why are the interest rates on the convertible notes so much lower than those on lowe 566598

Interpreting disclosures of long term debt. Presents excerpts from the notes to the financial statements of Lowe’s.

a. The amounts shown for Debentures, Notes, and the Medium Term Notes appear as the same amounts on February 3, 2006, and February 2, 2007. What is the likely interpretation for the identical reported amounts at the beginning and end of the year?

b. The Senior Notes comprise two debt issues on February 3, 2006, and an additional two debt issues on February 2, 2007. Indicate the amounts in each of the following cells.

c. The amount on the balance sheet for Senior Notes on February 2, 2007, of $1,980 million slightly exceeds the total issue price of the four Senior Notes of $1,979 million (_ $988 _ $991). Why do the amounts differ and why is the difference so small?

d. Why are the interest rates on the convertible notes so much lower than those on Lowe’s other debt?

e. Refer to Note 7 on Financial Instruments. Is the weighted average historical market interest rate on long term debt higher or lower than the weighted average current market interest rate on February 3, 2006, and February 2, 2007? Explain.

f. Assume that Lowe’s had elected the fair value option of FASB Statement No. 159 on February 2, 2006, and February 2, 2007. Compute the amount that Lowe’s would include in net income before taxes for the fiscal year ending February 2, 2007, related to long term debt.