Question

Trickle Corporation's 12 percent coupon rate, semiannual payment, $1,000 par value bonds mature in 25 years. The bonds currently sell for $1,230.51 in the market, and the yield curve is flat. Assuming that the yield curve is expected to remain flat, what is Trickle's most likely before-tax cost of debt if it issues new bonds today?

Answer 1

Answer:

The correct answer is 9.56%

Explanation:

Before tax cost of Debt = rate(nper,pmt,pv,fv) * 2

nper = 25*2 = 50

pmt = 1000*12%*1/2 = 60

pv = 1230.51

fv = 1000

Before tax cost of Debt = rate(50,60,-1230.51,1000)*2

Before tax cost of Debt = 9.56%