Question

Spiller Corp. plans to issue 10%, 15-year, $500,000 par value bonds payable that pay interest semiannu- ally on June 30 and December 31. The bonds are dated December 31, 2019, and are issued on that date. If the market rate of interest for the bonds is 8% on the date of issue, what will be the total cash proceeds from the bond issue?

Please give the steps to solve these problems using the Texas Instrument BA II Plus financial calculator.

Answer 1

The calculation of semi-annual interest payment is given below: Coupon rate Half year interest payment = Face value x = $500,000x 0.10 = $25,000 The present value of bond will be the total cash proceeds. The formula to calculate present value of bond is given below: 1-(1+i) Present value of bond = Coupon payment x Px – +- Px{(1+i); -1 Face value (1+i)" Here, Pis number of payment per year,

iis interest rate, n is number of years. Substitute $25,000 for coupon payment, 2 for P, 0.08 for i, $500,000 for face value and 15 forn in the above formula, 1-(1+0.08 $500,000 Present value of bond = $25,000 x 2 x - +- 2x{(1+0.08)7 – 1 (1+0.0 1-0.31524 = $50,000 x( -0.313241+$157, 620.8525 (0.07846 = $50,000 Ⓡ8.72737 +$157,620.8525 = $436,368.7468+$157,620.8525 = $593,989.60 Thus, total proceeds will be $593,989.60.