The Nelson Cotton Company Ltd is looking to determine its cost of capital and has asked you to assist. The information available includes the following: Preference Shares: The preference shares were issued for $6 with a 10% dividend. The current market price is $9. When they were initially issued, they issued $36m worth of shares. Debt: The market value of Debt that matures in 15 years is $75m, trades at par and pays a 4% coupon per period (8% per year). The market value of Debt that matures in 30 years is $25m, trades at par and has an EAR of 7%. Ordinary Shares: The company also has 50 million ordinary shares on issue with a market price of $4 each. The Beta of these shares is 1.25, the market risk premium is 4% a and the risk-free rate is 5%. These shares last paid a dividend of 20 cents with an expected growth of 3%. Other Information: Cormans tax rate is 30% Calculate the following:

a) Determine the EAR for the debt that matures in 15 years. (2 Marks)