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On January 1, 2019, Saints issued $4,500,000, 4% 5-year bonds dated January 1, 2019. The bonds pay interest semiannually on June 30 and December 31 . The bonds were issued to yield 6%. 2.0% | 3.0% 40% 6.0% 0.90573 0.86261 0.82193 0.74726 0.82035 0.74409 0.67556 0.55839 ent value of an ordinary annuity for 5 periods 4.71346 4.57971 4.45182 421236 Present value of a single sum for 5 periods Present value of a single sum for 10 periods 8.53020 8.11090 7.36009 Present value of an ordinary annuity for 10 periods 8.98259 Required: Determine the proceeds from the bond issue.

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Answer #1

Proceeds from bond issue= $ 4,116,123

Working

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at market rate of interest, and

Discounted Interest payments amount (during the lifetime) at market rate of interest.

Annual Rate

Applicable rate

Face Value

$   45,00,000.00

Market Rate

6.00%

3.00%

Term (in years)

5

Coupon Rate

4.00%

2.00%

Total no. of interest payments

10

Calculation of Issue price of Bond

Bond Face Value

Market Interest rate (applicable for period/term)

PV of

$ 45,00,000

at

3.00%

Interest rate for

10

term payments

PV of $1

0.74409

PV of

$ 45,00,000

=

$ 45,00,000

x

0.74409

=

$ 33,48,405

A

Interest payable per term

at

2%

on

$ 45,00,000

Interest payable per term

$       90,000

PVAF of 1$

for

3.0%

Interest rate for

10

term payments

PVAF of 1$

8.53020

PV of Interest payments

=

$         90,000.00

x

8.53020

=

$    7,67,718

B

Bond Value (A+B)

$ 41,16,123
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