Cost of debt
You'll learn how to calculate the cost of debt using multiple methods relevant to AFM (Advanced Financial Management). This video covers irredeemable and redeemable debt calculations, the credit spread method, spot yield curves, and the debt beta approach.
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In this lesson
- 0:00 Cost of debt overview
- 0:08 Irredeemable debt explained
- 0:39 Calculating irredeemable debt cost
- 1:11 Redeemable debt fundamentals
- 1:43 IRR method for redeemable debt
- 2:07 Yield to maturity calculation
- 3:21 Credit spread method explained
- 4:26 Credit spread worked examples
- 6:32 Credit rating agencies assessment
- 7:27 Spot yield curve application
- 9:33 CAPM approach to debt cost
- 10:15 Default risk and interest rates
About this lesson
You'll work through practical examples showing how to apply each technique in exam scenarios, including converting basis points, interpreting credit rating tables, and adjusting for tax relief. By the end, you'll understand how lenders price debt based on default risk and be confident applying these calculations to real company situations.
Duration: 11m
Transcript
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