Contrail Air, Inc. is trying to determine its cost of debt. The company has an outstanding debt issue with 18 years to maturity that is quoted at...

Contrail Air, Inc. is trying to determine its cost of debt. The company has an outstanding debt issue with 18 years to maturity that is quoted at 97.00% percent of face value. The issue makes semiannual payments and has a coupon rate of 10.00% percent. What is the pretax cost of debt?

Settlement             01/01/2000

Maturity                 01/01/2018

Price (% of par)                  97  

Coupon rate                      10%

Payments per year              2  

Tax rate                            34%

10.37%

16.53%

8.25%

4.24%