Answer:
Pretax cost of debt = 7.02%
Aftertax cost of debt is 4.56%
Explanation:
As of today, the time to maturity of this bond is 16-2 = 14 years.
You can solve the pretax cost of debt; YTM using the following inputs in a financial calculator;
Time to maturity; N = 14*2 = 28
Face value; FV = 1000
Semiannual coupon payment ; PMT = (6%/2) *1000 = 30
Price of the bond ; PV = 0.91* 1000 = 910
Compute the semiannual interest rate ; CPT I/Y = 3.510%
Since YTM is an annual rat; multiply 3.510% by 2
Pretax cost of debt = 7.02%
b.) Aftertax cost of debt = pretax cost of debt * (1-tax)
= 7.02% *(1-0.35)
= 4.563%
Therefore, aftertax cost of debt is 4.56%