Wind Power Systems has 20-year, semi-annual bonds outstanding with a 5 percent coupon. The face amount of each bond is $1,000. These bonds are currently selling for 114 percent of face value. What is the company's pre-tax cost of debt?

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13-12-2022
Business

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Wind Power Systems has 20-year, semi-annual bonds outstanding with a 5 percent coupon. The face amount of each bond is $1,000. These bonds are currently selling for 114 percent of face value. What is the company's pre-tax cost of debt?

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Bhuvangarg Bhuvangarg · Answer 1 · 2022-12-18T12:59:58+01:00

The investment of interest that has already been earned in addition to the initial sum is referred to as compounding. The effective interest rate rises when compounding on a regular basis.

What do u mean by compounding?

The process of adding interest to an existing principal amount and adding interest that has already been paid is known as compounding. Accumulating in this manner can be understood as interest on interest — the impact of which is to amplify gets back to intrigue after some time, the purported "wonder of building."

What exactly are compounding and examples?

Compounding, also known as composition in grammar, is when two or more words are combined to create a new word. For instance, the words "underground" and "ground" are combined to create the term "underground."

To learn more about compounding here

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