Problem:
Wind Power Systems has 20-year, semi-annual bonds outstanding with a 5 percent coupon. The face amount of each bond is $1,000. These bonds are currently selling for 114 percent of face value.
Required:
Question: What is the company's pre-tax cost of debt?
a. 3.98 percent
b. 4.42 percent
c. 4.71 percent
d. 5.36 percent
e. 5.55 percent
Note: Provide support for rationale.