181. Fully amortizing installment notes When Sue Meadow purchased a home, she signed a $150,000, 12%, fully amortizing mortgage note, payable at $1,543 per month. After making the first monthly...

181. Fully amortizing installment notes

When Sue Meadow purchased a home, she signed a $150,000, 12%, fully amortizing mortgage note, payable at $1,543 per month. After making the first monthly payment, Meadow received a notice from the bank stating that $1,500 of the payment had applied to interest, and only $43 reduced the principal amount of the loan. Meadow does not understand how this loan is fully amortizing over a period of 30 years. She computes that at $43 per month, it will take approximately 3,488 months (or 290 years) to repay this loan. Evaluate Meadow's analysis.

182. Bond prices after issuance
Several years ago, Clear-Air Systems issued $100 million of 30-year, 8% bonds payable at a small premium. Since the bonds were issued, Clear-Air's financial strength and credit rating have actually improved, but today the bonds are trading among investors at a price of 98.
(a) Explain the most probable reason why the market price of these bonds has declined, even though Clear-Air‘s credit rating has improved.
(b) How will the drop in the market value of these bonds be reported (if at all) in Clear-Air's income statements and balance sheets? Explain.