A firm sold a 10-year bond issue 3 years ago. The bond has a 6.45% annual coupon and a $1,000 face value. If the current market price of the bond is $1,000 (the bond is selling for its face or par value) and the tax rate is 40%, what is the after-tax cost of debt? [Hint: Recall that the after- tax cost of debt = before-tax cost times (1- tax rate).] O 3.87% O 4.19% 4.95% 4.41% 4.78%
A firm sold a 10-year bond issue 3 years ago. The bond has a 6.45% annual coupon and a $1,000 face value. If the current market price of the bond is $1,000 (the bond is selling for its face or par value) and the tax rate is 40%, what is the after-tax cost of debt? [Hint: Recall that the after- tax cost of debt = before-tax cost times (1- tax rate).] O 3.87% O 4.19% 4.95% 4.41% 4.78%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![A firm sold a 10-year bond issue 3 years ago.
The bond has a 6.45% annual coupon and a
$1,000 face value. If the current market price of
the bond is $1,000 (the bond is selling for its face
or par value) and the tax rate is 40%, what is the
after-tax cost of debt? [Hint: Recall that the after-
tax cost of debt = before-tax cost times (1 - tax
%3D
rate).]
O 3.87%
O4.19%
4.95%
O4.41%
4.78%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F537cca7c-787a-475d-9aba-926e9a602de3%2F370d7cac-00f0-4ddc-9ccb-239a8be67c97%2Fycbychh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A firm sold a 10-year bond issue 3 years ago.
The bond has a 6.45% annual coupon and a
$1,000 face value. If the current market price of
the bond is $1,000 (the bond is selling for its face
or par value) and the tax rate is 40%, what is the
after-tax cost of debt? [Hint: Recall that the after-
tax cost of debt = before-tax cost times (1 - tax
%3D
rate).]
O 3.87%
O4.19%
4.95%
O4.41%
4.78%
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