Determining the Proceeds from Bond Issues Madison Corporation is authorized to i
ID: 2548624 • Letter: D
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%Explanation / Answer
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
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