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Question - An Corp issued 12% bonds with a par value of $500,000 due in 10 years. They were issued at 102 and callable any time at 104. When the rate environment changed, An Corp called the bonds. Their plan was to retire the bonds and issue new ones at a lower interest rate. An Corp issued the original bonds on July 1, 2015 and called the bonds on July 1, 2020. On July 1, 2020 they issued new bonds at 3% for $500,000, due in 10 years and they were sold at 98. An Corp uses straight line amortization. Interest payment dates are July 1 and Jan 1.
Required -
A) Prepare the Journal entries to record the retirement of the old bonds and the sale of the new bonds on July 1, 2020.
B) Prepare the Journal entries required on January 1, 2021.
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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