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Untitled Document20 - is $19,000 $10,000 of principal at...

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Assume instead that Lighting Process, Inc. issued bonds with a coupon rate of  9% when the market rate was 10%. The bond purchaser would be willing to pay  only $9,377 because Lighting Process, Inc. will pay $450 in interest every six  months ($10,000 × 9% × 6 / 12 ), which is lower than the market rate of interest of  $500 every six months. The total cash paid to investors over the life of the bonds 
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Unformatted text preview: is $19,000, $10,000 of principal at maturity and $9,000 ($450 × 20 periods) in interest throughout the life of the bonds. Present Value of Bond Sold Below Market Interest Rate Cash Flows Present Value Factor Present Value Principal Payment $10,000 .3769 $3,769 Interest Payments 450 12.4622 5,608 Price of Bond $9,377...
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