Page 123 - AFM Integrated Workbook STUDENT S18-J19

The weighted average cost of capital (WACC)

Illustration 2

For example, if the risk free rate is 3%, the table above can be used to find
bond yields as follows:

 Company A is an A rated company with some 3 year bonds in issue.

The yield on the bonds (kd) will be: 3% + 24 basis points = 3.24%.

 Company B is a BBB rated company with some 7 year bonds in issue.

The yield on the bonds (kd) will be: 3% + 90 basis points = 3.90%.

Illustrations and further practice

Now try TYU 5 and TYU 6 from Chapter 6

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