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The Outstanding Debt of Berstin Corp

question 97

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The outstanding debt of Berstin Corp.has eight years to maturity,a current yield of 8%,and a price of $95.What is the pretax cost of debt if the tax rate is 30%.


Definitions:

Conversion Price

The predetermined price at which convertible security, such as a convertible bond or preferred stock, can be converted into a specified amount of common stock.

Coupon

The annual interest rate paid on a bond, expressed as a percentage of the face value.

Convertible Bond

A category of bond which allows conversion into a specific quantity of the issuer's equity at designated times throughout its lifespan, often at the choice of the person holding the bond.

Conversion Price

The predetermined price at which a convertible security, like a convertible bond or preferred share, can be converted into common shares of the issuing company.

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