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Submitted By biswarupr2014
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Lyons Document Storage Corporation Case Analysis

1. Before maturity, a bond may be selling at the face value or at a price greater or lesser than the face value.The terms “premium” and “discount” refer to the difference that exists from the face value of the bond. Bonds selling at a price greater than the face value are said to be at a premium and the bonds selling at a price lesser than the face value are said to be at a discount.
Premium or discount occurs when nominal interest rate(or coupon rate) of the bond differs from the current market rate of interest demanded by lenders.Regardless of the required yield, the bond price will reach face value as its approaches the maturity date.

The bond with a face value of $1000 is issued at a discount price of $907.992

* The amount received by Lyons from its 8% bonds if the rate prevailing at the time of original issue was 9 % is
=$ $907.992*10,000
=9,079,920.78
Present Value of $1 | | At 8% | Discounted value of the bond at the time of issue
At 9% | Received Semiannually for 20 years | 19.79277 | 18.40158 | Received at the end of 20 years | 0.208289 | 0.171929 | P.V. of Coupon Earned | 791.711 | 736.0634 | P.V. of Redemption Value | 208.289 | 171.9287 | Total | | 1000 | 907.9921 |

* The recomputed amount in the balance sheet in December,2006 and December,2007 are $9,258,589.55 and $9,292,611.26.

* The current value of the bonds outstanding at the current effective rate of 6% is = $1,154.15*10,000
= $11,541,502.41 Present Value of $1 | | Premium price of the bond reflecting the 6% bond market yield
At 6% | Received Semiannually for 10.5 years | 15.41502 | Received at the end of 10.5 years | 0.537549 | P.V. of Coupon Earned | 616.601 | P.V. of Redemption Value | 537.5493 | Total | | 1154.15 |

2. a. Effect on Cash flows
The current

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