Question

On January 1, 2019, Saints issued $4,500,000, 4% 5-year bonds dated January 1, 2019. The bonds pay interest semiannually on June 30 and December 31 . The bonds were issued to yield 6%. 2.0% | 3.0% 40% 6.0% 0.90573 0.86261 0.82193 0.74726 0.82035 0.74409 0.67556 0.55839 ent value of an ordinary annuity for 5 periods 4.71346 4.57971 4.45182 421236 Present value of a single sum for 5 periods Present value of a single sum for 10 periods 8.53020 8.11090 7.36009 Present value of an ordinary annuity for 10 periods 8.98259 Required: Determine the proceeds from the bond issue.

Answer 1

Proceeds from bond issue= $ 4,116,123

Working

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at market rate of interest, and

Discounted Interest payments amount (during the lifetime) at market rate of interest.

	Annual Rate	Applicable rate		Face Value	$   45,00,000.00
Market Rate	6.00%	3.00%		Term (in years)	5
Coupon Rate	4.00%	2.00%		Total no. of interest payments	10

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$ 45,00,000	at	3.00%	Interest rate for	10	term payments
PV of $1	0.74409
PV of	$ 45,00,000	=	$ 45,00,000	x	0.74409	=	$ 33,48,405	A
Interest payable per term	at	2%	on	$ 45,00,000
Interest payable per term	$       90,000
PVAF of 1$	for	3.0%	Interest rate for	10	term payments
PVAF of 1$	8.53020
PV of Interest payments	=	$         90,000.00	x	8.53020	=		$    7,67,718	B
				Bond Value (A+B)			$ 41,16,123