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Determining the Proceeds from Bond Issues Madison Corporation is authorized to issue $800,000 of 5-year bonds...

Determining the Proceeds from Bond Issues

Madison Corporation is authorized to issue $800,000 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% $

Solutions

Expert Solution

1) In case of semi annual bond Par value= $800000 , Coupon payment= 800000*0.11/2= $44000, Years to maturity= 10
Yield=6%
Statement showing Fair price:
Particulars Time PVf @6% Amount PV
Cash Flows (Interest)              1.00                 0.9434       44,000.00                                          41,509.43
Cash Flows (Interest)              2.00                 0.8900       44,000.00                                          39,159.84
Cash Flows (Interest)              3.00                 0.8396       44,000.00                                          36,943.25
Cash Flows (Interest)              4.00                 0.7921       44,000.00                                          34,852.12
Cash Flows (Interest)              5.00                 0.7473       44,000.00                                          32,879.36
Cash Flows (Interest)              6.00                 0.7050       44,000.00                                          31,018.26
Cash Flows (Interest)              7.00                 0.6651       44,000.00                                          29,262.51
Cash Flows (Interest)              8.00                 0.6274       44,000.00                                          27,606.14
Cash Flows (Interest)              9.00                 0.5919       44,000.00                                          26,043.53
Cash Flows (Interest)            10.00                 0.5584       44,000.00                                          24,569.37
Cash flows (Maturity Amount)            10.00                 0.5584    8,00,000.00                                      4,46,720.00
Fair Price                                      7,70,563.83
Proceeds from bond issues is $77056.83
2) In case of semi annual bond Par value= $800000 , Coupon payment= 800000*0.11/2= $44000, Years to maturity= 10
Yield=5%
Statement showing Fair price:
Particulars Time PVf @5% Amount PV
Cash Flows (Interest)              1.00                 0.9524       44,000.00                                          41,904.76
Cash Flows (Interest)              2.00                 0.9070       44,000.00                                          39,909.30
Cash Flows (Interest)              3.00                 0.8638       44,000.00                                          38,008.85
Cash Flows (Interest)              4.00                 0.8227       44,000.00                                          36,198.91
Cash Flows (Interest)              5.00                 0.7835       44,000.00                                          34,475.15
Cash Flows (Interest)              6.00                 0.7462       44,000.00                                          32,833.48
Cash Flows (Interest)              7.00                 0.7107       44,000.00                                          31,269.98
Cash Flows (Interest)              8.00                 0.6768       44,000.00                                          29,780.93
Cash Flows (Interest)              9.00                 0.6446       44,000.00                                          28,362.79
Cash Flows (Interest)            10.00                 0.6139       44,000.00                                          27,012.18
Cash flows (Maturity Amount)            10.00                 0.6139    8,00,000.00                                      4,91,120.00
Fair Price                                      8,30,876.34
Proceeds from bond issues is $830876.34

ekkarill92 answered 1 year ago
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