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What is the market rate

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Problem - ABC corp. issued a 3 and a half year, 4%, $100,000 of par value bonds on January 1, 2016.

The 3-year treasury bond interest rate is 3.25%.

The 4-year treasury bond interest rate is 3%

Additional information: 3-year Interest rates for the following:

1 - AAA bonds. 3.75%

2 - AA bonds. 4%

3 - A bonds 4.25%

Additional information: 4-year Interest rates for the following:

1 - AAA bonds. 3.50%

2 - AA bonds. 3.55%

3 - A bonds 3.90%

ABC was rated as AAA last year but has since been downgrades to an A rated bond this year.

Question 1 - What is the market rate of the 3 1/2-year ABC bond? Explain and show all work and calculations.

Question 2 - Present the journal entry for the issuance of the bonds on January 1, 2016. Shown your work as to how the value of the bonds was calculated.

Reference no: EM132462303

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