Question

Gleason Enterprises issued 10%, 7-year, $2,730,000 par value bonds that pay interest semiannually on October 1 and April 1. The bonds are dated April 1, 2020, and are issued on that date. The discount rate of interest for such bonds on April 1, 2020, is 12%.

What cash proceeds did Gleason receive from issuance of the bonds? (Round answer to 0 decimal places, e.g. 125.)

Answer 1

Answer

• Gleason shall receive $ 2,476,245 (or $ 2,476,244) from issuance of Bond.
• Workings

--Concept

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and

Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor]

--Data

Face Value	$         2,730,000.00
Term (in years)	7
Total no. of interest payments	14

	Annual Rate	Applicable rate, because of Semi Annual payments
Market Rate	12.0%	6.0%
Coupon Rate	10.0%	5.0%

--Answer

	Amount	PV factor	Present Values
PV of Face Value of	$                    2,730,000.00	0.44230	$                 1,207,479.00
PV of Interest payments of	$                       136,500.00	9.29498	$                 1,268,764.77
Issue Price of Bonds			$                 2,476,243.77

Answer 2

note: use these to match up the 14 (N) 6% = PV factor

136,500= (.05*$2,730,000)

$2,476,243.77=[(2,730,000*0.44230)+(136,500*9.29498)]

Make sure you round to the nearest 0 decimal. 

Answer 3

Gleason ENTERPISES issued 12%/!

tried it out on this other ex. and it wroks