Question: David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the? security:
Sony Bond
|
Par value $1000
|
Coupon interest rate 5.5% |
Corporate tax rate 25% |
Cost 30
|
Years to maturity 10
|
|
Answer the following questions:
a. Calculate the before-tax cost of the Sony bond using the bond's yield to maturity? (YTM).
b. Calculate the after-tax cost of the Sony bond given the corporate tax rate.