6. Dryden Company borrowed money by issuing some 10-year bonds. When the bonds mature after ten...

6. Dryden Company borrowed money by issuing some 10-year bonds. When the bonds mature after ten years, Dryden will have to pay the maturity value, $10 million, to the bondholders. Dryden Company would like to pre-fund the $10 million by setting aside an equal annual amount at the end of each year for 10 years. If the funds set aside to pre-fund the $10 million can earn 4 percent annual interest, how much must Dryden Company set aside in an equal amount at the end of each year so that after 10 years it will have the money needed to pay-off the bondholders?

7. Juan was injured by a vehicle driven by a Rapid Transit delivery driver. To settle the claim for Juan’s injuries, Rapid Transit agreed to pay Juan eight annual payments of $25,000 with the first of these payments four years from today. Assuming a 5 percent annual interest rate, what is the present value of Juan’s settlement?

Solutions

Expert Solution

6. how much must Dryden Company set aside in an equal amount at the end of each year so that after 10 years it will have the money needed to pay-off the bondholders?

Equal Annual Savings to payoff bondholders = $832909.44

7. Assuming a 5 percent annual interest rate, what is the present value of Juan’s settlement?

Computation of present value of $25000 per year 4 years from today = $169659.33

Present value of settlement today = PV after 4 years / (1 + Interest)^Years

Present value of settlement today = 169659.33 / (1 + 0.05)^4

Present value of settlement today = 169659.33 / 1.2155

Present value of settlement today = $139579.15

jeff jeffy answered 1 year ago

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