Problem 2 On January 1, 2020, Peter Venkman Company purchases $250,000 of 3% coupon rate bonds at a
price of 98.75. The bonds pay interest on June 30 and December 31 each year and mature on
December 31, 2023. On December 31, 2020, the bonds have a price of 96.0. Financial statements
are generated on December 31st of each year. Also, accumulated other comprehensive income at
January 1, 2020 = 0.
Part 1
Compute the annual market (effective) interest rate on January 1, 2020. State your response as a
percentage, round answers to four decimals after the decimal point, and show your inputs (N,
I/Y, PMT, FV) on the calculator.
N = PV = PMT = FV =
Annual Market (Effective) Interest Rate:
Part 2a
Assume that the company intends to hold the debt investments to maturity. Determine the
amounts (if applicable) that should be reported for Debt Investments, Net, Interest Revenue,
Unrealized Gain/Loss (NI), and Unrealized Gain/Loss (OCI) for the December 31, 2020
financial statements. Please be clear about distinguishing between gains and losses. Round to the
nearest $1.
 Debt Investments, Net:
 Interest Revenue:
 Unrealized Gain/Loss (NI):
 Unrealized Gain/Loss (OCI):
Part 2b
Now assume that the company intends to trade the debt investments regularly. Determine the
amounts (if applicable) that should be reported for Debt Investments, Net, Interest Revenue,
Unrealized Gain/Loss (NI), and Unrealized Gain/Loss (OCI) for the December 31, 2020
financial statements. Please be clear about distinguishing between gains and losses. Round to the
nearest $1.
 Debt Investments, Net:
 Interest Revenue:
 Unrealized Gain/Loss (NI):
 Unrealized