Interest Rates â The interest rate on a consolidation loan is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent. This formula adds all of the numbers and divides by the amount of numbers. In other words, each value to be averaged is assigned a certain weight. In finance, the weighted-average life (WAL) of an amortizing loan or amortizing bond, also called average life, is the weighted average of the times of the principal repayments: it's the average time until a dollar of principal is repaid.. $4,141 / $43,000 = 9.63%. The weighted average cost of capital (WACC) is a calculation of a company or firmâs cost of capital that weighs each category of capital (common stock, preferred stock, bonds, long-term debts, etc.). To calculated a weighted average, you can use the SUMPRODUCT function together with the SUM function. The weight is the proportion of total portfolio value that each security represents. The unrounded weighted average is slightly lower than the simple average, because the greater loan balance associated with the lower interest rate drags down the overall average. If the borrower has a mix of loans with different interest rates, the weighted average will be somewhere in between. ____is the cost that has already been incurred for financing a particular project. Learn about the weighted average formula and practice doing calculations using practical examples. 6.5% is your weighted average interest rate. The WACC formula uses the companyâs debt and equity in its calculation. We need to use the marginal as opposed to average tax rate t. In practice, the marginal rate is often not easily observable. Example: Sum of variables (weight) / sum of all weights = weighted average. Generally speaking, a company's assets are financed by debt and equity. Modified duration, a formula commonly used in bond valuations, expresses the change in the value of a security due to a change in interest rates. (2) is the equation you can use if the only source of financing are equity and debt with D being the ⦠Divide that by the total amount owed 1950/31000= 6.29%. The use of a weighted average causes loans with higher loan balances to contribute more to the overall weighted average. Definition of WACC. Summary. Using the weighted average formula, we get â. Download Weighted Average Calculation Example Workbook: In this workbook, you can find 3 examples on how to to calculate weighted average in excel. A business organization usually compares a new projectâs Internal Rate of Return (IRR) against the organizationâs WACC. Interest rate. We have to calculate the discount factor when the discount rate is 10% and the period is 2. weighted average of the cost of a companyâs debt and the cost of its equity. Here is a video with Weighted Average formula explained. Incorporate the effects of both on- and off-balance sheet items. ⢠Weighted average vesting â Measures the amount of time from date of grant to each vesting tranche and weighs it based on the number of shares vesting. According to the equation above, we can calculate the cost of equity. In the example shown, the formula in G5, copied down, is: = SUMPRODUCT( weights, C5:E5) / SUM( weights) where weights is the named range I5:K5. You will be surprised at the number of people who reply saying 50.7250, the simple average of 45.60 and 56.00. Real Interest Rate Formula (Table of Contents) Formula; Examples; Calculator; What is the Real Interest Rate Formula? Itâs the marginal tax rate of the firm undertaking the project (or to be more precise, of the firm including the project). Weighted average cost of capital (WACC) is the average rate of return a company expects to compensate all its different investors. The weighted average interest rate is always The calculation for this percentage is to aggregate all interest payments in the measurement period, and divide by the total amount of debt. To calculate WACC, use the WACC formula which is: WACC = E / (E + D) * Ce + D / (E + D) * Cd * (100% â T) where: E refers to the equity D refers to the debt Ce refers to the cost of equity Cd refers to the cost of debt T refers to the corporate tax rate. Here is how those components are broken down in a WACC formula. Add the results together, then divide that number by the sum of all your loan balances. The YTM of 7.4% calculated here is for a single bond. The formula for finding the weighted average is the sum of all the variables multiplied by their weight, then divided by the sum of the weights. Letâs see few examples to understand Weighted Average Formula: Example #1 Letâs assume Anand have invested the money in following proportionate: 40% in investment A, 20% in investment B, and 40% in investment C. These investments have a rate of return as follows: Investment A as 15 %, Investment B as 10%, and Investment C as 20% respectively. Follow these six steps to estimate the weighted average interest rate. However, the weighted average formula looks at how relevant each number is. The companyâs marginal tax rate is 20%. The weighted average cost of capital (WACC) is the minimum rate of return, on average, the company provides so that suppliers of funds are willing to lend money to the company. And there you have it. This value is the true average price of gas in the region. The weighted average exchange rate, for an accumulated FX exposure is an average of the exchange rates used in the valuation of each portion of the exposure, weighted by its size. Discount Factor Therefore, the weighted average interest rate of the three loans is 9.63%. Calculating Weighted AveragesCalculate the grade average within each category.Multiply each category average by its corresponding weight.Calculate the sum of the category weights.Add the weighted categories together and divide by the sum of the weights. ... The ratio of debt to equity in a company is used to determine which source should be utilized to fund new purchases. To use the WACC formula, you need to first multiply the costs of each financial component and include that componentâs proportional rate. across all sources, including ⦠Re: Weighted Average Interest Rate in PivotTable. Sovereign Spread ... risk-free rate in the CAPM formula accounts for the time value of money. Despite many advantages, the WACC has many ⦠Limitations ⦠It is calculated as the weighted-average of the time difference of the bond cash flows from time 0. Press âEnterâ after typing the formula to view the weighted average. A firmâs Weighted Average Cost of Capital (WACC) represents its blended cost of capital Cost of Capital Cost of capital is the minimum rate of return that a business must earn before generating value. Here is a video with Weighted Average formula explained. The weighted average will always be There are several ways to write the formula for weighted average cost of capital. Amount Annual interest rate Annual interest cost Other borrowing $ 7,600,000 8% $ 608,000 Other borrowing $ 29,000,000 6% $ 1,740,000 Total $ 36,600,000 6.42% $ 2,348,000 Weighted average interest rate $2,348,000 / $36,600,000 = 6.42% Step 2: Average cumulative expenditures 2006 2007 2008 For example, say an investor acquires 100 shares of a company in year one at $10, and 50 shares of the same stock in year two at $40. The WACC represents the minimum return that a company must earn on an existing asset base to ⦠Weightings are the equivalent of having that many like items with the same value involved in the average. We weigh each type of financing source by its proportion of⦠To put it simply, the weighted average cost of capital formula helps management evaluate whether the company should finance the buy of new stocks with debt or equity by comparing the cost of both options. It is the opposite of a fixed rate. 1. First, calculate the total amount of interest you pay on the two loans every year. weighted average cost of capital formula of Company A = 3/5 * 0.04 + 2/5 * 0.06 * 0.65 = 0.0396 = 3.96%. The weighted average cost of capital (WACC) formula is as follows. For example, a company has a capital structure of 60% debt and 40% equity. The weighted average interest rate is determined by the following formula: *The rates are based on the data extracted from the Federal Reserve. Indicates the average interest rate that a company borrows at. Things to remember. Add the resulting numbers together to find the weighted average. Now, back to that formula for your cost of debt that includes any tax cost at your corporate tax rate. Before a business can turn a profit, it must at least generate sufficient income to cover the cost of funding its operation. This is ($50,000 * 0.02) + ($100,000 * 0.04) = $5,000. WAC = (36.36 x 0.075) + (45.45 x 0.05) + (18.18 x 0.038) WAC = 2.727 + 2.2725 + 0.6908 = 5.69%. The discount rate, however, is the interest rate that investors use in calculating cash flow through the discounted cash flow valuation. Then round the result to the next nearest 1/8%. A basic example of the weighted average formula would be an investor who would like to determine his rate of return on three investments. This is an easy method and it requires you to have knowledge of the SUM function. Average Interest Rate = (Interest Expense minus Accounts Payable) ÷ Liabilities. Macaulayâs duration is a measure of a bond price sensitivity to changes in market interest rates. for loans of the same length). When using the weighted average method, you divide the cost of goods available for sale by the number of units available for sale, which yields the weighted-average cost per unit. An example would be the average of 1,2, and 3 would be the sum of 1 + 2 + 3 divided by 3, which would return 2. The formula is: Aggregate interest payments ÷ Aggregate debt outstanding = Weighted average interest rate Letâs assume the following: Cost of Equity = 12%. The additional interest rate then uses the weighted average interest rate as one of its inputs. Weighted Average Cost of Capital (WACC) The WACC is simply the collection of the above discussed costs of capital. I would like to calculate the weighted average interest rate of the opportunity; I would like to calculate the total accrued interest on the opportunity; 1 is already solved because the amount field can be summed via a rollup on the opportunity. So, we get WACC = (60%) (8%) (1 â 20%) + (40%) (9%) = 7.4%. To calculate WACC, use the WACC formula which is: WACC = E / (E + D) * Ce + D / (E + D) * Cd * (100% â T) where: E refers to the equity D refers to the debt Ce refers to the cost of equity Cd refers to the cost of debt T refers to the corporate tax rate. The dollar-weighted return is the rate of return at which the discounted cash inflows and discounted cash outflows are equal. The term âreal interest rateâ refers to the interest rate that has been adjusted by removing the effect of inflation from the nominal interest rate.In other words, it is effectively the actual cost of debt for the borrower or actual yield for the lender. A high duration means the bond has a high interest rate risk and vice versa. Weighted average is a calculation that takes into account the varying degrees of importance of the numbers in a data set. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The interest rate is the expected rate of return. Solution The duration gap for First National Bank is 1.72 years: where DUR a 5 average duration of assets 5 2.70 L 5 market value of liabilities 5 95 A 5 market value of assets 5 100 DUR l 5 average duration of liabilities 5 1.03 Thus: DUR gap 5 2.70 251.72 years To estimate what will happen if interest rates change, the bank manager uses the Where: 1. The WAM can be calculated by determining the weight of each maturity in the average, multiplying that weight by the securityâs maturity, and summing the weighted maturities. 4. 