Untitled Document21

Untitled Document21 - Inc receives a premium(more cash than...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
If instead, Lighting Process, Inc. issued its $10,000 bonds with a coupon rate of  12% when the market rate was 10%, the purchasers would be willing to pay  $11,246. Semi-annual interest payments of $600 are calculated using the coupon  interest rate of 12% ($10,000 × 12% × 6 / 12 ). The total cash paid to investors over  the life of the bonds is $22,000, $10,000 of principal at maturity and $12,000  ($600 × 20 periods) in interest throughout the life of the bonds. Lighting Process, 
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Inc. receives a premium (more cash than the principal amount) from the purchasers. The purchasers are willing to pay more for the bonds because the purchasers will receive interest payments of $600 when the market interest payment on the bonds was only $500. Present Value of Bond Sold Above Market Interest Rate Cash Flows Present Value Factor Present Value Principal Payment $10,000 .3769 $3,769 Interest Payments 600 12.4622 7,477 Price of Bond $ 11,246...
View Full Document

This note was uploaded on 12/25/2011 for the course FIN 3312 taught by Professor Staff during the Spring '08 term at Texas State.

Ask a homework question - tutors are online