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Advantages or disadvantages of using debt as a form of financing

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1. Gray House is issuing bonds paying $110 annually that will mature ten years from today. The bond is currently selling for $970. The face value of the bonds is $1,000
Calculate:
- a) Coupon Rate
- b) Current Yield
- c) Yield To Maturity

2. What are the advantages and disadvantages of using debt as a form of financing? Please state two advantages and two disadvantages.

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Solution Summary

The advantages and disadvantages of using debt as a form of financing is determined.

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1 a) Coupon rate = Annual payments / face value = 110/1000=11%
b) Current yield = Annual payments / current price = 110/970=11.34%
c) YTM
Current Price =Annual Payments*PVIFA(YTM,10 Years)+ face value *PVIF(YTM, 10 years)
970=110*PVIFA(YTM,10 years)+1000*PVIF(YTM,10 Years)
Look at the values in table for 10 years and solve ...

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