Question

Too Young, Inc., has a bond outstanding with a coupon rate of 7.1 percent and semiannual payments. The bond currently sells for $1,891 and matures in 17 years. The par value is $2,000. What is the company's pretax cost of debt

Answer 1

Answer:

7.68%  

Explanation:

Data provided in the question

Present value = $1,891

Future value or Face value = $2,000  

PMT = 2,000 × 7.1% ÷ 2 = $71

NPER = 17 years × 2 = 34 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 7.68%        (3.84% × 2)