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David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security: Sony Bond Par value $1000
David 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 5.5% | Corporate tax rate 25% |
Cost $930 | 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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