Question

Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table.

Bond		Coupon Rate				Price Quote				Maturity			Face Value
1			6.4	%			106.26			5	years		$	44,000,000
2			7.9				114.92			8	years			39,000,000
3			7.6				113.47			15.5	years			59,000,000
4			7.2				102.71			25	years			54,000,000

If the corporate tax rate is 35 percent, what is the aftertax cost of the company’s debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of debt %?

Answer 1

YTM of a bond is given by the excel function, Rate = Rate(N,PMT,PV,FV)

R - YTM

N - years to maturity

PMT - Coupon

FV - Par value

Coupon = Coupon rate * par value

Since it is a semiannual compounding, coupon is divided by 2, and Years to maturity is multiplied by 2.

Before tax YTM = 6.01%

After tax YTM = 6.01%*(1-0.35) = 0.0390 = 3.90%