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Suppose we have a bond issue currently outstanding that has 36 years left to maturity. The...

Suppose we have a bond issue currently outstanding that has 36 years left to maturity. The coupon rate is 4.750% and coupons are paid semiannually. The bond is currently selling for $118.00 per $100 bond. What is the cost of debt?

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Answer #1
                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =36x2
118 =∑ [(4.75*100/200)/(1 + YTM/200)^k]     +   100/(1 + YTM/200)^36x2
                   k=1
YTM% = 3.83 = cost of debt
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