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Two Answers


 1. Given the following information, answer the following questions:
TR = $3Q
TC = $1500 + $2Q

a. What is the break-even level of output?
b. If the firm sells 1300 units, what are its earnings for losses?
c. If sales rise to 2000 units, what are the firm's earnings or losses?
d. If the total cost equation were TC = $2000 + $1.80Q, what happens to the break-even level of output units?

2. Determine the current market prices of the following $1000 bonds if the comparable rate is 10% and the answer the following questions. XY 5.25% (interest paid annually) for 20 years AB 14% (interest paid annually) for 20 years
Bond XY Bond AB

Rate 10% Rate 10%
NPER 20 NPER 20
PMT 52.5 PMT 140
FV 1000 FV 1000
PV $595.61 PV $1,340.54

a. Which bond has a current yield that exceeds the yield to maturity?
b. Which bond may you expect to be called? Why?
c. If CD, Inc., has a bond with a 5.25% coupon and a maturity of 20 years but which was lower rated, what would be its price relative to the XY, Inc., bond? Explain.