Airborne Airlines Inc has a $1000 per Airborne Airlines, Inc., has a $1,000 par

Question

Airborne Airlines Inc has a $1000 per

Airborne Airlines, Inc., has a $1,000 par value bond outstanding with 25 years to maturity. The bond carries an annual interest payment of $78 and is currently selling for $875. Airborne is in a 22 percent tax bracket. The firm wishes to know what the after-tax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue, because the risk and maturity date will be similar. Compute the yield to maturity on the old issue. Select one: b. 8.32% C. 8.89% d. 9.07%

Explanation / Answer

d. 9.07%

Working:

Yield to maturity = =rate(nper,pmt,-pv,fv) Where, = =rate(25,78,-875,1000) Par Value(fv) $       1,000 = 9.08% Annual coupon(pmt) $ 78 Current Price(pv) $ 875 Life in years(nper) 25

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