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Madison Corporation is authorized to issue $500,000 of 5-year bonds dated June 30, 2019, with a...

Madison Corporation is authorized to issue $500,000 of 5-year bonds dated June 30, 2019, with a stated rate of interest of 11%. Interest on the bonds is payable semiannually, and the bonds are sold on June 30, 2019.

Determine the proceeds that the company will receive if it sells the following?

What is The bonds to yield 10% ?????

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Answer #1

Face Value of Bonds = $500,000

Annual Coupon Rate = 11.00%
Semiannual Coupon Rate = 5.50%
Semiannual Coupon = 5.50% * $500,000
Semiannual Coupon = $27,500

Time to Maturity = 5 years
Semiannual Period = 10

Annual Interest Rate = 10.00%
Semiannual Interest Rate = 5.00%

Issue Value of Bonds = $27,500 * PVIFA(5.00%, 10) + $500,000 * PVIF(5.00%, 10)
Issue Value of Bonds = $27,500 * (1 - (1/1.05)^10) / 0.05 + $500,000 * (1/1.05)^10
Issue Value of Bonds = $27,500 * 7.72173 + $500,000 * 0.61391
Issue Value of Bonds = $519,303

Therefore, the company will receive a proceeds of $519,303 for the sale of bonds.

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