There Are Two Costs of Debt Finance

question 80

True/False

There are two costs of debt finance.The explicit cost of debt is the rate of interest that bondholders demand.But there is also an implicit cost,because overborrowing increases the required rate of return to equity.

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Definitions:

1933

The year notable for the depth of the worldwide Great Depression and the implementation of the New Deal in the United States.

Transfer Payment

A payment made by governments to individuals without any services or goods being received in return, often part of social welfare programs.

Old-Age Pensions

Retirement benefits provided by the government, employers, or other institutions to support individuals financially after they retire.

Military Expenditures

The funds spent by a country on its military forces, including salaries, equipment, and operations.