Answer:
A. 6.75%
Explanation:
In this question, we use the Rate formula which is shown in the spreadsheet.  
The NPER represents the time period.  
Given that,  
Present value = $1,021.16
Future value or Face value = $1,000  
PMT = 1,000 × 7% ÷ 2 = $35
NPER = 13 years × 2 = 26 years
The formula is shown below:  
= Rate(NPER,PMT,-PV,FV,type)  
The present value come in negative  
So, after solving this, the pretax cost of debt is 6.75%      (3.38% × 2)