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Problem - On 1 January 20x1, XYZ Ltd. Issues $1,500,000 face amount of 9%, six-year, convertible debentures. Interest is payable semi-annually on 30 June and 31 December. The debentures are convertible at the investor's option at the rate of 30 common shares for each $1000 bond at any time after 31 December 20x3. The market rate of interest for nonconvertible bonds of similar risk and maturity is 11%. The net proceeds received by XYZ amounted to 1,750,000.
1. Record the issuance of the bonds on 1 January 20x1.
2. Prepare the journal entries for interest expense on 30 June 20x1 and 31 December 20x1. XYZ uses effective interest amortization for bond premium and discount.
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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