What conditions would this calculation be justifiable

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Reference no: EM133332160

Question: You want to estimate a company's cost of debt and find that it has 4 debt issues outstand- ing, including one corporate bond that's currently traded in public markets. You plan to collect historical data on this bond's returns and estimate its beta using a CAPM regression. You will then estimate the company's cost of debt by evaluating the CAPM formula at this beta estimate. Highlight potential problems with this calculation. Under what conditions would this calculation be justifiable? In answering this question, assume that you're confident about:

(i) your proxy for the market portfolio,

(ii) your estimate of the riskless rate and market risk premium, and

(iii) the validity of the CAPM.

Reference no: EM133332160

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