Question

On January 1, 20x1, Sun Devil Corporation issued $4,000,000 in 10.5%, 10-year bonds at 105. Interest is to be paid semi-annually each June 30th and December 31st. How much cash proceeds were received by Sun Devil when the bonds were issued on January 1, 20x1

Answer 1

d. $4,200,000

Step-by-step explanation:

Options "$4,000,000 b.$4,420,000 $4,160,000 d. $4,200,000"

Face value of the bond = $4,000,000

Coupon rate = 10.5%

Life = 10 years

Issued at 105

Interest are paid semi annually

The requirement is "how much cash proceeds were received by Sun Devil when the bonds were issued on January 1, 20x1"

Bond issued at 105 means [100 = Par}, [5 = Premium]

So, the bond issue value = Face value + Premium value

Bond issue value = $4,000,000 + $4,000,000*1.05

Bond issue value = $4,000,000 + $200,000

Bond issue value = $4,200,000