A 12-year bond of a firm in severe financial distress has a coupon rate of 12% and sells for $920. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. What are the stated and expected yields to maturity of the bonds? The bond makes its coupon payments annually.

13.37% ; 7.01%

Explanation:

The computation of the stated and expected yields to maturity of the bonds is shown in the attachment below:

For stated yield, we use the RATE formula i.e

Given that,  

Present value = $920

Assuming figure - Future value or Face value = $1,000  

PMT = 1,000 × 12% = $120

NPER = 12 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this, the stated yield is 13.37%

Now for expected yield, we also use the RATE formula i.e

Given that,  

Present value = $920

Assuming figure - Future value or Face value = $1,000  

PMT = 1,000 × 12% ÷ 2 = $60

NPER = 12 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this, the expected yield is 7.01%

answer; tech (a) is correct;

answer: in the short-run firms will respond by raising the price of turkey.

explanation: initially the long-run equilibrium is at a price of $5 per pound of turkey and a quantity of 50 million pounds per year. now, when webmd claims that a protein found in turkey will increase your expected lifespan by 4 years. the consumers demand for turkey will increase at every price shifting the demand curve to the right from d1 to d2. while, there will be no change in the supply curve in the short-run as it is not possible for producers to adjust supply so quickly. as a result the new equilibrium will occur at a higher price and a higher quantity of turkey.

thus, in the short run firms will respond by increasing the price of turkey, selling more quantity at a higher price and earning economic profits.