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# 16-9. (Interest rate risk) Two years ago your corporate treasurer

16-9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of \$1,000. The coupon rate on this security is 8 percent. Interest payments are made to bondholders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.
• a. At what price will your bond be sold? Assume annual compounding.
• b. What will be the amount of your gain or loss over the original purchase price?
• c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity? (Assume all characteristics of the bonds are identical except their maturity periods.)
• d. What do we call this type of risk assumed by your corporate treasurer?

16-13. (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.
• a. The firm has sales of \$600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
• b. The firm has a cost-of-goods-sold figure of \$480,000 and an average age of inventory of 40 days.
• c. The firm has a cost-of-goods-sold figure of \$1.15 million and an inventory turnover rate of 5.
• d. The firm has a sales figure of \$25 million, a gross profit margin of 14 percent, and an average age of inventory of 45 days.
Hi,

Thanks for the questions.