Company B had issued 10-year bonds a year ago at the coupon rate 5%. The bond...
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Company B had issued 10-year bonds a year ago at the coupon rate 5%. The bond makes annual payments. The yield to maturity (YTM) of these bonds is 4%. The face value of the bond is $1000. a. Calculate the current bond price. b. Is this a discount or a premium bond? Discuss. c. Company B has a second debt issue on the market, a zero coupon bond with 5 years left to maturity. These bonds currently sell for $750. What is the YTM of these zero coupon bonds? d. If the market value of the 10-year bonds is $30 million and the market value of the zero coupon bond is $45 million (these are the two bonds outstanding for the Company B) what is the after tax cost of debt of Company B? The tax rate is 30%. Company B had issued 10-year bonds a year ago at the coupon rate 5%. The bond makes annual payments. The yield to maturity (YTM) of these bonds is 4%. The face value of the bond is $1000. a. Calculate the current bond price. b. Is this a discount or a premium bond? Discuss. c. Company B has a second debt issue on the market, a zero coupon bond with 5 years left to maturity. These bonds currently sell for $750. What is the YTM of these zero coupon bonds? d. If the market value of the 10-year bonds is $30 million and the market value of the zero coupon bond is $45 million (these are the two bonds outstanding for the Company B) what is the after tax cost of debt of Company B? The tax rate is 30%.
Expert Answer:
Answer rating: 100% (QA)
a To calculate the current bond price we need to find the present value of all the future cash flows from the bond The bond has a face value of 1000 a... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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