Abbott has credit rating of BBB which corresponds to default spread of 3.5%. The current risk free rate is 0.89%. Starbucks just issued a 7-year bond coupon bond with annual payments. The price is $923, coupon rate is 5% and the face value is $1000. Find its yield-to-maturity using the financial calculator or Excel.

Based on the information above what are the two estimates for the cost of debt

Select one:

a. 1.) cost of debt based on default spread = 4.5% 2.) Cost of debt based on Yield-to-Maturity = 7.14%

b. 1.) cost of debt based on default spread = 4.39% 2.) Cost of debt based on Yield-to-Maturity = 6.4%

c. 1.) cost of debt based on default spread = 5.6% 2.) Cost of debt based on Yield-to-Maturity = 6.34%