Answer:
bond 1:
YTM = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]
YTM = {750,000 + [(20,000,000 - 21,000,000) / 10]} / [(20,000,000 + 21,000,000) / 2]
YTM = 650,000 / 20,500,000 = 3.17 x 2 = 6.34%
after tax cost of debt = 6.34% x (1 - 15%) = 5.39%
bond 2:
YTM = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]
YTM = {1,160,000 + [(40,000,000 - 38,160,000) / 16]} / [(40,000,000 + 38,160,000) / 2]
YTM = 1,275,000 / 39,080,000 = 3.26 x 2 = 6.53%
after tax cost of debt = 6.53% x (1 - 15%) = 5.55%
bond 3:
YTM = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]
YTM = {1,732,500 + [(45,000,000 - 46,710,000) / 31]} / [(45,000,000 + 46,710,000) / 2]
YTM = 1,677,339 / 45,855,000 = 3.66 x 2 = 7.32%
after tax cost of debt = 7.32% x (1 - 15%) = 6.22%
bond 4:
YTM = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]
YTM = {2,430,000 + [(60,000,000 - 63,420,000) / 50]} / [(60,000,000 + 63,420,000) / 2]
YTM = 2,361,600 / 61,710,000 = 3.83 x 2 = 7.65%
after tax cost of debt = 7.65% x (1 - 15%) = 6.51%
