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S. Claus & Company is planning a zero coupon bond issue. The bond has a par value of $1,000, matures in 2 years, and will

S. Claus & Company is planning a zero coupon bond issue. The bond has a par

value of $1,000, matures in 2 years, and will be sold at a price of $826.45. What is

the annual cost of debt (YTM) to the company on this issue?

a. 4.0%

b. 6.0%

c. 8.0%

d. 10.0%

e. 12.0%

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