Page 125 - AFM Integrated Workbook STUDENT S18-J19

The weighted average cost of capital (WACC)

Illustration 3

For example, if the spot yield curve for government bonds is:

Year %
1 2.85

2 2.90
3 3.05

etc etc

the table above can still 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 (k d) will now be: 3.05% + 24 basis points = 3.29%.

Illustrations and further practice

Now try TYU 7 from Chapter 6

113