1. A bond has a coupon rate of 7%, a maturity date of 5 years in the future, and a par value of $1,000. The Yield to Maturity (market rate of return) is 8.5%.
What is the annual coupon payment associated with this bond?
2. A firm has a weight of debt of 10%, and a weight of equity of 90%. Bondholders earn a 6% return while stock holders earn a 13% return. The firm has an average tax rate of 31%.
What is the after-tax cost of debt for this firm?