The cost of equity or the cost of debt
Which is lesser for a particular company: the cost of equity or the cost of debt (ignoring taxes)? Explain.
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The debt cost is less than the equity cost for a particular firm. This is mainly since the debt investor is taking a risk which is lower than the equity investor and thus the required rate of return is lower.
Explain in brief the risk aversion? If the common stockholders are risk averse, then they will mostly invest in risky companies. Explain.
How is the option hedged?
A corporation enters in a five-year interest rate swap along with a swap bank wherein it agrees to pay the swap bank a fixed-rate of 9.75 percent annually on a notional amount of DM15,000,000 and attain LIBOR - ½ percent. As of the second reset date,
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