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Company ABC Ltd is based in Australia. All its operations and all of its shareholders are Australian. Company XYZ plc is based in the United Kingdom and all of its operations and shareholders are in the UK. ABC is considered to be a riskier investment for a potential debt holder. The general level of interest rates in Australia is higher than in the UK. ABC's cost of debt capital is 5.2%. All else being equal, which of the following is most likely to be the cost of debt capital for XYZ plc? (Hint: This is a matter of logic, based on the two things that determine the yield on debt - the general level of interest rates in that country, and the riskiness of the debt. If both of these factors indicate that one company's debt is going to be higher (or lower) than another company's debt, we can draw a logical conclusion. If these factors are pulling in opposite directions", so to speak, we don't know which effect will be stronger without more information.) O a. 5.5% O b. 3.9% O c. Impossible to estimate without more information about interest rates and relative riskiness. o d. 5.2%

Company ABC Ltd is based in Australia. All its operations and all of its shareholders are Australian. Company XYZ plc is based in the United Kingdom and all of its operations and shareholders are in the UK. ABC is considered to be a riskier investment for a potential debt holder. The general level of interest rates in Australia is higher than in the UK. ABC's cost of debt capital is 5.2%. All else being equal, which of the following is most likely to be the cost of debt capital for XYZ plc? (Hint: This is a matter of logic, based on the two things that determine the yield on debt - the general level of interest rates in that country, and the riskiness of the debt. If both of these factors indicate that one company's debt is going to be higher (or lower) than another company's debt, we can draw a logical conclusion. If these factors are pulling in opposite directions", so to speak, we don't know which effect will be stronger without more information.) O a. 5.5% O b. 3.9% O c. Impossible to estimate without more information about interest rates and relative riskiness. o d. 5.2%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Company ABC Ltd is based in Australia. All its operations and all of its shareholders are Australian. Company XYZ plc is based in the United Kingdom and all of its operations and shareholders are in the UK. ABC is considered to be a riskier investment for a potential debt holder. The general level of interest rates in Australia is higher than in the UK. ABC's cost of debt capital is 5.2%. All else being equal, which of the following is most likely to be the cost of debt capital for XYZ plc? (Hint: This is a matter of logic, based on the two things that determine the yield on debt - the general level of interest rates in that country, and the riskiness of the debt. If both of these factors indicate that one company's debt is going to be higher (or lower) than another company's debt, we can draw a logical conclusion. If these factors are "pulling in opposite directions", so to speak, we don't know which effect will be stronger without more information.) O a. 5.5% O b. 3.9% O c. Impossible to estimate without more information about interest rates and relative riskiness. O d. 5.2%
Transcribed Image Text:Company ABC Ltd is based in Australia. All its operations and all of its shareholders are Australian. Company XYZ plc is based in the United Kingdom and all of its operations and shareholders are in the UK. ABC is considered to be a riskier investment for a potential debt holder. The general level of interest rates in Australia is higher than in the UK. ABC's cost of debt capital is 5.2%. All else being equal, which of the following is most likely to be the cost of debt capital for XYZ plc? (Hint: This is a matter of logic, based on the two things that determine the yield on debt - the general level of interest rates in that country, and the riskiness of the debt. If both of these factors indicate that one company's debt is going to be higher (or lower) than another company's debt, we can draw a logical conclusion. If these factors are "pulling in opposite directions", so to speak, we don't know which effect will be stronger without more information.) O a. 5.5% O b. 3.9% O c. Impossible to estimate without more information about interest rates and relative riskiness. O d. 5.2%
A firm's bonds have a face value of $1000 and are currently priced at $985. The coupon rate is 4%. What is the cost of debt capital for these bonds? (Hint: As a matter of logic, there is only one possible answer.) а. 5% b. 2% О с. 3% O d. 4%
Transcribed Image Text:A firm's bonds have a face value of $1000 and are currently priced at $985. The coupon rate is 4%. What is the cost of debt capital for these bonds? (Hint: As a matter of logic, there is only one possible answer.) а. 5% b. 2% О с. 3% O d. 4%
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