Avicorp has just issued some five-year bonds, with a 6% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the face value is $1000. It is currently priced at 95% of par value. What is Avicorp’s pre-tax cost of debt (expressed in APR)?
| Using financial calculator BA II Plus - Input details: | # |
| FV = Future Value or Face Value = | -1000.00 |
| PV = Present Value or Price of the bond = 95% of 1000 = | 950 |
| N = Total number of coupon periods = | 10 |
| PMT = Coupon Payment = FV x Coupon rate/2 = | -30 |
| CPT > I/Y = Rate or yield Semi-annual = | 3.60437 |
| Convert Yield in annual and percentage form = Yieldx 2/100 = YTM = 3.60437*2/100 = | 7.20875% |
| APR or Pre-tax cost of debt = | 7.20875% |
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