Problem:
Seven years ago ABC Inc. issued a series of $1,000 bonds (i.e. Par = $1,000) @ 10% compounded semiannually for a term of 30 years. Additionally, the bonds are callable with a call premium of two coupon payments. Today, the market rate is 10% and each single bond is trading for $844.76. If ABC Inc. wants to raise new debt today, what would be ABC's marginal cost of debt? Assume no significant change in ABC's bond rating.
Additional Information:
This question is from Finance as well as it is about determining the marginal cost of debt for raising $1000 bonds or a term of 30 years. The calculations have been given in the solution in detail.