Progressive Corporation (a property and casualty insurance company) reported the following in the debt footnote of the 2016 annual report. They account for their bonds using the amortized cost approach (which is the method we studied in class).

2016

2015

(millions)

Net Book Value

Fair Value

Net Book Value

Fair Value

3.75% Senior Notes due 2021

(face value: $500.0, issued: August 2011)

$

498.4

$528.8

$498.1

$528.7

2.45% Senior Notes due 2027

(face value: $500.0, issued: August 2016)

495.8

464.6

0

0

6 5/8% Senior Notes due 2029

(face value: $300.0, issued: March 1999)

295.9

380.1

295.7

376.0

6.25% Senior Notes due 2032

(face value: $400.0, issued: November 2002)

395.2

499.0

395.0

490.6

4.35% Senior Notes due 2044

(face value: $350.0, issued: April 2014)

346.4

362.3

346.4

352.8

3.70% Senior Notes due 2045

(face value: $400.0, issued: January 2015)

395.1

372.5

395.0

362.0

6.70% Fixed-to-Floating Rate Junior Subordinated

Debentures due 2067

(face value: $1,000.0, issued: June 2007;

outstanding: $594.6 and $614.4)

594.1

581.2

612.8

612.8

Other debt instruments

127.3

127.3

164.9

164.9

Total

$3,148.2

$3,315.8

$2,707.9

$2,887.8

Aggregate principal payments on debt outstanding at December 31, 2016, is as follows:

(in millions)

Year

Payments

2017

$25.0

2018

25.0

2019

11.3

2020

0.8

2021

500.0

Thereafter2,609.8 Total$3,171.9

Required:

a.What amount does Progressive report for long-term debt on its balance sheet at December 31, 2016?

b.How much of the principal of its long-term debt does Progressive expect to become due (to pay) in each of 2017, 2018, and 2019?

c.Why is there a difference between the fair value and the net book value of Progressive's long- term debt?

d.Assume that none of the 3.75% Senior Notes were issued or retired during 2015 or 2016. Were the 3.75% Senior Notes originally issued at par, at a discount or at a premium? How do you know?

e.What is the amount of the unamortized discount on the 6.25% Senior Notes as of December 31, 2016?

f.Assume that Progressive repurchased all its 6.25% Senior Notes using cash on January 1, 2017 at their fair value. Record the transaction. How is the income statement affected by this transaction? Is there any impact on the statement of cash flows (using the indirect method)?