3. On January 1, 2019 Willows Corporation issued $20 million of 5% coupon, convertible bonds at 102. The bonds pay interest on June 30 and December 31st and mature in 10 years. Each $1,000 bond is convertible into 25 shares of Willows no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, were currently trading at 99. (that is, 99% of face value).

a. Prepare the journal entry to record the issuance of these bonds. (Assume Willows prepares its financial statements under US GAAP).

b. Solve for the effective interest rate on these bonds. (Hint: You know PV, Pmt, FV and N; you can solve for I). You can round this interest rate to 2 decimal places.