A 10－year bond is issued on January 1, 2010. Its contract requires that its coupon rat

A.increased

B.decreased

C.remained constant

of a 10-year, 6% coupon, $1000 par value bond with semi-annual payments？

A. $1077.2.

B. $1077.9.

C. $1075.0.

nding prices for a hypothetical 10-year option-free bond which initially yields 8%:

Using a 10 basis point rate shock, the duration of this bond is closes to:

A. 8.78

B. 17.56

C. 4.39

hich is 100 basis points less than the yield on a 10-year option-free U.S. Treasury. If the investor’s marginal tax rate is 33.5%, then taxable equivalent yield and the yield ratio is closest to:

Taxable equivalent yield Yield ratio

A. 7.14 0.79

B. 5.64 0.79.

C. 5.64 1.19.

date Lide Co. issued 10 000 000 yuan of 12%, 10-year bonds at 100%. These facts indicate that ().

A、the total cost of borrowing over the 10-year life of the bond issue will be the same for both corporations.

B、the annual interest expense incurred by Jieda Co. will be equal to annual cash payments to bondholders.

C、Lide Co. appears to be a stronger company financially than Jieda Co.

D、the Jieda Co. bonds are convertible into common stock.

rate of 8% payable semi-annually on 30 June and 31 December:

Issued on 1 January 2005, when the market rate of interest was 6%.

Bought back in an open market transaction on 1 January 2011, when the market rate of interest rate was 8%.

Which of the following statements best describes the effect of the bond repurchase on the financial statements for 2011？ If the company uses the indirect method of calculating the cash from operations, there will be a:

A.$346,511 gain on the income statement.

B.$743,873 gain on the income statement.

C.$350,984 decrease in the cash from operations.

A．It's the same over the 10-year period.

B．It's getting worse over the 10-year period.

C．It's getting better over the 10-year period.

D．There is no way to solve the problem.

e in the value of the security willmost likely be:

A.zero.

B.related to the security’s coupon reset frequency.

C.similar to an otherwise identical fixed-rate security.

(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steel

cookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. The

notes to the financial statements disclose the following:

‘Since 1 July 2006, the company’s stainless steel cookware is guaranteed to be free from defects in

materials and workmanship under normal household use within a 10-year guarantee period. No provision

has been recognised as the amount of the obligation cannot be measured with sufficient reliability.’

(4 marks)

Your auditor’s report on the financial statements for the year ended 31 March 2006 was unmodified.

Required:

Identify and comment on the implications of these two matters for your auditor’s report on the financial

statements of Petrie Co for the year ended 31 March 2007.

NOTE: The mark allocation is shown against each of the matters above.