Part A: Cost of Debt

Kenny Enterprises has just issued a bond with a par value of $1,000, twenty years to maturity, and an 8% coupon rate with semiannual payments.

a. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? Show your work.

1. $920

2. $1,000

3. $1,080

4. $1,173

b. What do you notice about the price and cost of debt? Answer in complete sentences.