follows. This price quote indicates that Deere's 7.125% notes have a market price of 131.84 (131.84\% of face value), resulting in a yield to maturity of 4.65%. Olnterest rates have increased. OThere is not enough information. Olnterest rates have remained the same. Olnterest rates have declined. (b) Does the change in interest rates since the issuance of these notes affect the amount of interest expense that Deere reports in its income statement? Explain. O Yes, the decline in interest rates results in a decline in interest expense. recognized. OThe change in interest rates only affects the required payment on the liability and, thus, cash flow. ONo, the change in interest rates since Deere issued the notes does not affect interest expense. Round your answer to two decimal places. $ million How would the repurchase affect Deere's current income? Cash and bonds payable both decrease by the same amount. No gain or loss is recognized. OThe repurchase would result in a loss on repurchase of debentures, which would lower current income. The repurchase only affects cash flow, not income. (d) Assuming that the notes remain outstanding until their maturity, at what market price will the notes sell on their due date in 2031 ? \$ million
