Company issues $4,000,000, 6%, 5-year bonds dated January 1, 2017 on January 1,

Question

Company issues $4,000,000, 6%, 5-year bonds dated January 1, 2017 on January 1, 2017. 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?

2.5%

3.0%

5.0%

6.0%

Present value of a single sum for 5 periods

.88385

.86261

.78353

.74726

Present value of a single sum for 10 periods

.78120

.74409

.61391

.55839

Present value of an annuity for 5 periods

4.64583

4.57971

4.32948

4.21236

Present value of an annuity for 10 periods

8.75206

8.53020

7.72173

7.36009

2.5%

3.0%

5.0%

6.0%

Present value of a single sum for 5 periods

.88385

.86261

.78353

.74726

Present value of a single sum for 10 periods

.78120

.74409

.61391

.55839

Present value of an annuity for 5 periods

4.64583

4.57971

4.32948

4.21236

Present value of an annuity for 10 periods

8.75206

8.53020

7.72173

7.36009

Explanation / Answer

semiannual interest = 4000000*.06*6/12= 120,000

Years to maturity = 5*2 = 10 semiannual months

Semiannual yield = 5 *6/12 = 2.5%

Proceeds = (INterest * PVAF@2.5%,10) +( Face value * PVF@2.5%,10)

                = (120000 * 8.75206 ) +(4,000,000 * .78120)

                 = 1050247.2+ 3124800

                 = $ 4,175,047.20

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