Calculate the cost of debt for a firm that has $10 million inbonds outstanding that...

Calculate the cost of debt for a firm that has $10 million in bonds outstanding that mature in 15 years and have 5% coupon rates. Coupons are paid semiannually. The face value of the bonds is $1000 and the price per bond is $900.

Expert Solution

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The cost of the debt is the YTM of the bond

N => 15*2=30 (15 years bond, paying semiannual, so 30 payments)

PV = -900 (The present value of the bond is $900)

PMT => 5% of 1,000 = 500/2 = 25 ( The coupon 5% is on Face Value and semiannual, so 25 per period)

FV = 1,000 (The Face value of bond is $1,000)

CPT + I/Y = 3.0109

So this YTM is semiannual, annual will be 3.0109*2= 6.0218

So the cost of the debt will be 6.0218%

jeff jeffy answered 2 years ago

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