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The 20-year Treasury rate is3.55percent, and a firm's credit rating is BB. Suppose management of the firm decides to raise $20 million by selling 20-year

The 20-year Treasury rate is3.55percent, and a firm's credit rating is BB. Suppose management of the firm decides to raise $20 million by selling 20-year bonds. Management determines that since it has plenty of experience, it will not need to hire an investment banker. At present, 20-year BB bonds are selling for120basis points above the 20-year Treasury rate, and it is forecast that interest rates will not stay this low for long.

What is the cost of borrowing?

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