Essay
Bond prices after issuance
Several years ago,Clear-Air Systems issued $100 million of 30-year,8% bonds payable at a small premium.Since the bonds were issued,Clear-Air's financial strength and credit rating have actually improved,but today the bonds are trading among investors at a price of 98.
(a)Explain the most probable reason why the market price of these bonds has declined,even though Clear-Air's credit rating has improved.
(b)How will the drop in the market value of these bonds be reported (if at all)in Clear-Air's income statements and balance sheets? Explain.
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