|Author||Topic: CFA Level 1 Cost of Debt Problem|
|Volume 4, Reading 37, Page 48, Example 4:
Valence Industries issues a bond to finance a new project. It offers a 10-year, 5% semi-annual coupon bond. Upon issue, the bond sells at $1,025. What is Valence's before-tax cost of debt? If Valence's marginal tax rate is 35%, what is Valence's after-tax cost of debt?
1) How to find the FV
2) How to find the PMT
3) How to find i (interest rate)
|Before tax cost of debt should be .04684 and after should be .03446. Let me know if I'm wrong but I'm pretty sure. You have to set FV to 1000. Bonds at face value usually are $1000. Payment is .05/2 x 1000 = 25 because its semi annual so u divide by 2. You also double the year to get the total semi annual payment. When you use your financial calculator and compute for interest. You then multiply interest to get the annual interest|
CFA Discussion Topic: CFA Level 1 Cost of Debt Problem
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!