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A bond pays ₹10 annual coupon (10% of face ₹100), Net Proceeds ₹90, redeemable at par in 5 years. Tax 30%. Approximate Kd:
A7.5%
B9.0%
C9.5%
D10.0%
Answer & Solution
Correct answer: C. 9.5%
1. Numerator = I(1−t) + (RV−NP)/n = 10×0.70 + (100−90)/5 = 7 + 2 = ₹9.
2. Denominator = (RV+NP)/2 = (100+90)/2 = ₹95.
3. Kd = 9/95 ≈ 9.47% ≈ 9.5%.
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §5.3_
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