Deere \& Company's 2012 10-K reports the following footnote relating to long-term debt for its equipment operations subsidiary. Deere's borrowings include \(\$ 300\) million, \(7.125 \%\) notes, due in 2031 (highlighted below).

A recent price quote (from Yahoo! Finance Bond Center) on Deere's \(7.125 \%\) notes follows.

This price quote indicates that Deere's \(7.125 \%\) notes have a market price of 131.47 (131.47\% of face value), resulting in a yield to maturity of \(4.488 \%\).

a. Assuming that these notes were originally issued at par value, what does the market price reveal about interest rate changes since Deere issued its notes? (Assume that Deere's credit rating has remained the same.)

b. Does the change in interest rates since the issuance of these notes affect the amount of interest expense that Deere reports in its income statement? Explain.

c. How much cash would Deere have to pay to repurchase the \(7.125 \%\) notes at the quoted market price of 131.47? (Assume no interest is owed when Deere repurchases the notes.) How would the repurchase affect Deere's current income?

d. Assuming that the notes remain outstanding until their maturity, at what market price will the notes sell on their due date in 2031 ?

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Long-term borrowings at October 31 consisted of the following in millions of dollars: 2012 Notes and debentures: 6.95% notes due 2014: ($700 principal)... 4.375% notes due 2019... 8-1/2% debentures due 2022.. 2.60% notes due 2022.. 6.55% debentures due 2028 5.375% notes due 2029..... 8.10% debentures due 2030 7.125% notes due 2031 3.90% notes due 2042.. Other notes... Total...... **** **** $718 750 105 1,000 200 500 250 300 1,250 372 $5,445 2011 $ 736 750 105 200 500 250 300 $3,167 326