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Kasey Hartman is the controller for Wholemart Company, which has numerous long term investments in debt securities. Wholemart's investments are mainly in 5 year bonds. Hartman is preparing its year end financial statements. In accounting for long term debt securities, she knows that each long term investment must be designated as a held to maturity or an available for sale security. Interest rates rose sharply this past year causing the portfolio's fair value to substantially decline. The company does not intend to hold the bonds for the entire 5 years. Hartman also earns a bonus each year, which is computed as a percent of net income. Required:
1. Will Hartman's bonus depend in any way on the classification of the debt securities? Explain. 2. What criteria must Hartman use to classify the securities as held to maturity or available for sale? 3. Is there likely any company oversight of Hartman's classification of the securities? Explain.
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?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
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Term Structure of Interest Rates
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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