Jiminy’s cricket farm issued a 20-year, 7 percent semiannual coupon bond 4 years ago. the bond currently sells for 104 percent of its face value. the company’s tax rate is 23 percent. a. what is the company’s pretax cost of debt?

6.64%

Explanation:

The pretax cost of debt is the Yield to Maturity (YTM). Since the coupons are paid semiannually, adjust the duration and the coupon payment amount to semi-annual terms.

You can solve for the YTM using a financial calculator with the following inputs;

Maturity of the bond; N = 20*2 = 40

Face value ; FV = 1000

Semi-annual coupon payment ; PMT = (7%/2)*1000 = 35

Current price of the bond; PV = -1.04*1000 = -1040

Then compute the semiannual interest rate ; CPT I/Y =  3.318%

Therefore, pretax cost of debt; YTM = 3.318 *2 = 6.64%

all of them make sense but, i would have to say ask someone who has been there/or lives there, and/or read recent newspapers from that city.

hope this !

answer; complain or request hazard correction from your employer;