8. On January 2, 2009, Reese Company issued 20-year, $8,000,000 bonds at par with interest paid annually on December 31 at LIBOR. Reese also enters into an annual interest rate swap: Reese will pay a 2% fixed rate on $5,000,000 and receive LIBOR on the same $5,000,000 notional amount on December 31 each year for the next five years. Assume LIBOR applicable for the annual interest period ending 12/31/10 is 1.8%. a. (5%) What is Reese’stotal interest expense for 2010? b. (3%) Circle one:
9. On January 7, 2014, Abner Co. signs a futures contract to buy 100 bushels of soybeans at a contract price of $11.00 per bushel (the market price at signing) by December 31, 2016. The futures contract is worth $0 at signing. Date Market Price of Soybeans December 31, 2014 $ 9.50 per bushel December 31, 2015 $12.00 per bushel December 31, 2016 $11.50 per bushel Circle one for each: a. (3%) If Abner treats the futures as speculative, then what is the effect of the change in the value of the futures on net income for 2014?
b. (3%) If Abner treats the futures as part of a cash flow hedge of raw materials costs for products to be sold in 2017, then what is the effect of the change in the value of the futures on net income for 2015?