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Question - Waterway Corporation is a regional company which is an SEC registrant. The corporation's securities are thinly traded on NASDAQ. Waterway Corp. has issued 17,500 units. Each unit consists of a $875 par, 12% subordinated debenture and 18 shares of $9 par common stock. The units were sold to outside investors for cash at $1,540 per unit. Prior to this sale, the 2-week ask price of common stock was $70 per share. Twelve percent is a reasonable market yield for the debentures, and therefore the par value of the bonds is equal to the fair value.
(a) Prepare the journal entry to record Waterway's transaction, under the following conditions.
(1) Employing the incremental method.
(2) Employing the proportional method, assuming the recent price quote on the common stock reflects fair value.
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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