Answer to Question #173931 in Finance for Jafar suleiman

Question

What is the cost of debt capital given the following information?

Number of bonds = 1,000,000

Face value = 1,000

Current price = 1,100

Coupon rate = 9% semiannually

Years of maturity = 15 years

Answer 1

The cost of debt of bonds is equal to the Yield to maturity of bonds.

$YTM=\frac{Coupon+(FV-PV)/n}{(FV+PV)/2}$

$Coupon = 0.09*2*1000=180$

$YTM=\frac{180+(1,000-1,100)/15}{(1,000+1,100)/2}=16,51$ %