For each situation, determine the cash proceeds from the bond sale and determine

Question

For each situation, determine the cash proceeds from the bond sale and determine the discount or the premium on the date of issue

Bond info

Sales Proceeds

Amount of discount

Amount of Premium

Example: $100,000 of 10%, 5 year bond issued for $93,000

93,000

7,000

0

$50,000 of 15%, 3 year bond issued for $55,000

$75,000 of 5%, 7 year bond issued for $75,000

$10,000,000 of 6%, 20 year bond issued for 98

5,000,000 of 6%, 20 year bond issued at par

$10,000 of 4%, 15 year bond issued for 100

$10,000,000 of 12%, 30 year bond issued for 104

Bond info

Sales Proceeds

Amount of discount

Amount of Premium

Example: $100,000 of 10%, 5 year bond issued for $93,000

93,000

7,000

0

$50,000 of 15%, 3 year bond issued for $55,000

$75,000 of 5%, 7 year bond issued for $75,000

$10,000,000 of 6%, 20 year bond issued for 98

5,000,000 of 6%, 20 year bond issued at par

$10,000 of 4%, 15 year bond issued for 100

$10,000,000 of 12%, 30 year bond issued for 104

Explanation / Answer

Note: for bonds issued at par and at $100 (assuming $100 is the par value of bond as there is no other information), there will be no discount or premium and the issue price will be equal to the face value of the bond

For bonds issued at premium, issue price will be greater than the face value of the bond and for bonds issued at discount issue price will be less than the face value of the bond

Bond Info Sale proceeds Amount of discount Amount of premium $100,000 of 10%, 5 year bond issued for $93,000 $         93,000 $       7,000 $              -   $50,000 of 15%, 3 year bond issued for $55,000 $         55,000 $              -   (55000-50000) $       5,000 $75,000 of 5%, 7 year bond issued for $75,000 $         75,000 $              -   $              -   $10,000,000 of 6%, 20 year bond issued for 98 [10000000*(98/100)] $   98,00,000 [10000000-9800000] $ 2,00,000 $              -   5,000,000 of 6%, 20 year bond issued at par $   50,00,000 $              -   $              -   $10,000 of 4%, 15 year bond issued for 100 $         10,000 $              -   $              -   $10,000,000 of 12%, 30 year bond issued for 104 [10000000*(104/100)] $ 104,00,000 $              -   [10400000-10000000] $ 4,00,000

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