### Cost of Debt**Problem Statement:**Kenny Enterprises has just issued a bond with a par value of $1,000, a maturity of twenty years, and an 8% coupon rate with semiannual payments. **Question:**What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt?**Options:**a. $920 b. $1,000 c. $1,080 d. $1,173 **Explanation:**When a bond's selling price differs from its par value, it indicates the market's assessment of the bond's risk and the prevailing interest rates. A price below par (e.g., $920) suggests a higher cost of debt, as investors demand greater returns due to perceived risks or interest rate changes. Conversely, a price above par (e.g., $1,173) indicates a lower yield. Understanding these factors is crucial for evaluating a company's borrowing costs and financial strategy.

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3. Cost of debt. Kenny Enterprises has just issued a bond with a par value bi $1,000, a maturity of twenty years, and an 8% coupon rate with semiannual payments. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt? a. $920 b. $1,000 c. $1,080 d. $1,173

3. Cost of debt. Kenny Enterprises has just issued a bond with a par value bi $1,000, a maturity of twenty years, and an 8% coupon rate with semiannual payments. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt? a. $920 b. $1,000 c. $1,080 d. $1,173

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Cote Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. Bond 1 2 3 4 Coupon Rate 7.50 % 9.00 8.70 8.30 Cost of debt Price Quote 103.48 110.80 110.15 103.05 Maturity 5 years 8 years % 15.5 years 25 years If the corporate tax rate is 34%, what is the after-tax cost of the company's debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Face Value $ 45,000,000 40,000,000 50,000,000 65,000,000
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