Answer:
A.) 6.63%
Explanation:
Using a Financial calculator, key in the following inputs to solve for YTM;
Face value of the bond ; FV = 1,000
Price of the bond; PV= 103.3% *1,000 = -1,033
Total duration or time to maturity of the bond; N = 14 years
Use annual coupon rate to find Coupon payment (PMT);
Coupon PMT = coupon rate * Face value
coupon rate = 7% OR 0.07 as a decimal
Coupon PMT = 0.07 *1,000 = 70
Next, with these inputs, press on buttons; CPT I/Y = 6.631%
Therefore, the Pre-tax cost of debt = 6.63%