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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 2 years ago
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