Ernst’s Electrical has a bond issue outstanding with ten years to matu

Ernst’s Electrical has a bond issue outstanding with ten years to maturity. These bonds have a $1,000 face value, a 5 percent coupon, and pay interest semi-annually. The bonds are currently quoted at 96 percent of face value.

What is Ernst’s pre-tax cost of debt?
A) 4.47 percent
B) 4.97 percent
C) 5.33 percent
D) 5.53 percent
E) 5.94 percent

ANSWER

D