The cost of a bond will develop on two factors:
1. The risk free rate derived from the yield curve for a bond of that specified duration
从一个指定时间的债券的收益率曲线得到无风险利率
The yield curve shows how the yield on government bonds vary according to the term of borrowings. Normally it is upward sloping. 向上陡坡 There are a number of explanations of the yield curve; these are not competing explanations, and at any one time may be influencing the shape of the yield curve 对于收益率曲线的的形状, 有很多解释,这些解释互不冲突,任何时候任一因素都会影响 yield curve 的形状。
1)Expectations theory 预期理论-the curve reflects expectations that interest rates will rise in the future, so the government has to offer higher returns on long-term debt.
2 ) Liquidity preference theory 流 动 性 偏 好 理 论 -the curve reflects the compensation that investors require higher returns for sacrificing liquidity on long-dated bonds.
3)Market segmentation theory 市场分割理论-short dated bonds tend to be more popular with banks and long-dated bonds are more popular with pension funds. If demand for bonds is higher in one of these markets the government can offer lower returns.
2. The credit premium-derived from the bond's credit rating 根据信用评级来,一般 题目会告知 Cost of debt capital=(1-tax rate)*(risk free rate + credit spread)