If a company has bonds outstanding and the company would like to calculate the current cost of debt for the bonds, then the company would
A) use the coupon rate of the bonds to estimate the cost.
B) use the current yield to maturity of the bonds to estimate the cost.
C) use the current coupon yield of the bonds to estimate the cost.
D) none of the above.

Question

Quizplus · Accepted Answer

The most accurate way to calculate the current cost of debt for bonds is to use the current yield to maturity, which takes into account the current market price of the bonds and any changes in interest rates since the bonds were issued. The coupon rate is the fixed interest rate paid on the bonds, but it does not reflect changes in the market or interest rate environment. The current coupon yield only reflects the annual interest payment as a percentage of the bond's face value, and does not account for changes in market price or interest rates.

If a Company Has Bonds Outstanding and the Company Would