Selected information for Morgan Inc for a recent fiscal year year ending is presented below dollar amounts in millions:
Note Maturity Date Reported Book Value, Reported Book Value, Stated Interest Rate Effective Interest Rate
@ date notes were issued
October
May
December
Required:
Are the October notes issued at par, at a discount, or at a premium? Why?
Are the May notes recorded at a discount or a premium? Why?
a Are the December notes recorded at a discount or a premium? Why? b What explains the decrease in the notes from the beginning to the end of the fiscal year?
Assume that Moody's reports that the October notes were originally rated as Aaa. a If Moody's lowers the rating to Aawhich signals an increase in risk what is the effect on the effective interest rate? Would it be higher, lower or the same? b If the notes had been secured by collateral, would the effective interest rate have been higher, lower, or the same?
