Flock of Seagulls Inc. has 10-year bonds outstanding that carry an annual coupon of 8 percent. These bonds are rated AA by Standards & Poors and Aa by Moodys. The bonds mature in 7 years at which time they will pay out at their face (par) value of $1,000. These bonds are currently priced at 110 percent of face value.

What is the firm's pretax cost of debt?

6.20 percent

6.60 percent

7.34 percent

7.70 percent

8.23 percent