Cost of Debt Calculator

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Written by CFI Team

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Cost of Debt Calculator

This cost of debt calculator is used to calculate the annual yield to maturity of a company’s debt, otherwise known as its cost of debt or the interest rate. This calculator takes the following values for its inputs:

bond face value
bond price
number of years to maturity
coupon payment period (e.g. monthly, quarterly, etc.)
coupon rate

Here is a preview of the cost of debt calculator:

Cost of Debt Calculator Preview

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Estimating Cost of Debt

The cost of debt is the return provided to the debtholders and creditors of a company. These investors are given a return to compensate for the risk that comes with lending money.

Observable interest rates often contribute to quantifying cost of debt. Therefore, the cost of debt of a company reflects both its risk of default as well as the interest rates in the market. Additionally, it is also a component in calculating Weighted Average Cost of Capital (WACC).

There are two methods to calculating cost of debt:

Calculating the yield to maturity (YTM) of a company’s debt
Determining the cost of debt by referencing the credit rating of the firm

This cost of debt calculator uses the first calculation method. If a company is public, it can have observable debt in the market. We can look at the company’s bonds and use the values mentioned above to solve for the YTM of the bond. It is best to use this method when the company you are looking at has a simple capital structure. If it has a more complicated capital structure with multiple tranches of debt, there will be multiple differing interest rates.

cost of debt formula

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Additional Resources

CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:

The Financial Modeling Certification

Analyst Certification FMVA® Program

The Financial Modeling Certification

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A well rounded financial analyst possesses all of the above skills!

Additional Questions & Answers

CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.

In order to become a great financial analyst, here are some more questions and answers for you to discover:

Excel Tutorial

The Financial Modeling Certification

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