Question

A company has a regular bond outstanding. The bond has 12 years to maturity. The face value of the bond is $1,000. The value of bond today (price) is $910. Coupons are paid annually. The coupon rate is 5.50%. The tax rate is 21.50%. What is the after tax rate of return on the bond (debt)?

Answer 1

Ans:- we need to find the after-tax rate of return on the bond that means YTM (Yield to Maturity). we will use the rate function of excel to find the YTM.

Nper=12, Pmt=1000*5.5%=55,PV=-$910, FV=$1,000

After-tax rate of return on the bond will be YTM * (1-Tax-rate) =6.61% * (1 - 0.215) = 5.19%.

Therefore, the after-tax rate of return on the bond will be 5.19%.

Note:- If this answer helps you pls give thumbs up.