Rudnicki Corporation raises money by issuing bonds. The bond agreement states that Rudnicki must make interest payments

Question:

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.

a. What amount, as a lump sum, would the company have to invest today to meet the $40,000 annual interest payment 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 payment 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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