The Coupon Rate on an Issue of Debt Is 8

question 10

Multiple Choice

The coupon rate on an issue of debt is 8%. The yield to maturity on this issue is 10%. The corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds?

• A) 5.28%
• B) 2.48%
• C) 6.90%
• D) 3.14%

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Definitions:

Net Outlay

The total amount invested or spent, minus any returns or reimbursements.

Options Strategy

A plan or approach for trading options that can involve buying and/or selling one or more options that differ in one or more of the options' variables.

Security

A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

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