Yield on a Bond

A firm has $3 million in outstanding 10-year bonds, with a fixed rate of 8 percent (assume annual payments). The bonds trade at a price of $92 per $100 par in the open market. The firm’s marginal tax rate is 35 percent. What is the after-tax component cost of debt to be used in the weighted average cost of capital (WACC) calculations? Can someone help me with this? Mainly finding the bond yield…i feel like i can never get this when they give the bond info in this fashion. If they just flat out say debt costs 9% before taxes that is cake!

solve for yld on the HP12c then tax that sucker and BOOM, you are good to go

Got it on BAII why do i always for get this? fv - 100 pmt - (.0758100) = 7.5 pv - -92 n - 10 cpt ----- i/y

i think it may be 6.01% – man, it has been a while since I used my calc for things like this. for yld i got 9.26% then i multiplied that by (1 - .35) and got 6.01% is that the answer?

panny, where are you getting 7.5 from? shouldn’t it be (on the BAII): FV = -100 PV = 92 PMT = -8 n = 10 CPT I/Y I/Y = 9.26% Cd = I/Y * (1-t) Cd = 9.26 * (.65) = 6.02% Cd = 6.02%

yikes you are right…i was doing another yield problem that had 7.5 coupon…either way i get this now thank you!

good job buddy. keep at it. the calculator will become your best friend till december

TI BA II Plus (Use of Bond function). Use down arrow between each entry here. 2nd Bond SDT=1.0100 = 1/01/2000 CPN=8 RDT=1.0110=1/01/2010 RV=100 ACT 2/y 2nd enter --> changes to 1/Y YLD (skip over) PRI=92 (92 per 100 given) Up arrow CPT=9.26% 9.26 (1-.35) = 6.02%

cpk - this is much neater. i wish my professors knew their way around a calculator as well as you!