Bond Redemption Decision Armstrong Areo Ace, a flight training school, issued $100,000 of 20-year bonds at face value when the market rate was 10%. The bonds have been outstanding for ten years. The company pays annual interest on January 1. The current rate for similar bonds is 4%. On January 1, the controller would like to purchase the bonds on the open market, retire the bonds, then issue $100,000 of ten-year bonds to pay 4% annual interest.

Required Draft a memo to the controller advising him to retire the outstanding bonds and issue new debt.

Ignore taxes. (Hint: Find the selling price of bonds that pay 10% when the market rate is 4%.)