WC Inc Has a $10 Million (Face Value), 10-Year Bond Issue

question 62

Multiple Choice

WC Inc. has a $10 million (face value) , 10-year bond issue selling for 99 percent of par that pays an annual coupon of 9 percent. What would be WC's before-tax component cost of debt?

• A) 9.00 percent
• B) 9.10 percent
• C) 9.16 percent
• D) 18.32 percent

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Definitions:

Deflation

A decrease in the general price level of goods and services, often indicating an reduction in the supply of money or credit.

Nominal Interest Rate

The percentage rate at which interest is charged or paid on a loan or investment, not adjusted for inflation.

Inflation Rate

The upward trajectory of prices for goods and services, causing a consequent decline in how much one can purchase.

Purchasing Power

The purchasing power of a currency, showing the quantity of goods or services one unit can acquire.