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%