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Question - On June 30, 2020 Model Corp purchased 6%, $100,000 10 year bonds. Interest is paid annually on Dec 31. Model uses the amortized cost model and the effective interest method for amortizing any premium or discount. The current market rate was 7% and as a result Model paid $93,290 for the bonds. On December 31, 2020 the bonds have a market value of $90,000. The bonds had a market value of $93,000 on December 31, 2021.
Assuming the company uses amortized cost to account for the investment, record the purchase of the bonds and the entries for 2020 and 2021.
More Emphasis on this. Assume the company does not intend to hold the bonds to maturity and therefore uses FV-NI to account for the bonds record the year end adjustment for 2020 and 2021. (Just fair value adjustments using work as needed from above).
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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