Question 35

Ernst's Electrical has a bond issue outstanding with ten years to maturity. These bonds have a $1,000 face value, a 5 percent coupon, and pay interest annually. The bonds are currently quoted at 110 percent of face value. What is Ernst's pre-tax cost of debt?

Select one:

a. 4.40 percent

b. 3.33 percent

c. 3.78 percent

d. 4.53 percent

e. 3.47 percent