Question

Madison Corporation is authorized to issue $600,000 of 6-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

	Principal			600,000
	Cash interest (600000*11%*1/2)			33000
1)	Where
	I =6%
	t=12 years
	Principal	*	PV of $1			=
	600,000	*	0.49697			=	298182
	interest	*	PV of ordinary annuity
	33,000	*	8.38384			=	276666.7
	Bonds issue price						574848.7
2)	Where
	i=5%
	t=12 years
	Principal	*	PV of $1			=
	600,000	*	0.55684			=	334104
	interest	*	PV of ordinary annuity
	33,000	*	8.86325			=	292487.3
	Bonds issue price						626591.3