Assume that the risk-free rate increases. What impact would this have on the cost of debt? What impact would i?

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have on the cost of equity?

Thanks in advance

1 Comment
  1. Reply
    William N
    November 10, 2011 at 11:26 am

    The risk-free rate is the rate that would be charged if the only cost to the lender was the loss of use of his money for the time of the loan. Any risk in excess of the risk-free rate comes on top of it. If the risk-free rate increases, the cost of debt should increase by the same amount as well.

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