You are the financial planner for Johnson Controls. Assume last year’s profits were $760,000. The board of directors decided to forgo dividends to stockholders and retire high-interest outstanding bonds that were issued 5 years ago at a face value of $1,420,000. You have been asked to invest the profits in a bank. The board must know how much money you will need from the profits earned to retire the bonds in 10 years. Bank A pays 6% compounded quarterly, and Bank B pays 7% compounded annually.
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To retire the bonds in 10 years, you will need to invest $1,420,000 in Bank A and $1,521,945 in Bank B.
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