Wright Market Research is able to borrow money at a rate of 6.8 percent per year. This interest rate is called the:

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The question asks to identify what the 6.8 percent per year rate Wright Market Research can borrow money at.
Option 1: cost of debt. This term refers to the effective rate a firm pays on its borrowings, i.e., the interest rate on its debt. Since the given rate is the rate charged by lenders to finance the company’s debt, this option aligns with the standard definition.
Option 2: capital gains yield. This represents the portion of an investment's return attributable to an increase in its price, not the interest rate charged on borrowed funds. It is not related to borrowing costs.
Option 3: compound rate. While the rate could be used in a compound-interest calculation, the specific description of the rate as the amount charged to borrow money is more precisely captured by terming it the cost of debt rather than just a generic compound rate.
Option 4: current yield. Current yield measures income relative to price for a bond, typically annual coupon divided by price, and reflects expected cash return from holding the asset, not the borrowing cost faced by a company.
Option 5: cost of capital. This broader measure combines the costs of debt and equity weighted by their proportions in the firm’s capital structure. The given rate is the cost of debt component specifically, not the overall cost of capital.
In summary, the stated 6.8 percent per year is best described as the cost of debt, since it represents the interest rate charged on the company’s borrowed funds, distinguishing it from yields, rates used in compounding, or the overall cost of capital.

BUSFIN 3220 AU2025 (2910) Exam 3 - Requires Respondus LockDown Browser

Wright Market Research is able to borrow money at a rate of 6.8 percent per year. This interest rate is called the:

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