Hydro Systems Has Bonds Outstanding with a Face Value of $1,000

Multiple Choice

Hydro Systems has bonds outstanding with a face value of $1,000, 13 years to maturity, and a coupon rate of 6.5 percent, paid annually. What is the company's pretax cost of debt if the bonds currently sell for $1,056?

A) 5.87 percent
B) 6.42 percent
C) 4.71 percent
D) 5.36 percent
E) 5.55 percent