a. the before-tax cost of the Sony bond, using the bond\'s yield to maturity (YT

Question

a. the before-tax cost of the Sony bond, using the bond's yield to maturity (YTM), is: % (round to two decimal places)

b. the after-tax cost of the Sony bond, given the corporate tax rate, is: % (round to two decimal places)

Before-tax cost of debt and after-tax cost of debt Personal Finance Problem 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 Cost $910 Coupon interest rate 5.5% Years to maturity 10 Corporate tax rate 20% 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.

Explanation / Answer

a. FV = 1000, PV = -910, PMT = 55, N = 10

use rate function in Excel

before tax cost of Sony bond = 6.77%

b. after tax cost = 6.77%*(1 - 0.20) = 5.41%

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