Spiller Corp. plans to issue 12%, 9-year, $580,000 par value bonds payable that

Question

Spiller Corp. plans to issue 12%, 9-year, $580,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2013, 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 answers to nearest whole dollar.)

If the market rate of interest for the bonds is 10% on the date of issue, what will be the total cash proceeds from the bond issue?

Table values are based on:

N=

I=

Cash Flow                                                                        Table value Amount                                   present value

Present(maturity)

value Interest(annuity)

Total Cash proceeds

Explanation / Answer

Interest Income on due date = Bond value * 12%/2

=$580000 * 12%/2

= $34800

Calculation of cash proceeds:

When the interest payment are made semi annually then there are 3 adjustments which are required:

1. Divide the discounting factor by 2 i.e. 10%/2 = 5%

2. Divide the interest % by 2 i.e. 12%/2 = 6%

3. Multiply the duration of bonds by 2 i.e. 9 years * 2 = 18 Years

Particulars Amount Discounting Factor Present Value Interest payment semi annaully 34800 @5% for 18 years = 11.69 406812 Maturity value 580000 @5% at 18th year = 0.415 240700 Present value of cash proceeds 647512

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