A 10 year corporate bond was just issued at par with a yield of 5% pa. The fixed coupon payments are semi-annual. The bond has a face value of $1,000.

One year later, just after the second coupon is paid, the yield of the bond increases to 5.65% pa.

Which of the following statements is NOT correct?

a.

After the second coupon is paid, the number of future coupons (T) will be 18.

b.

The value of the bond on the maturity date, just before the last coupon payment, will be $1,025

c.

After the second coupon is paid, the future coupon payments (C) will be $25.

d.

The value of the bond on the maturity date, just after the last coupon and face value payment, will be $0

e.

After the second coupon is paid, the bond will trade at a premium.

Grey Limited has just issued a 5-year bond with a face value of $1000 and a coupon rate of 7% p.a. The bond trades at a yield to maturity of 4.8% p.a. compounding semi-annually.

The companys ordinary shares are currently trading at $24. They just paid a dividend of $2.00 which is expected to grow at a constant rate of 4% p.a. forever.

The debt-to-equity ratio is 60%. The corporate tax rate is 30%

Assume a classical tax system. Express your answers below as a percentage, rounded after 2 decimals. E.g. if your answer is 0.058328, type 5.83%

Required:

A. Calculate the firms cost of equity. (2 marks)

B. Calculate the firms cost of debt and give your answer as an effective annual rate. (2 marks)

C. Calculate the firm's after-tax WACC as an effective annual rate. (2 marks)