The market value of debt is very close to the book value of debt for healthy firms.

Question

Quizplus · Accepted Answer

Healthy firms tend to have low default risk, and thus their market value of debt is close to their book value of debt. This is because investors do not require a high return to compensate for the risk associated with the debt. However, for firms with high default risk, the market value of debt may be significantly lower than the book value of debt.

The Market Value of Debt Is Very Close to the Book