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The approximate after-tax cost of debt for a 20-year, 7 percent, $1,000 par value bond selling...

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Finance

The approximate after-tax cost of debt for a 20-year, 7 percent,$1,000 par value bond selling at $960 (assume a marginal tax rateof 40 percent) is

Select one:

a. 4.41 percent.

b. 5.15 percent.

c. 7 percent.

d. 7.35 percent.

Answer & Explanation Solved by verified expert
4.3 Ratings (854 Votes)
Solution The formula for calculating the cost of debt of a bond is C F P N F P 2 Where C Annual coupon F Face value of the bond P Market price of the    See Answer
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Transcribed Image Text

The approximate after-tax cost of debt for a 20-year, 7 percent,$1,000 par value bond selling at $960 (assume a marginal tax rateof 40 percent) isSelect one:a. 4.41 percent.b. 5.15 percent.c. 7 percent.d. 7.35 percent.

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