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22 July, 03:23

Trickle Corporation's 12 percent coupon rate, semiannual payment, $1,000 par value bonds mature in 25 years. The bonds currently sell for $1,230.51 in the market, and the yield curve is flat. Assuming that the yield curve is expected to remain flat, what is Trickle's most likely before-tax cost of debt if it issues new bonds today?

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  1. 22 July, 04:58
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    The correct answer is 9.56%

    Explanation:

    Before tax cost of Debt = rate (nper, pmt, pv, fv) * 2

    nper = 25*2 = 50

    pmt = 1000*12%*1/2 = 60

    pv = 1230.51

    fv = 1000

    Before tax cost of Debt = rate (50,60,-1230.51,1000) * 2

    Before tax cost of Debt = 9.56%
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