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Hi John
I’m getting confused about what the formulas below calculate:
Yield on corporate bond = risk free rate + credit spread
Cost of debt = (1-t)(risk free rate + credit spread)Are these just intended as approximations? As i thought that cost of debt was an IRR calculation, and the same for the yield to maturity. From what i understood about the spot yield curve there wouldn’t be just one rate of return as it increases year on year. i think i am misunderstanding.
If you could help I’d be very grateful!
Thanks
Sarah
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