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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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    https://brainmass.com/business/bond-valuation/advantages-disadvantages-debt-financing-255188

    Solution Preview

    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 ...

    Solution Summary

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

    $2.19

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