To calculate the after-tax cost of debt for a bond, we use the formula:

$\text{After-tax cost of debt} = r_d \times (1 - T)$

Where:

• $r_d$ is the pre-tax cost of debt (the bond's yield to maturity).
• $T$ is the tax rate.

First, we need to calculate the bond's yield to maturity (YTM), which represents the pre-tax cost of debt. Since the bond is selling for $950 (below its par value of $1,000) and pays a coupon rate of 12% annually for 15 years, the YTM can be estimated using a financial calculator or approximation formula.

The annual coupon payment is: $\text{Coupon payment} = 12\% \times 1000 = 120$

Now, using an approximation formula for YTM:

$YTM \approx \frac{\text{Coupon Payment} + \frac{( \text{Par Value} - \text{Current Price})}{\text{Number of Years}}}{\frac{( \text{Par Value} + \text{Current Price})}{2}}$

Substituting the values:

$YTM \approx \frac{120 + \frac{(1000 - 950)}{15}}{\frac{(1000 + 950)}{2}} = \frac{120 + 3.33}{975} \approx \frac{123.33}{975} \approx 12.65\%$

Thus, $r_d \approx 12.65\%$.

Next, apply the after-tax cost of debt formula with the tax rate of 21%:

$\text{After-tax cost of debt} = 12.65\% \times (1 - 0.21) = 12.65\% \times 0.79 = 9.99\%$

This rounds to approximately 10.08 percent.

Therefore, the correct answer is: D. 10.08 percent

Would you like further details or any clarification? Here are some related questions you might find useful:

1. How is the yield to maturity (YTM) of a bond typically calculated?
2. What factors affect the after-tax cost of debt for a corporation?
3. How does the tax rate impact a company's cost of debt?
4. What are other methods to estimate the YTM for bonds?
5. How do callable bonds affect the cost of debt?

Tip: The cost of debt is generally lower than the coupon rate because the tax shield reduces the actual interest cost to the company.