Select all that are true with respect to the cost of debt. Group of answer choices it is the return the firm needs to earn overall to satisfy all investors It is the rate the debt holders demand given the risk they face as debt holders Can be estimated using CAPM Cannot be estimated using CAPM because CAPM is used for estimating the cost of equity Is always equal to the YTM on a company's existing bonds Is lower than the YTM on a company's existing debt if there is default risk Can be proxied by the YTM on a company's existing debt if the debt is risk free       Flag question: Question 7

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
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Select all that are true with respect to the cost of debt.
Group of answer choices
it is the return the firm needs to earn overall to satisfy all investors
It is the rate the debt holders demand given the risk they face as debt holders
Can be estimated using CAPM
Cannot be estimated using CAPM because CAPM is used for estimating the cost of equity
Is always equal to the YTM on a company's existing bonds
Is lower than the YTM on a company's existing debt if there is default risk
Can be proxied by the YTM on a company's existing debt if the debt is risk free
 
 
 
Flag question: Question 7
Expert Solution
Step 1: Introduction

The cost of debt refers to the effective interest rate a company pays on its debts. It's essentially the return required by lenders or debt holders for providing capital to the company.

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