Question

issues $40,000,000, 6%, 5-year bonds dated January 1, 2015. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?

Answer 1

Answer:

$41,750,412.79

Explanation:

To determine the proceeds from the bond issue we must determine the present value of the bonds and we can do that using an excel spreadsheet and the present value formula =PV(Rate,Nper,PMT,FV)

where:

• Nper = 5 x 2 = 10 (5 year bonds issued)
• Rate = 5% / 2 = 2.5% (semiannual payments)
• PMT = ($40,000,000 x 6%) / 2 = $1,200,000
•  FV = $40,000,000 (face value of bonds)
• PV = ?  

=PV(Rate,Nper,PMT,FV) =PV(2.5%,10,1200000,40000000) = $41,750,412.79