Sixth Fourth\'s Bank is trying to determine its cost of debt. The firm has a deb

Question

Sixth Fourth's Bank is trying to determine its cost of debt. The firm has a debt issue outstanding with nine years to maturity that is quoted at 105 percent of face value. The issue makes semiannual payments and has an embedded cost of 4.1 percent annually.

What is Sixth Fourth's Bank pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What is the effective rate?

If the tax rate is 40 percent, what is the aftertax cost of debt? (Please use the nominal rate, or YTM to calculate this, no the effective rate.)

Explanation / Answer

SOLUTION:

Calculation of company

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