E41 8 (Appendix 4A: Present value offuture bond paymentsordinary annuity and annuity due) Rudnicki Corporation raises money
Question:
E4—1 8 (Appendix 4A: Present value offuture bond payments—ordinary annuity and annuity due) Rudnicki Corporation raises money by issuing bonds. The bond agreement states that Rudnicki must make interest payments in the amount of $40,000 at the end of each year for ten years and make a $500,000 payment at the end of the tenth year. Assume that the discount rate is 10 percent. REQUIRED:
a. What amount, as a lump sum, would the company have to invest today to meet the $40,000 annual interest payments and the $500,000 principal payment at the end of the tenth year?
b. What amount would have to be invested if the bond agreement stated that the interest pay¬ ments were to be made at the beginning of each of the ten years and the $500,000 payment was still at the end of the tenth year?
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