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OF Corporation has issued three bonds to raise the capital required for investing in the expansion of its automobile factory. The least risky bond (short-term
OF Corporation has issued three bonds to raise the capital required for investing in the expansion of its automobile factory. The least risky bond (short-term bond) has a beta of 1.7, while the medium risk bond has a beta of 1.8, and the riskiest bond (long-term bond) a beta of 2.1. The market value of the least risky bond is $11 billion, $6 billion for the middle risk bond, and $7 billion for the riskiest bond. Assume that Of Corporation is in 40% tax bracket. What is the cost of debt, if the risk-free rate is 3% and market risk premium is 4%
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