CMS Corporation's Balance Sheet as of Today Is as Follows

CMS Corporation's balance sheet as of today is as follows:
$\begin{array}{lr}\text { Long-term debt (bonds, at par) } & \$ 10,000,000 \\\text { Preferred stock } & 2,000,000 \\\text { Common stock (\$10 par) } & 10,000,000 \\\text { Retained earnings } & 4,000,000 \\\hline \text { Total debt and equity } & \$ 26,000,000\end{array}$
The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?

A) $5,276,731
B) $5,412,032
C) $5,547,332
D) $7,706,000
E) $7,898,650

Correct Answer:

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