Question

Madison Corporation is authorized to issue $500,000 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:
1. The bonds to yield 12% $
2. The bonds to yield 10% $

Answer 1

Answer and Explanation:

The computation is shown below:

1.

Particulars             Amount          PV factor at 6% for 10 years         Present value

Semi-annual interest $27,500       7.360087       $202,402.39

                                ($500,000 × 11% ÷ 2)

Principal                   $500,000       0.558395       $279,197.50

Total                                                                        $481,599.89

2.

Particulars             Amount          PV factor at 5% for 10 years         Present value

Semi-annual interest $27,500        7.721735   $212,347.71

                                ($500,000 × 11% ÷ 2)

Principal                   $500,000        0.613913   $306,956.5

Total                                                                        $519,304.21