Question

12- Bond Premium and Discount: READ CAREFULLY

a) William, Inc. issued $500,000 of 10 years, 4% bonds at 102.
The cash proceed from the bond issue are ___________________.

b) Dean, Inc. issued $350,000 of 6 years, 5% bonds at 97.
The cash proceeds from the bond issue are ________________.

c) Daniel, Inc. issued $125,000 of 20 year, 6% bonds at 98.
The amount of the bond premium is _________________.

d) Steel, Inc. issued $800,000 of 5 years, 7% bonds at 101.
The amount of the bond premium is ___________________.

Answer 1

a. William, Inc. issued $500,000 of 10 years, 4% bonds at 102.
The cash proceed from the bond issue are $510000__.

b. Dean, Inc. issued $350,000 of 6 years, 5% bonds at 97.
The cash proceeds from the bond issue are $ 339500

c. Daniel, Inc. issued $125,000 of 20 year, 6% bonds at 98.
The amount of the bond premium is $ 0.

Bond is issued at discount not premium

d. Steel, Inc. issued $800,000 of 5 years, 7% bonds at 101.
The amount of the bond premium is $8000.

Working

		a	b	c	d
1	Face value total	$ 5,00,000.00	$ 3,50,000.00	$ 1,25,000.00	$ 8,00,000.00
2	Face value per bond	$            100.00	$            100.00	$            100.00	$            100.00
3=1/2	Number of Bond units	5,000	3,500	1,250	8,000
4	Issue price per bond	$            102.00	$              97.00	$              98.00	$            101.00
5=4 x 3	Bond issue value	$ 5,10,000.00	$ 3,39,500.00	$ 1,22,500.00	$ 8,08,000.00
6=1-5	Bond Discount (Premium)	$   (10,000.00)	$      10,500.00	$        2,500.00	$      (8,000.00)