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Before-tax cost of debt and after-tax cost of debt Personal Finance Problem David Abbot is interested in purchasing a bond issued by Sony. He has
Before-tax cost of debt and after-tax cost of debtPersonal Finance ProblemDavid Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security:
Sony Bond | ||
Par value $1000 | Coupon interest rate 5.55.% | Corporate tax rate 20% |
Cost $910 | Years to maturity 10 |
Answer the following questions:
a.Calculate the before-tax cost of the Sony bond using the bond's yield to maturity (YTM).
b.Calculate the after-tax cost of the Sony bond given the corporate tax rate.
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