Problem
Lenny's Lawn Care needs to raise capital to finance opening a new location. He plans on issuing bonds in the amount of $1,000 with a stated interest rate of 4%. Interest is paid semi-annually and the bond's maturity is 5 years.
A. How much interest would a bond investor, who purchased one bond, receive at the end of the first interest period? Must show your calculation.
B. What would be the total amount of interest paid over the life of a single bond? Must show your calculation.
C. What is one advantage of financing through debt over financing through equity? Explain thoroughly.