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QUESTION
A semiannual, 8 percent bond matures in 14 years and has a face value of $1,000. The market quote on this bond is 1,023. What is the aftertax cost of...
A semiannual, 8 percent bond matures in 14 years and has a face value of $1,000. The market quote on this bond is 1,023. What is the aftertax cost of debt if the tax rate is 32 percent?
AnswerCost of debt = I (1-t) +(Realized value-Net proceeds)/N(Realized value-Net proceeds)/2=8(1-.32)+(1000-1000)/14(1000+1000)/2= 5.44/1000=.544 %