Klausenheimer Inc. just issued a $80 million bond. The bond has a coupon rate of 5% and a maturity of three years. The coupon is payable at the end of each year. The effective interest rate at the beginning of year 1 was 8%, beginning of year 2 was 5%, and beginning of year 3 was 2%. Make sure to show your calculations where applicable. a. Determine Klausenheimers proceeds from the bond issue. 80m 5% = 4m coupon pmt per yr 4/1.08 + 4/1.05^2 + 4/1.02^3 + 80/1.0243 3.70 + 3.63 +3.77 + 75.39 = 86.49m b. If Klausenheimer decided to use the amortized cost method to account for the bonds, then what would be the interest and bond amortization for each of the three years. (similar to Exhibit 3.1 in the textbook) Year EIR Am. Cost BOY A CF 4 4 Am. Cost EOY D = A + B + C 1 2 3 c. If Klausenheimer decided to use the fair value method to account for the bonds, then what would be the interest, unrealized gain/loss, and total expense for each of the three years. (similar to Exhibit 3.1 in the textbook) Year Am. Cost BOY EIR CF Am. Cost EOY 1 2 3 Unrealized gain/loss = d. Explain why there is a difference between the amounts charged to income every year under the two methods. They have different valuation methods, (b) = book value, (c) = fair market value