Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Company B had issued 10-year bonds a year ago at the coupon rate 5%. The bond makes annual payments. The yield to maturity (YTM)
Company B had issued 10-year bonds a year ago at the coupon rate 5%. The bond makes annual payments. The yield to maturity (YTM) of these bonds is 4%. The face value of the bond is $1000. a. Calculate the current bond price. b. Is this a discount or a premium bond? Discuss. c. Company B has a second debt issue on the market, a zero coupon bond with 5 years left to maturity. These bonds currently sell for $750. What is the YTM of these zero coupon bonds? d. If the market value of the 10-year bonds is $30 million and the market value of the zero coupon bond is $45 million (these are the two bonds outstanding for the Company B) what is the after tax cost of debt of Company B? The tax rate is 30%.
Step by Step Solution
★★★★★
3.41 Rating (157 Votes )
There are 3 Steps involved in it
Step: 1
a To calculate the current bond price we need to find the present value of all the future cash flows from the bond The bond has a face value of 1000 a...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started