Question: 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

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

 Coupon interest rate

5.5%

 Corporate tax rate

25%
Cost

$930

Years to maturity 10

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.

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