Question

Lester lent money to The Corner Store by purchasing bonds issued by the store. The rate of return that he and the other lenders require is referred to as the:
(A) cost of equity.
(B) pure play cost.
(C) weighted average cost of capital.
(D) subjective cost.
(E) cost of debt.

Answer 1

Answer:

The correct answer is letter "E": cost of debt.

Explanation:

The cost of debt is the interest a company pays on its borrowings. It is expressed as a percentage rate. Also, the cost of debt can be calculated as a before-tax rate or an after-tax rate. Before interest is deductible for income taxes, the cost of debt is usually expressed as an after-tax rate.