a) Using financial calculator to calculate ytm
Inputs: Fv = 1,000
Pmt = 6.2% / 2 = 3.1% × 1,000 = 31
N = 5 × 2 = 10
Pv = 94% × 1,000 (par value) = 940
Ytm = compute
We get, ytm of the bond as 7.67%
EAR of bond before tax = (1+R/number of compounding years) ^ number of compounding years
= ( 1+0.0767/2)^2 - 1
= (1+0.03835)^2 - 1
= (1.03835)^2 - 1
= 1.0781 - 1
= 0.0781 or 7.81%
EAR of bond before tax = 7.81%
b) After tax cost of debt= ytm × ( 1 - tax rate)
= 7.81% ( 1 - 0.40)
= 7.81% (0.60)
= 4.69%
15 Question Help 0 Avicorp has a $13.7 million debt issue outstanding, with a 6.2% coupon...
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