Question

1.Scott's financial planning firm issued a bond with a coupon rate of 10% and a current yield of 11%. The yield to maturity on this bond is 14%. Find the market price of this bond if it pays interest semi-annually and has 10 years to mature?

2.The bond market is considerably larger than the stock market. In your opinion, why is this? Why do companies choose to finance their projects with debt so often?

3.Which database is most useful for evaluating the financial wellbeing of a small company?explain it

Answer 1

As per policy, only one question is allowed to answer, so answering question 1 :

1)

Please note that when the interest payment is semi-annually, the interest rates got half and period got double.

Market price of the bond (having par value of $1000) at the time of issue = coupon * PVIFA(Yield rate , years to maturity) + Par value * PVIF(Yield rate , years to maturity)

= [1000 * (10/2)%] * PVIFA[(11/2)% , (10*2)] + $1000 * PVIF[(11/2)% , (10*2)]

= 50 * 11.9504 + 1000 * 0.3427

= $940.22