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10,600 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of...

10,600 7.1 percent coupon bonds outstanding, with 24 years to maturity and a quoted price of 108. These bonds pay interest semiannually.

What is the cost of debt?

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Homework Answers

Answer #1

Information provided:

Par value= $1,000

Current price= present value= 108%*1,000= $1,080

Coupon rate= 7.1%/2= 3.55%

Coupon payment= 0.0355*1,000= $35.50

Time= 24 years82= 48 semi-annual periods

The price of the bond is calculated by computing the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -1,080

PMT= 35.50

N= 48

Press the CPT key and I/y to compute the yield to maturity.

The value obtained is 3.22.

Therefore, the yield to cost of debt  is 3.22%*2= 6.44%.

n case of any query, kindly comment on the solution.

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