Gul Corp. considers the following capital structure optimal: 40% debt; 50% equity; and 10% preferred stock. Guls bond currently sells in the market for $1150. The bond carries an annual coupon payment of 12 % of the face value which is paid in two semiannual payments. The bond will mature in 15 years and its face value is $1000. What is Gul's pre-tax annual cost of debt?

	1.	Exactly 12%
	2.	Less than 12% but more than 8%
	3.	5.00%
	4.	More than 12%