Contrail Air, Inc. is trying to determine its cost of debt. The company has an outstanding debt issue with 18 years to maturity that is quoted at 97.00% percent of face value.The issue makes semiannual payments and has a coupon rate of 10.00% percent. What is the pretax cost of debt?

Settlement 01/01/2000

Maturity 01/01/2018

Price (% of par) 97

Coupon rate 10%

Payments per year 2

Tax rate 34%

8.25%

10.37%

16.53%

4.24%