Schiffauer Electronics plans to issue 10-year, zero coupon bonds with a par value of $1,000 and a yield to maturity of 9.5 percent. The company has a tax rate of 30 percent. How much extra in taxes would the company pay (or save) the second year (at t = 2) if they go ahead and issue the bonds?

Schiffauer Electronics plans to issue 10-year, zero coupon bonds with a par value of $1,000 and a yield to maturity of 9.5 percent.  The company has a tax rate of 30 percent.  How much extra in taxes would the company pay (or save) the second year (at t = 2) if they go ahead and issue the bonds?




a. Save $12.59
b. Save $13.79
c. Save $41.97
d. No savings
e. Pay $13.79









Answer: A


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