When the net proceeds from sale of a bond equal its par value, the before-tax cost would just equal the coupon interest rate.

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When the net proceeds from sale of a bond equal its par value, the before-tax cost would just equal the coupon interest rate. This is because the coupon interest rate reflects the interest payments that the issuer has agreed to make to the bondholder, and the par value represents the amount that the bond will be worth at maturity. If the bond is sold for its par value, then the purchaser will receive interest payments equal to the coupon rate, and will receive the par value at maturity, resulting in a before-tax cost that is equal to the coupon rate.

When the Net Proceeds from Sale of a Bond Equal