Question

1. Abler Corporation has corporate bonds trading in the market at $820. These bonds have $1000 face (or maturity) value and pay an 8% stated (or coupon) rate annually ($40 every six months). These bonds have 12 years to maturity. What is the pretax cost of Abler Corporation's debt?

Answer 1

Answer:

10.70%

Explanation:

NPER = 12*2 = 24

PMT = 40

PV = -820

FV = 1000

Pretax Cost of Debt = Rate (NPER, PMT, -PV, FV) * 2

Pretax Cost of Debt = Rate(24, 40, -820, 1000) * 2

Pretax Cost of Debt = 0.0535 * 2

Pretax Cost of Debt = 5.35% * 2

Pretax Cost of Debt = 10.70%