**Problem Statement:**Suppose we have a bond issue currently outstanding that has 25 years left to maturity. The coupon rate is 9% and coupons are paid semiannually. The bond is currently selling for $908.72. If the firm's marginal tax rate is 20%, what's the firm's after-tax cost of debt?**Options:**- 8.0%- 9.0%- 10.0%- 11.0%**Analysis:**To find the firm's after-tax cost of debt, calculate the yield to maturity (YTM) first, then adjust for taxes. Here's how you can calculate it:1. **Yield to Maturity (YTM):** Use the bond pricing formula to find the YTM, considering: - Coupon Payment = (Coupon Rate/2) * Face Value (assuming Face Value is $1,000) - Number of Periods = Years to Maturity * 22. **After-Tax Cost of Debt Formula:** \[ \text{After-Tax Cost of Debt} = \text{YTM} \times (1 - \text{Tax Rate}) \]Once you compute the YTM and apply the tax adjustment, compare it with the provided options to find the correct answer.

Solution:-After tax cost of debt means the cost of debt after deducting tax rate from it.Bond price…

Suppose we have a bond issue currently outstanding that has 25 years left to maturity. The coupon rate is 9% and coupons are paid semiannually. The bond is currently selling for $908.72. If the firm's marginal tax rate is 20%. What's the firm's after-tax cost of debt? O 8.0% O 9.0% O 10.0% O 11.0%

Suppose we have a bond issue currently outstanding that has 25 years left to maturity. The coupon rate is 9% and coupons are paid semiannually. The bond is currently selling for $908.72. If the firm's marginal tax rate is 20%. What's the firm's after-tax cost of debt? O 8.0% O 9.0% O 10.0% O 11.0%

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

See similar textbooks

Similar questions

Many companies look to re-finance their outstanding debt when interest rates fall significantly. Javert Toy Company has $50.00 million in debt outstanding that pays an 8.75% APR coupon. The debt has an average maturity of 10.00 years. The firm can refinance at an annual rate of 5.25%. That is, investors want 5.25% today for bonds of similar risk and maturity. How much will Javert save on interest payments with this re-finance? You can assume that Javert will issue debt to cover the full price of repurchasing the old debt from part A. (answer in terms of millions, so 1,000,000 would be 1.00) Submit Answer format: Currency: Round to: 4 decimal places.
4. You bought a 10-year, 5% coupon bond for $1,000 and sold it 1 year later for $1,100. What is the rate of return on your investment if the bond pays interest annually? If your marginal tax rate is 30%, and 50% of capital gains are taxable, what is the after-tax rate of return on your bond investment?
If you buy municipal bond (tax free) that cost $1,000 and will pay a 4.7% coupon every year for the next 10 years (so the maturity date is in 10 years). At maturity the bond returns the original $1,000. If there is a 2.5% annual inflation, a) what real rate of return will you receive? b) How much real $ profit did you make from the bond?
The coupon rate on an issue of debt is 9%. The yield to maturity on this issue is 12%. The corporate tax rate is 33 %. What would be the approximate after-tax cost of debt for a new issue of bonds? Note: Round your answer to 2 decimal places.
Suppose your firm issues a €100,000,000 5-year bond with a coupon rate of 8% per annum (assume annual compounding). The bond will sell at face value to investors. The underwriting spread is an up-front fee of 2%. What is the actual cost of this debt? Please enter your answer as % -- e.g. if your answer is 2.34% type in 2.34.
Answer
You want to receive $5,000 per month in retirement. If you can earn 0.8% return per month and you expect to need the income for 28 years, how much do you need to have in your account at retirement? $582,032 $589,511 $596,123 $575,298 A firm has issued a bond. The bond has a 6% coupon, paid semiannually, a current maturity of 15 years, and sell for $1,273.8. The firm’s marginal tax rate is 21%. What’s the firm’s after-tax component cost of debt? 3.62% 2.86% 6.00% 12%
4. Suppose that the market rate of interest is 12 per cent on a government bond with a perpetuity payment, which is a coupon value (annual payment) of £6 per year indefinitely. The face value of the loan is £100. a) Define and calculate the price of the bond? Answers.. b) At what yield (or rate) will the loan be trading at par? Explain whether it is trading above or below par in a). Answers... c) Assume that the rate of interest is 'expected' to drop to 3 per cent, derive and calculate the rate of capital gain (or loss)? Answers . d) Derive and explain the expression for the number of bonds held representing the amount of money spent on bonds (B) with the corresponding mean rate of return (HR). Answers.. e) Imagine that W = £40,000, what is the amount spend on bonds, B', if the standard deviation (SD) of earnings (s) is equal to 0.10 with a 3,000,the SD of the total return on bonds, SR. What is the money holding, which is M*? Answers.. Find the mean return on bonds with u = 1. Answer..
Fixed Income Securities4. Today is t = 0. You have just bought a five-year zero-coupon Treasurybond with $100 face value. You paid $80.(a) What is the annually compounded yield to maturity on the bond?(b) Suppose that yields at all maturities decrease to 2% immediately after you havepurchased the bond. Calculate the annualized holding period return if you sellthe bond one year after you have purchased it, at t = 1.(c) What is the annually compounded yield to maturity on the bond at t = 1?
Only by excel please or else skip it
1) A corporate bond has a face value of $1000 with maturity date 10 years from today. The bond pays interest annually at a 7% per year based on the face value. If you want an annual rate of return of 10%/yr, how much are you willing to pay for the bond today?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS