Question


Dee V

Corporation issuing bonds?

A company is issuing $1,000 bonds at par value. The coupon rate (and yield to maturity) on the bonds is 8 percent (with annual payments) and the bonds will mature in 10 years. The bonds can be called at a call premium of 5 percent above face value after 3 years. What is the after-tax yeild to call for an investor with a 31 percent tax rate? Where do I start to calculate, what is the breakdown?

3 weeks ago - 1 answers

Best Answer

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If the bonds are called you will get the same 8% for three years plus a one time 5% after three years. divide that 5% by 3 and you get 1.66% per year for a yield of 9.66%. After tax that is 6.66%. (100%-31%=69%, 69% of 9.66= 6.66%

by Steve

3 weeks ago

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