1-6. Continued Solution: Addison Glass Company Principal payment- Price of the bond Annual interest payment Number of years to maturity 6(Price of bond)+ 4 (Principal payment) S8$1000-$925 6(925)+4($1000 $75 $88+ $555+$400 $88+$3 $955 $9l 953% $955 b Kd yield 953%(1-25) =953%(75) 7.15% CopyrightC 2005 by The McGray-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-386 11-6. Continued Solution: Addison Glass Company a. .6 (Price of bond) .4 (Principal payment) Number of years to maturity Principal payment Price of the bond Annual interest payment Y' + − + = ( ) ( ) 9.53% $955 $91 $955 $88 $3 $555 $400 25 $75 $88 .6 $925 .4 $1,000 25 $1,000 $925 $88 = = + = + + = + − + = b. Kd = Yield (1 – T) = 9.53% (1 – .25) = 9.53% (.75) = 7.15%