Question

Downing Company issues $4,000,000, 6%, 5-year bonds dated January 1, 2014 on January 1, 2014. 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?

1) $4,000,000
2) $4,173,847
3) $4,175,047
4) $4,173,195

Answer 1

The proceeds from the bond issue can be calculated using the present value formula. The correct answer is $4,173,195 (Option 4). The bond has a 6% interest rate and pays interest semiannually. To calculate the bond's present value, we discount the future cash flows using the yield rate.

Step-by-step explanation:

The proceeds from the bond issue can be calculated using the present value formula. In this case, the bond is issued for $4,000,000 and the yield is 5%. The bond has a 6% interest rate and pays interest semiannually. To calculate the bond's present value, we discount the future cash flows using the yield rate. The proceeds from the bond issue will be the sum of the present value of all the future cash flows. The formula to calculate the present value is: Present Value = Cash Flow / (1 + Yield/2)^(Number of Periods).

Using this formula, we can calculate the present value of each payment and then sum them up to find the total proceeds from the bond issue. The bond has a 6% interest rate and pays interest semiannually. To calculate the bond's present value, we discount the future cash flows using the yield rate. The proceeds from the bond issue will be the sum of the present value of all the future cash flows. The formula to calculate the present value is: Present Value = Cash Flow / (1 + Yield/2)^(Number of Periods). I have done the calculations, and the correct answer is $4,173,195 (Option 4).