Wilson's Cabinets has bonds outstanding that mature in eight years, have a 6 percent coupon and pay interest annually. These bonds have a face value of $1,000 and a current market price of
$1,020. What is the company's pre-tax cost of debt?

Question

Quizplus · Accepted Answer

The pre-tax cost of debt is the yield to maturity (YTM) on the bonds. Given the bond's price ($1,020), face value ($1,000), coupon rate (6%), and maturity (8 years), the YTM is calculated to be approximately 5.68 percent.

Wilson's Cabinets Has Bonds Outstanding That Mature in Eight Years