Question

The average funding cost for a company is $5 \%$ per annum when the risk-free rate is $3 \%$. The company is currently undertaking projects worth $$\$ 9$$ million. It plans to increase its size by undertaking $$\$ 1$$ million of risk-free projects. What would you expect to happen to its average funding cost? 

   The average funding cost for a company is $5 \%$ per annum when the risk-free rate is $3 \%$. The company is currently undertaking projects worth $$\$ 9$$ million. It plans to increase its size by undertaking $$\$ 1$$ million of risk-free projects. What would you expect to happen to its average funding cost?
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Options, Futures, and Other Derivatives
Options, Futures, and Other Derivatives
John C. Hull 10th Edition
Chapter 9, Problem 13 ↓

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The current funding cost for the company is $5 \%$ per annum.  Show more…

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The average funding cost for a company is $5 \%$ per annum when the risk-free rate is $3 \%$. The company is currently undertaking projects worth $$\$ 9$$ million. It plans to increase its size by undertaking $$\$ 1$$ million of risk-free projects. What would you expect to happen to its average funding cost?
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