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Madison Square Stores has a $20 million bond issue outstanding that currently has a market value...

Madison Square Stores has a $20 million bond issue outstanding that currently has a market value of $19.4 million. The bonds mature in 6.5 years and pay semiannual interest payments of $35 each. What is the firm's pretax cost of debt? 7.74 percent 7.80 percent 7.59 percent 7.08 percent 8.21 percent

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Semi-annaul interest payment           35.00
Annaul interest payment           70.00
Face value 20 million
Market value 19.4 million
Assume face value 1000
Market value will be 970
Value of equation = 970 =35/(1-(1+r)^-13))+(1000/(1+r)^13 0.0774 0.078 0.0759 0.0708 0.0821
Maturity value formula 534.20101 537.18462 526.6295089 499.62989 556.90931
YTM= (Interest-to be taken yearly+(Face value-market value)/n)/(face value+market value)/2 0.0757517

Pick 7.59%

jeff jeffy answered 2 years ago
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