Question

ussell Container Corporation has a $1,000 par value bond outstanding with 25 years to maturity. The bond carries an annual interest payment of $97 and is currently selling for $950 per bond. Russell Corp. is in a 20 percent tax bracket. The firm wishes to know what the aftertax 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. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

**b.** Make the appropriate tax adjustment to
determine the aftertax cost of debt. **(Do not round
intermediate calculations. Input your answer as a percent rounded
to 2 decimal places.)
**

Answer #1

Ans:

1. Annual interest payment= $97 ;principal payment= $1000; price of bond=950; years to maturity= 25 years 2. cost of debt or yield to maturity= Find in a part 10.20% and tax rate= 20%

Russell Container Corporation has a $1,000 par value bond
outstanding with 25 years to maturity. The bond carries an annual
interest payment of $97 and is currently selling for $950 per bond.
Russell Corp. is in a 20 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...

Russell Container Corporation has a $1,000 par value bond
outstanding with 20 years to maturity. The bond carries an annual
interest payment of $130 and is currently selling for $800 per
bond. Russell Corp. is in a 25 percent tax bracket. The firm wishes
to know what the aftertax 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...

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maturity on the old issue because the...

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A bond with a face
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a.
What is the current yield on the bond? (Enter your answer
as a percent rounded to 2 decimal places.)
b.
What is the yield to maturity if interest is paid once a year?
(Do not round intermediate calculations. Enter your answer
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c.
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A bond with a face value of $1,000 has 10 years until maturity,
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a. If the bond has a yield to maturity of 9.2%
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not round intermediate calculations.
Round your answer to nearest whole
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b. What will be the rate of return...

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b. What will be the rate of return...

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not round intermediate calculations. Round your
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A 25-year maturity bond with face value of $1,000 makes annual
coupon payments and has a coupon rate of 8.1%. (Do not
round intermediate calculations. Enter your answers as a percent
rounded to 3 decimal places.)
a. What is the bond’s yield to maturity if the
bond is selling for $910?
b. What is the bond’s yield to maturity if the
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c. What is the bond’s yield to maturity if the
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