Question

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.)

Answer #1

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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