Zx issues a fixed-rate loan for 500,000 and incurs issue costs of 20,000, resulting in an initial carrying value of 480,000. The loan carries an…

Zx issues a fixed-rate loan for 500,000 and incurs issue costs of 20,000, resulting in an initial carrying value of 480,000. The loan carries an interest rate of 8% per annum, and it is repayable at par at the end of year 10. However, under the contract, Zx can call the loan at any time after year 4 by paying a fixed premium of 30,000. The fair value of the option is 10,000 at inception. The effective interest rate amounts to 8.30213%. Required: (ii) Explain the accounting of the loan when (b) At the end of year 3, interest rates have fallen, and the option's fair value increases to 9,000.