Answer:
The answer is C.
Explanation:
The coupon payment is annual, meaning it is being paid once a year.
N(Number of years/Number of periods) = 40(20 x 2)
I/Y(Yield-To-Maturity) = ?
PMT(coupon payment) = $40[(80÷2/100) x $1,000]
FV(Future value/Par value) =$1,000
PV(present value or market value) = -828
Now to solve this, lets use a financial calculator (e.g Texas BA II plus)
N= 40; I/Y = ?; PMT = $40; FV = $1,000; CPT PV = -828
The cost of debt is 5%
Note that this is for semiannual. The annual cost of debt is therefore, 10%(5% x 2)
