Question

Titans has 7 percent bonds outstanding that mature in 16 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $1,015 each. What is the firm's pretax cost of debt?

Answer 1

6.84%

Step-by-step explanation:

In this problem, we are using the Rate formula which is shown in the spreadsheet.

The NPER is defined by the time period.

Given that,

Present value = $1,015

Assuming figure - Future value or Face value = $1,000

PMT = 1,000 × 7% ÷ 2 = $35

NPER = 16 years × 2 = 32 years

The formula is displayed below:

= Rate(NPER,PMT,-PV,FV,type)

The present value come in negative

Thus, after solving this, The pretax cost of debt is 6.84% (3.42% × 2)