Question

# Kirby, Inc., is considering the sale of two bond issues. Choice A is a \$800,000 bond...

Kirby, Inc., is considering the sale of two bond issues. Choice A is a \$800,000 bond issue that pays semiannual interest of \$64,000 and is due in 20 years. Choice B is a \$800,000 bond issue that pays semiannual interest of \$60,000 and is due in 15 years. Assume that the market interest rate for each bond is 8 percent. Calculate the amount that Kirby will receive if both bond issues are made. (Hint: Calculate the present value of each bond issue and sum.)

1. Amount that Kirby received from Choice A

Amount that Kirby received from Choice A = Interest * PVAF(4%, 40) + Redemption * PVF (4%,40)

Amount that Kirby received from Choice A = 64000 * 19.7928 + 800000 * 0.2083

Amount that Kirby received from Choice A = \$1433368.76

2. Amount that Kirby received from Choice B

Amount that Kirby received from Choice B = Interest * PVAF(4%, 30) + Redemption * PVF (4%,30)

Amount that Kirby received from Choice B = 60000 * 17.2920 + 800000 * 0.3083

Amount that Kirby received from Choice B = \$1284176.93

Amount that Kirby will receive if both bond issues are made = \$2717545.70

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