Question

Determining the Proceeds from Bond Issues

Madison Corporation is authorized to issue $820,000 of 7-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.The proceeds that the company will receive if The yield 12% = $7,81,890.57

Present Value of Bond = $8,20,000(PVF 6%,14 Years) + $45,100(PVAF 6%, 14 Years)

= ($8,20,000 x 0.4423) + ( $45,100 x 9.2950)

Value of Bond = $7,81,890.57        

2.The proceeds that the company will receive if The yield 10% = $8,60,584.43

Present Value of Bond = $8,20,000(PVF 5%,14 Years) + $45,100(PVAF 5%, 14 Years)

= ($8,20,000 x 0.505068) + ( $45,100 x 9.89864094)

Value of Bond = $8,60,584.43