The Before-Tax Cost of This Debt Issue Is

question 139

Multiple Choice

The before-tax cost of this debt issue is

• A) 12%.
• B) 7.92%.
• C) 9.97%.
• D) 13%.

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Definitions:

Modified Duration

Modified Duration measures the sensitivity of the price of a bond or other debt instrument to a change in interest rates, indicating the percentage change in price for a parallel shift in rates.

Modified Duration

A measure of the sensitivity of a bond's or bond portfolio's price to changes in interest rates, adjusting for the changing yield to maturity.

Market Yield

The current yield of a bond or other fixed-income security, calculated by dividing the annual interest income by the current market price.

Par-Value

The face value of a bond or stock as stated by the issuer, which is typically the amount repaid at maturity for bonds.