Answer:
After tax cost of debt is 5.239%
Explanation:
Given:
Face value = $1,000
Bond price = $895
Coupon payments = 0.035×1,000 = $35 (coupon payment is paid semi-annually so 7% is divided by 2)
Maturity = 20×2 = 40 periods
Using bond price formula:
Bond price = Present value of face value + present value of coupon payments
Use excel function =RATE(nper,pmt,PV,FV) to calculate cost of debt.
substituting the values:
=RATE(40,35,-895,1000)
we get Pre-Tax cost of debt = 4.03% semi- annual
Annual rate is 4.03%×2 = 8.06%
Note: PV is negative as bond price is cash outflow.
After tax cost of debt = 8.06(1 - 0.35)
= 5.239%
when individuals use all available information about an economic variable to make a decision, expectations are -rational
What is economic variable?
An economic variable is any measurement that helps to consider how an economy may function . for instance population, poverty rate, inflation, and available resources.
What are the five economic variables?
There are 5 common economic variable that are considered :
output, gross domestic product ( GDP ), production, income, and expenditures.
What factors cause economic growth?
Basically , there are two main cause of economic growth: growth in the size of the workforce and growth in the production activity (output per hour worked) of that workforce.
Learn more about economic variable:
brainly.com/question/14980411
#SPJ4
Answer:
The consumer price index is a systematic calculation used to estimate price increases in a basket of goods and services that are indicative of consumption expenditure in the economy.
Explanation:
The Consumer Price Index refers to a metric used to determine the weighted average price of a set of consumer goods and services, such as food, transportation, and healthcare. CPI is accountable for monitoring the change in retail prices of fundamental and everyday goods and services purchased by households across the world. Changes in the CPI are required to measure increases in the price of living. The CPI is one of the most commonly used indicators for the detection of inflation or deflation cycles.
