Question
In: Finance
Cost of debt using the approximation formula For the following $1,000-par-value bond, assuming annual interest payment...
Cost of debt using the approximation formula For the following $1,000-par-value bond, assuming annual interest payment and a 22%
tax rate, calculate the after-tax cost to maturity using the approximation formula.
Life underwriter fee discount interest
20 years $35 -$30 6%
The after-tax cost of financing using the approximation formula is
_______%.
(Round to two decimal places.)
Solutions
Expert Solution
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jeff jeffy answered 11 months agoRelated Solutions
For each of the following $1,000 par value bonds, assuming annual interest payment and a 21% tax rate
USING EXCEL FORMULAS ONLY AND SHOWING ALL WORK:
COST OF DEBT USING THE APPROXIMATION FORMULA: For each of the following $1,000 par value bonds, assuming annual interest payment and a 21% tax rate, please calculate the after-tax cost to maturity using the approximation formula B
Bond
Life (yrs)
Underwriting Fee
Discount(-) or Premium(+)
Coupon Interest Rate
A
20
$25
-$20
9%
B
16
40
+10
10
C
15
30
-15
12
D
25
15
par
9
E
22
20
-60...
A bond matures in 8 years, Par value = $1,000, and coupon annual interest payment =...
A bond matures in 8 years, Par value =
$1,000, and coupon annual interest payment = $65. Yield to maturity
of this bond is 8.2% (yield, or annual return). What is the bond's
price?
a. $903.04
b. $925.26
c. $948.67
d. $972.84
A $1,000 par value bond has a coupon interest rate of 6 percent. The interest payment...
A $1,000 par value bond has a coupon interest rate of 6
percent.
The interest payment is ?
a. $160
b. $6
c. need to know the maturity date
d. $60
Bond Returns: A 15-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond...
Bond Returns:
A 15-year, $1,000 par value bond has an 8.5% annual payment
coupon. The bond currently sells for $925. After one year, assuming
the the yield to maturity (discount rate) remains the same as
previous, calculate the following returns between the two
years:
1) Current yield
2) Capital gains yield
3) Total returns
Hint:
solve the rate (yield to maturity) for the 25-year bond.
with the same yield to maturity, solve the price for the bond
with shorter maturity....
. A 20-year, $1,000 par value bond has a 7% annual payment coupon. The bond currently...
.
A 20-year, $1,000 par value bond has a 7% annual payment
coupon. The bond currently sells for $780. If the yield to maturity
remains at the current rate, what will the price be 10 years from
now?
Calculate the value of a $1,000-par-value bond paying quarterly interest at an annual coupon interest rate...
Calculate the value of a $1,000-par-value bond paying
quarterly interest at an annual coupon
interest rate of 8% and having 15 years until maturity if the
required return on similar-risk bonds is currently a 16% annual
rate paid quarterly.
You own a bond that pays $100 in annual interest, with a$1,000 par value. It...
You own a bond that pays $100 in annual interest, with a
$1,000 par value. It matures in 10 years. Your required rate of
return is 11 percent.a. Calculate the value of the bond.b. How does the value change if your required rate of return
(1) increases to 16 percent or (2) decreases to 7 percent?c. Explain the implications of your answers in part b as they
relate to interest rate risk, premium bonds, and discount
bonds.d. Assume that the...
You own a bond that pays $100 in annual interest, with a $1,000 par value. It...
You own a bond that pays $100 in annual interest, with a $1,000
par value. It matures in 15 years. The market's required yield to
maturity on a comparable-risk bond is 12 percent.
a.??Calculate the value of the bond.
b.??How does the value change if the yield to maturity on a?
comparable-risk bond? (i) increases to
15
percent or? (ii) decreases to
8
?percent?
c.??Explain the implications of your answers in part b as they
relate to? interest-rate risk, premium?...
You own a bond that pays $100 in annual interest, with a $1,000 par value. It...
You own a bond that pays $100 in annual interest, with a
$1,000 par value. It matures in 20 years. The market's required
yield to maturity on a comparable-risk bond is 11 percent.
a. Calculate the value of the bond.
b. How does the value change if the yield to maturity on a
comparable-risk bond (i) increases to 16 percent or (ii)
decreases to 7 percent?
c. Explain the implications of your answers in part b as they
relate to...
You own a bond that pays $120 in annual interest, with a $1,000 par value. It...
You own a bond that pays $120 in annual interest, with a
$1,000 par value. It matures in 15 years. The market's required
yield to maturity on a comparable-risk bond is 10 percent.
a. Calculate the value of the bond.
b. How does the value change if the yield to maturity on
a comparable-risk bond (i) increases to 14 percent or (ii)
decreases to 8 percent?
c. Explain the implications of your answers in part b as
they relate to...
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