You are analyzing the after-tax cost of debt for a firm. You know that the firm’s...

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You are analyzing the after-tax cost of debt for a firm. Youknow that the firm’s 12-year maturity, 9.00 percent semiannualcoupon bonds are selling at a price of $898.98. These bonds are theonly debt outstanding for the firm. What is the current YTM of thebonds? (Round final answer to 2 decimal places, e.g. 15.25%.) YTM %LINK TO TEXT What is the after-tax cost of debt for this firm if ithas a marginal tax rate of 34 percent? (Round intermediatecalculations to 4 decimal places, e.g. 1.2514 and final answer to 2decimal places, e.g. 15.25%.) After-tax cost of debt % LINK TO TEXTWhat is the current YTM of the bonds and after-tax cost of debt forthis firm if the bonds are selling at par? (Round intermediatecalculations to 4 decimal places, e.g. 1.2514 and final answers to2 decimal places, e.g. 15.25%.) YTM % After-tax cost of debt %Click if you would like to Show Work for this question: Open ShowWork LINK TO TEXT

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4.2 Ratings (724 Votes)

K = Nx2

Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2

k=1

K =12x2

898.98 =? [(9*1000/200)/(1 + YTM/200)^k] + 1000/(1 + YTM/200)^12x2

k=1

YTM% = 10.5

After tax rate = YTM * (1-Tax rate)

After tax rate = 10.5 * (1-0.34)

After tax rate = 6.93

When bond is at par

K = Nx2

Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2

k=1

K =12x2

1000 =? [(9*1000/200)/(1 + YTM/200)^k] + 1000/(1 + YTM/200)^12x2

k=1

YTM% = 9

After tax rate = YTM * (1-Tax rate)

After tax rate = 9 * (1-0.34)

After tax rate = 5.94

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Transcribed Image Text

You are analyzing the after-tax cost of debt for a firm. Youknow that the firm’s 12-year maturity, 9.00 percent semiannualcoupon bonds are selling at a price of $898.98. These bonds are theonly debt outstanding for the firm. What is the current YTM of thebonds? (Round final answer to 2 decimal places, e.g. 15.25%.) YTM %LINK TO TEXT What is the after-tax cost of debt for this firm if ithas a marginal tax rate of 34 percent? (Round intermediatecalculations to 4 decimal places, e.g. 1.2514 and final answer to 2decimal places, e.g. 15.25%.) After-tax cost of debt % LINK TO TEXTWhat is the current YTM of the bonds and after-tax cost of debt forthis firm if the bonds are selling at par? (Round intermediatecalculations to 4 decimal places, e.g. 1.2514 and final answers to2 decimal places, e.g. 15.25%.) YTM % After-tax cost of debt %Click if you would like to Show Work for this question: Open ShowWork LINK TO TEXT