Exhibit 12-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 28

Multiple Choice

Exhibit 12-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Talmart Corporation bonds have a $1,000 face value and will mature in 4 years. The bonds have a 7% coupon rate. Interest is paid annually and the required rate of return is 6% for these bonds.
-Refer to Exhibit 12-2. If interest rates increase 50 basis points, what will be the approximate price change for the Talmart bond?

• A) -17.0%
• B) -1.7%
• C) 1.7%
• D) 1.8%
• E) 17.0%

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Definitions:

After-Tax Discount Rate

The interest rate used in discounting cash flows that takes into account the tax implications of the investment.

Incremental Sales

The additional revenue generated from a specific business decision or action.

Cash Operating Expenses

Expenses incurred during the normal operation of a business that affect its cash position, such as rent, utilities, and payroll, excluding non-cash expenses like depreciation.

Working Capital

The difference between a company's current assets and its current liabilities, indicating the liquidity and operational efficiency of the business.