Homework Answers
Solution:
Assume Par value ( FV) = $1000
Current value (PV) = 109%*1000= $1090
Coupon rate = 7.4%
Interest (PMT)= 7.4%/2= 3.7%*1000= $37
Years to maturity ( nper) = 15*2= 30
Pretax cost of debt (Rate) = (nper, pmt, PV, FV)
Rate = (30, $37, $1090, $1000) = 3.227%
Pretax cost of debt = 3.23%*2= 6.454%
EAR= 6.454%
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