Contrail Air, Inc. is trying to determine its cost of debt. The company has an outstanding debt issue with 16 years to maturity that is quoted at 95.00% percent of face value. The issue makes semiannual payments and has a coupon rate of 7.00% percent. What is the pretax cost of debt?

Settlement	01/01/2000
Maturity	01/01/2016
Price (% of par)	95
Coupon rate	7%
Payments per year	2
Tax rate	32%

8.42%

7.54%

16.91%

4.44%