Cost of Debt
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Cost of Debt

Intuition Publishing
Updated Sep 23, 2020

The cost of debt is the interest rate paid by a company on its debt. It incorporates the risk-free rate of interest and the probability that the company will default on its debt. A company's cost of debt is typically lower than its cost of equity due to the tax advantage (and typically lower risk) of debt. Here we look at how credit ratings influence the cost of debt and compare the cost of debt to the cost of equity.