Ernst's Electrical Has a Bond Issue Outstanding with Ten Years

question 45

Multiple Choice

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 semi-annually.The bonds are currently quoted at 96 percent of face value.What is Ernst's pre-tax cost of debt?

• A) 4.47 percent
• B) 4.97 percent
• C) 5.33 percent
• D) 5.53 percent
• E) 5.94 percent

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Definitions:

Demonstrative Legacy

A demonstrative legacy is a specific gift of money with the direction that it is to be paid out of a particular fund or property, used in wills and estate planning.

Probate

The legal process through which a deceased person's will is validated and their estate is distributed to beneficiaries.

General Legacy

A bequest of a specified amount of money or a percentage of the estate to a beneficiary, as stipulated in a will.

Personal Property

Movable assets owned by an individual or an entity, such as vehicles, furniture, and equipment, in contrast to real property like land or buildings.