ZERO COUPON BONDS A company has just issued 4-year zero coupon bonds with a maturity value of $1,000 and a yield to maturity of 9%. Its tax rate is 40%. What is its after-tax cost of debt? If an investor in the 35% tax bracket purchases the bond, What is the investor’s after-tax return?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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ZERO COUPON BONDS A company has just issued 4-year zero coupon bonds with a maturity value of $1,000 and a yield to maturity of 9%. Its tax rate is 40%. What is its after-tax cost of debt? If an investor in the 35% tax bracket purchases the bond, What is the investor’s after-tax return?
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