Which of the following is generally true about a ﬁrm's cost of debt?

Question

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A firm's cost of debt is generally measured as the yield to maturity on the firm's outstanding bonds. This is because the yield to maturity reflects the market's required rate of return on the firm's debt, which includes both the coupon payments and any capital gains or losses from changes in interest rates. The other options are not generally true. The cost of debt is not necessarily greater than the cost of equity (option B), as it depends on the particular characteristics of the firm and the market. The cost of debt can be observed indirectly in the marketplace through the yield to maturity (option C) and is not necessarily greater than the average coupon payments on outstanding debt (option D). Finally, the cost of debt is not generally equal to the coupon rate on the firm's outstanding bonds (option E), as the market value of the bonds may differ from their face value and result in a different effective yield.

Which of the Following Is Generally True About a ﬁRm's