Spiller Corp. plans to issue 6%, 9-year, $550,000 par value bonds payable that pay interest semiannually...

Spiller Corp. plans to issue 6%, 9-year, $550,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2019, and are issued on that date. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your "Table value" to 4 decimal places and final answers to nearest whole dollar.)

If the market rate of interest for the bonds is 4% on the date of issue, what will be the total cash proceeds from the bond issue?

Solutions

Expert Solution

Correct answer-------------Total cash proceeds from the bond issue = $632,478

Working

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at market rate of interest, and

Discounted Interest payments amount (during the lifetime) at market rate of interest.

	Annual Rate	Applicable rate	Face Value	$ 550,000
Market Rate	4%	2.00%	Term (in years)	9
Coupon Rate	6%	3.00%	Total no. of interest payments	18

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$ 550,000	at	2.00%	Interest rate for	18	term payments
PV of $1	0.7002
PV of	$ 550,000	=	$ 550,000	x	0.7002	=	$ 385,110	A

Interest payable per term	at	3.00%	on	$ 550,000
Interest payable per term	$ 16,500

PVAF of 1$	for	2.00%	Interest rate for	18	term payments
PVAF of 1$	14.9920
PV of Interest payments	=	$ 16,500	x	14.9920	=		$ 247,368	B

				Bond Value (A+B)			$ 632,478

ekkarill92 answered 1 year ago

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