Question

Spiller Corp. plans to issue 10%, 9-year, $460,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2016, and are issued on that date. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your "Table value" to 4 decimal places and final answers to nearest whole dollar.)

If the market rate of interest for the bonds is 8% on the date of issue, what will be the total cash proceeds from the bond issue?

Answer 1

Cash proceeds from the issuance of bonds is the present value of cash flow from bond.
Present value of coupon interest			$       2,91,164
Present value of Par value			$       2,27,056
Present value of cash flows			$       5,18,220
So, total cash proceeds from bond is			$       5,18,220
Working:
# 1	Semi annual coupon	=	Par Value * Semi annual coupon rate
		=	$       4,60,000	*	5%
		=	$           23,000
# 2	Present value of annuity of 1	=	(1-(1+i)^*n)/i		Where,
		=	(1-(1+0.04)^-18)/0.04		i	4%
		=	12.6593		n	18
# 3	Present value of 1	=	(1+i)^-n
		=	(1+0.04)^-18
		=	0.4936
# 4	Present value of coupon	=	Coupon payment * present value of annuity of 1
		=	$           23,000	*	12.6593
		=	$       2,91,164
# 5	Present value of par value	=	Par Value * Present value of 1
		=	$       4,60,000	*	0.4936
		=	$       2,27,056