Alberta Bank's long-term bonds are currently priced to offer a yield-to-maturity of 10.5%.If Alberta Bank's marginal tax rate is 35%,what is the after-tax cost of debt on Alberta Bank's bonds?

Question

Quizplus · Accepted Answer

The after-tax cost of debt can be calculated as:
After-tax cost of debt = Yield-to-maturity x (1 - Marginal tax rate)
= 10.5% x (1-0.35)
= 6.83%
Therefore, the after-tax cost of debt on Alberta Bank's bonds is 6.83%, which is option B.

Alberta Bank's Long-Term Bonds Are Currently Priced to Offer a Yield-To-Maturity