Register
AMD has bonds outstanding with a face value of $1,000, 13 years to maturity, and a coupon rate of 6.5 percent, paid annually. What is the company's pretax cost of debt if the bonds currently sell for $1,
467,359 views
35 votes
35 votes
AMD has bonds outstanding with a face value of $1,000, 13 years to maturity, and a coupon rate of 6.5 percent, paid annually. What is the company's pretax cost of debt if the bonds currently sell for $1,056

User Aholt
by
2.5k points

1 Answer

15 votes
15 votes

Answer: 5.90%

Step-by-step explanation:

The pre-tax cost of debt refers to the yield on the bonds.

The Yield is calculated by the formula:

= (Annual coupon + (Face value - Present value) / Periods till maturity) ÷ ((Face value + Present value)/2)

Annual coupon = 6.5% * 1,000 = $65

Yield is:

= (65 + (1,000 - 1,056) / 13) ÷ ((1,000 + 1,056) / 2)

= 5.90%

User Toddsundsted
by
2.3k points
Ask a Question
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

1.6m questions

2.0m answers

Other Questions

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then a. the demand curve for dollars shifts to the left. b. the demand curve
If you buy a one-year bond for $4,000 and the issuer pays you back $5,000 at the end of one year, the interest rate on the bond is
Kylie is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option
From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that Group of answer choices bond interest is deductible for tax purposes. interest must be
Elroy Rocket is entering his senior year as an accounting major and has a number of options for his summer break. His options for the 3 month break follow: (1) Work full time at a local accounting firm
Link Copied!