Octopus Transit has a $$1,000$ par value bond outstanding with $20$ years to maturity. The bond carries an annual interest payment of

$$90,$ payable semiannually, and is currently selling for $$1,098.$ Octopus is in a $20$ percent tax bracket. The firm wishes to know what

the aftertax cost of a new bond issue is likely to be$.$ The yield to maturity on the new issue will be the same as the yield to maturity on

the old issue because the risk and maturity date will be similar.

a$.$ Compute the yield to maturity on the old issue and use this as the yield for the new issue. $($Do not round intermediate calculations.

Round the final answer to $2$ decimal places.$)$

Yield on new issue

$\%$

b$.$ Make the appropriate tax adjustment to determine the aftertax cost of debt. $($Do not round intermediate calculations. Round the

final answer to $3$ decimal places.$)$

Cost of debt