1. A $ 1000 par value bond issued by Conseco Electronics has 5 years to Maturity. The bond pays $34 per year in interest and is selling for $920 . What is the Yield to maturity?
Hints : YTM is the IRR of cash flows.
2. What is the cost of 4% Bond of $1000 issued by XYZ corporation ? The company’s effective tax rate is 25%. Debentures to be redeemed after 5 years.
Hints: Cost of Bond = Interest x ( 1- Tax Rate)
3. What is the cost of 4% Bond of $1000 issued by XYZ corporation ? The company’s effective tax rate is 25%. Debentures to be redeemed after 5 years. Issue expense 0.5%
Hints: Find out cash flows and IRR. Cost of bond is IRR of cash flows.
The company gets $ 995 per bond and pay interest after tax saving $ 30 per year.