Question

1. Sleet Company has proposed a bond offering of $5,000,000 at a contract rate of interest of 6% and interest payments to be paid semi-annually. The question is if the market rate is 10% then what would be the cash proceeds for this 12-year bond assuming all bonds were sold at auction?

2. Another question is what would be the amount of interest charged to Sleet Company during the first year the bonds were outstanding?

3. What is the total amount of interest paid during the entire life of the bonds?

Answer 1

Table values are based on:
n=	24
i=	5.0%
Cash Flow	Table Value	Amount	Present Value
Interest	13.79864	$1,50,000	$20,69,796
Principal	0.31007	$50,00,000	$15,50,350
Price of Bonds(Cash Proceedings)			$36,20,146
Date	Interest Payment($5,000,000*3%)	Interest expenses(Bond carrying amount*12%)	Discount amorrtization	Bond carrying amount
Col I	Col II	Col III	Col IV(Col III - Col II)	Col V
Issue date				36,20,146
Interest 1	1,50,000	1,81,007	31,007	36,51,153
Interest 2	1,50,000	1,82,558	32,558	36,83,711
	Bond Interest expenses for Year 1 =$181,007 + $182,558 =$363,565
	Total Interest paid for entire lofe of Bonds =$150,000*24 =$3,600,000