Question

Terrace Salad issued a 25-year, annual bond with 8 percent coupon rate 15 years ago. The bond currently sells for 105 percent of its face value. What is the pretax cost of debt

Answer 1

7.28%

Step-by-step explanation:

Coupon rate = 8%

Nper = 10 (25-15)

PMT = 80 (1000*8%)

FV = 1000

PV = 1050

Yield to maturity = Rate(Nper, pmt, -pv, fv)

Yield to maturity = Rate(10. 80, -1050, 1000)

Yield to maturity = 0.072789069

Yield to maturity = 7.28%

Thus, the pretax cost of debt is 7.28%.