On December 31, 2016, TNT Express, Inc., has $1,000,000 of 8 percent, 10-year bonds outstanding. These bonds were issued on January 1, 2010, at par value. Interest rates have dropped to 5 percent, and the president of the company is considering buying back the outstanding 8 percent bonds and issuing new 10-year bonds with an 5 percent interest rate.
1. How much money would TNT Express save in interest payments if new, 5 percent bonds were issued?
2. Under what circumstances would this action be advantageous for TNT Express?