CMA Study Group

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  • 1.  Difficult question

    Posted 05-08-2023 02:23 PM

    Regarding the Weighted average cost of capital, sometimes the question used "coupon rate" and sometimes used "yield" rate in order to calculate the cost of debts. I get confused.

    Would you please help me? 

    Ala Albajaly

  • 2.  RE: Difficult question

    Posted 05-09-2023 02:07 AM
    in calculating the after tax cost of Debt
    1-if bond is trading at par then use the copon rate (in which the copon=effective interest rate or yield in that case
    2-if bond is trading at premium or discount then you use the yield and if not given you have to calculate it 
    =Par value* copon rate/net proceeds