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The cost of debt is defined as the: a. annual interest divided by the current price b. pre-tax...

Question:

The cost of debt is defined as the:

a. annual interest divided by the current price

b. pre-tax change in the face value of a bond over time

c. aftertax change in the face value of a bond over time

d. capital gain less the interest income

e. return that lenders require on any new borrowing by the firm

Cost of Debts:

Debts are the funds that are borrowed by the firm and it needs to be returned at its maturity date. As it needs to be returned, therefore it is called debt. While paying the debt, the firm must pay a certain amount of interest called the cost of debt.

Answer and Explanation:

The correct option is E.

Reason:

The interest that the leader gets from the firm is the return for him or her but the same is the cost of cost for acquiring the debts. Therefore, the correct option is E.


Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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