Ask Question
30 June, 12:37

A bond has a face value of $1,000. It has a maturity of 20 years and a coupon rate of 9%. The bond pays interest semiannually. The yield on the bond is 10%. Assuming a 30% tax rate, what is the after tax cost of this bond, for purposes of calculating the company's WACC?

+3
Answers (1)
  1. 30 June, 12:49
    0
    After tax cost of bond = 7%

    Explanation:

    In order to find the after tax cost of bond we need to know its pre tax cost of debt. The yield on a bond is its pre tax cost. In this question we are already given the yield which is 10%. This means that the pre tax cost of debt is 10%. Now in order to find the after tax cost of debt we will multiply the pre tax cost of debt by (1-tax Rate)

    After tax cost of bond = 0.1 * (1-0.3) = 0.07 = 7%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “A bond has a face value of $1,000. It has a maturity of 20 years and a coupon rate of 9%. The bond pays interest semiannually. The yield on ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers