Question

Given similar maturities, the (before-tax) cost of debt is also the _____. Select all that apply:...

Given similar maturities, the (before-tax) cost of debt is also the _____.

Select all that apply:

yield to maturity on new bonds

coupon rate on already outstanding bonds

coupon rate on new bonds

yield to maturity on already outstanding bonds

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Homework Answers

Answer #1

The correct answer choices are (1st, 3rd and 4th)

The Yield to maturity on new bonds

The Coupon rate on new bonds

The Yield to maturity on already outstanding bonds

· Therefore, the Given similar maturities, the (before-tax) cost of debt is also the yield to maturity on new bonds or the coupon rate on new bonds or the yield to maturity on already outstanding bonds.

· The Yield to maturity (YTM) of the Bond is the discount rate at which the Bond’s price equals to the present value of the coupon payments plus the present value of the Face Value/Par Value

· The Yield to maturity of (YTM) of the Bond is the estimated annual rate of return expected by the bondholders for the bond assuming that the they hold the Bonds until it’s maturity period/date.

The Incorrect answer choice is the coupon rate on already outstanding bonds

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