Today I'm going to explain our practice tests from CFA book number four.
We will have to basically analyze YT mr.boss update SOCOM has determined that it could issue 1000 faysville bonds with an 8% coupon page semi Rowley and a 5 year maturity at $900 per bond if that comes marginal tax rate is 30% it's object X cost update is closest to which.
Now we need to take notes from the given our concerned question.
Feature values one thousand dollar payment is 40 as in Spain similarly number of years is five.
We need to multiply by two as it is paying seminary coupon where is this 10 payment I mean present value I'm a good price of the of the bond is $900.
Need to find out what him if we write the equation it should look like that we know present value 0 summation of inequality 10 T equal 1.
Payment 1 by 1 plus payment divided by 1 plus I to the power teen plus future value which is 1000 degree 1 plus I to the power 10 now we will use our financial calculator to find that I.
First of all we need to basically clear the memory. Okay.
Now we need to give the future value as input then we will give payment input then we will give number of years input then we will give the present value input which would give in negative sign.
Present value is that I wanted to find out I by simply pressing on I it is giving us five point three one four line but remember we need we are we got it four similarly we need to make it for yearly.
Now we need to multiply by two. This is ten point six two nine nine this one is before tax cost up in debt but the question asked us to find out the after-tax cost of debt.
How could we do that just by getting the Scheldt like one our tax rate is thirty eight percent.
We just need point six to multiply with this one.
We'll get six point five nine zero five which is really close to option C and which is our answer.