A Firm's Cost of Debt Often Differs from the Yield

question 83

Multiple Choice

A firm's cost of debt often differs from the yield reported on its bonds because

• A) the firm's cost of debt is unknown when the bonds are first sold.
• B) the underwriting costs for new bond issues are not tax deductible, raising the cost of debt relative to bond yields.
• C) the cost of debt changes infrequently since bond rating agencies do not change their recommendations often.
• D) the interest paid on corporate bonds is tax deductible.
• E) speculators can drive the cost of debt down so that bond yields exceed it.

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Definitions:

Political Action Committees

Organizations that collect funds to donate to political campaigns or to spend on political advertising in support of, or opposition to, specific candidates or policies.

External Marketing Factor

Influences originating outside a company that affect its marketing strategy and performance, such as economic conditions or social trends.

Consumer Protection Agency

A governmental organization dedicated to safeguarding the rights and interests of consumers, often by enforcing laws against unfair business practices.

Federal Trade Commission

A United States federal agency established to prevent unfair business practices and protect consumers from anticompetitive, deceptive, and unfair business practices.