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Question - On June 30, 2002, Mendenhal Company issued 12% bonds with a par value of $817,200 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2010. Because of lower interest rates and a significant change in the company's credit rating, it was decided to call the entire issue on June 30, 2011, and to issue new bonds. New 10% bonds were sold in the amount of $1,089,600 at 102; they mature in 20 years. Mendenhal Company uses straight-line amortization. Interest payment dates are December 31 and June 30.
(a) Prepare journal entries to record the retirement of the old issue and the sale of the new issue on June 30, 2011.
(b) Prepare the entry required on December 31, 2011, to record the payment of the first 6 months' interest and the amortization of premium on the bonds.
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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