Jerry Roberts purchased a 30-year junk bond for $977.36 with a stated coupon rate of 8.5%....
Jerry Roberts purchased a 30-year junk bond for $977.36 with a stated coupon rate of 8.5%. What is the cost of debt for this bond if Jerry receives semiannual coupon payments and expects to hold the bond to maturity and has a 20% tax rate?
Homework Answers
| Before tax cost of debt | = | =rate(nper,pmt,pv,fv)*2 | Where, | |||
| = | 8.71% | nper | = | 60 | ||
| pmt | = | $ 42.50 | ||||
| pv | = | $ -977.36 | ||||
| fv | = | $ 1,000.00 | ||||
| After tax cost of debt | = | 8.71% | *(1-0.2) | |||
| = | 6.97% | |||||
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