Question 1

Mel Meyers International Inc. has a series of $1,000 par value bonds outstanding. Each bond pays interest quarterly and carries a coupon rate of 8%. Some bonds are due in 6 years while others are due in 10 years.

Required:

1. If the required rate of return on bonds is 10%, what is the current price of the bonds with 6 years to maturity?
2. If the required rate of return on bonds is 4%, what is the current price of the bonds with 10 years to maturity?
3. Briefly but concisely explain the results of your calculations in part (A) and (B) above.

Question 2

What options do small businesses have for raising capital? How does small business cost of capital compare to the cost of capital for a large business? Briefly and concisely explain.