Question

Madison Corporation is authorized to issue $500,000 of 5-year bonds dated June 30, 2016, with a stated rate of interest of 11%. Interest on the bonds is payable semiannually, and the bonds are sold on June 30, 2016.

Required:
Determine the proceeds that the company will receive if it sells the following:
1. The bonds to yield 12% $
2. The bonds to yield 10% $

Answer 1

Answer and Explanation:

The computation is shown below:

1.

Particulars Amount PV factor at 6% for 10 years Present value

Semi-annual interest $27,500 7.360087 $202,402.39

($500,000 × 11% ÷ 2)

Principal $500,000 0.558395 $279,197.50

Total $481,599.89

2.

Particulars Amount PV factor at 5% for 10 years Present value

Semi-annual interest $27,500 7.721735 $212,347.71

($500,000 × 11% ÷ 2)

Principal $500,000 0.613913 $306,956.5

Total $519,304.21