Question

Determining the Proceeds from Bond Issues

Madison Corporation is authorized to issue $620,000 of 5-year bonds dated June 30, 2016, with a stated rate of interest of 11%. Interest on the bonds is payable semiannually, and the bonds are sold on June 30, 2016.

Required:

Determine the proceeds that the company will receive if it sells the following: (Click here to access the tables to use with this exercise and round your answers to two decimal places, if necessary.)

1. The bonds to yield 12%	$
2. The bonds to yield 10%

Answer 1

1. Proceeds from the Bond at 12% Yield

Coupen rate = 5.50%

Discount Rate = 6%

Period = 10 Years

Coupen Amount = $ 620000 x 5.50% = $ 34100

Redemption Value = $ 620000

Proceeds from Bond = $ 34100(PVAF 6%, 10 Years ) + $ 620000(PVF 6%, 10 Years)

                                    = ( $ 34100 x 7.3600 ) + ( $ 620000 x 0.5584 )

                                    = $ 5,97,184

2.Proceeds from the Bond at 10% Yield

Coupen rate = 5.50%

Discount Rate = 5%

Period = 10 Years

Coupen Amount = $ 620000 x 5.50% = $ 34100

Redemption Value = $ 620000

Proceeds from Bond = $ 34100(PVAF 5%, 10 Years ) + $ 620000(PVF 5%, 10 Years)

                                    = ( $ 34100 x 7.7217 ) + ( $ 620000 x 0.6139 )

                                    = $ 6,43,928