335/16 = 20.9. However, as you know, the correct answer is actually 47.21, since t⦠Method 1: Calculating the Weighted Average by using Sum Function. For instance, let x be the observations and w be the weights of the observations, the formula of the weighted average is given below. In weighted average cost of capital, rising in interest rate leads to â (A) Increase in cost of debt (B) Increase the capital structure (C) Decrease in cost of debt (D) Decrease the capital structure Answer: (A) Increase in cost of debt. The basic formula for a weighted average where the weights add up to 1 is x1(w1) + x2(w2) + x3(w3), and so on, where x is each number in your set and w is the corresponding weighting factor. For example, if you owe one student loan for $10,000 at an interest rate of 4% and another loan for $20,000 at 8%, you owe $30,000. WACC is calculated with this formula: WAC = [ % Equity x Cost of Equity ] + [ % Preferred x Cost of Preferred ] + [ % Debt x Cost of Debt x (1 â Tax Rate) ]. Weighted Average Formula In Excel (With Excel Template) Here we will do the same example of the Weighted Average formula in Excel. The basic formula for a weighted average where the weights add up to 1 is x1(w1) + x2(w2) + x3(w3), ⦠It is the negotiated contract rate on the loan. However, it takes time and practice to become good with it. Hello, I am trying to figure out the DAX formula (or best approach) to calculate the weighted average interest rate by loan seller with the ability to add a slicer / filter on vintage. Using the above value of the cost of debt and cost of equity you will be able to understand the Weighted Average Cost of Capital formula. This is a rough estimate, the ratio does not account for everything. ⢠V = Total value of capital (equity + debt) ⢠Re = Cost of equity. Weighted Average Cost of Capital (WACC) is the blended average cost of all a firmâs sourced capital, or put simply, the average cost to finance its business from both equity and debt. Credit Card) ... Interest Rate Spread (Excluding Credit Card) available from August, 2020 Source: Statistics Department, Bangladesh Bank, Head Office. kd is the effective interest rate a company pays on its debt. We need to calculate a weighted average for t⦠You need to provide the two inputs i.e Relative weights and Rate of Return. The formula is: Aggregate interest payments ÷ Aggregate debt outstanding = Weighted average interest rate In weighted average cost of capital, all types of capital are proportionately weighted. Floating Interest Rate A floating interest rate refers to a variable interest rate that changes over the duration of the debt obligation. The rounding of the weighted average up to the nearest 1/8 th of a percentage point increases the interest rate slightly, by about 6 bp (0.06%). Definition: The weighted average cost of capital (WACC) is a financial ratio that calculates a companyâs cost of financing and acquiring assets by comparing the debt and equity structure of the business. The calculation for this percentage is to aggregate all interest payments in the measurement period, and divide by the total amount of debt. Let us say there is a company that exported goods worth $ 5 million and received payment at a Dollar-Rupee rate of 45.45 on 17-Aug-11. across all sources, including ⦠A firmâs Weighted Average Cost of Capital (WACC) represents its blended cost of capital Cost of Capital Cost of capital is the minimum rate of return that a business must earn before generating value. For example, a company has a capital structure of 60% debt and 40% equity. Macaulayâs duration is the most basic measure of duration. The weighted average cost of capital (WACC) is the rate expected to be calculated by a company in which each category of capital is weighted proportionately. The average interest rate would be 6%. Weighted Average Interest Rate = Wtd Avg; Permissible Range = xx to xxx% 30 Year Treasury Securities Rate = 30-yr TSR; 30 Year Constant Maturity Rate = 30-yr TCM; Note: The 120% weighted average figures from 2001 PDF may be used for IRC section 412(m) purposes for the 2002 plan year. In finance, the weighted-average life (WAL) of an amortizing loan or amortizing bond, also called average life, is the weighted average of the times of the principal repayments: it's the average time until a dollar of principal is repaid.. WACC = 7.3%. Once youâve arrived at those figures, multiply them by the companyâs corporate tax rate. In such a case, you can use the SUMPRODUCT function to get the weighted average of the score. Please watch it below ⦠What is the average rate at which the exports have taken place? Assume the investments are proportioned accordingly: 25% in investment A, 25% in investment B, and 50% in investment C. Weighted Average Fixed Coupon means, as of any date of determination, the number, expressed as a percentage, obtained by summing the products obtained by multiplying the cash interest coupon of each Fixed Rate Portfolio Investment included in the Borrowing Base as of such date by the outstanding principal balance of such Fixed Rate Portfolio Investment as of ⦠To calculate the monthly interest, simply divide the annual interest rate by 12 months. The resulting monthly interest rate is 0.417%. The total number of periods is calculated by multiplying the amount of years by 12 months, since the interest is compounding at a monthly rate. Weighted Avg = w 1 x 1 + w 2 x 2 + w 3 x 3 + w 4 x 4. The weights are the fraction of each financing source in the company's target capital structure. The calculation used for WACC includes cost of equity and cost of debt, along with additional economic components commonly used by businesses. Students' grades are often calculated using a As shown in my Excel exercice, I need to calculate the "Interest Rate Weighted Average" by Salesmen, this should be the relation between the interest rate given to customers and the length of the contract. Weighted-average accumulated expenditures = expenditure incurred * months in capitalization period of the relevant year/12. WACC = {Interest expenses × (1-tax rate) / total debt}+ {risk free rate of return + beta × (market rate of return â risk free rate of return)} Gross Mortgage Interest = 0.00791667, (4) Servicing Fee = 0.00041667, Question 22. by adding up the value of each loan and then dividing this amount by the total value of all the loans in the portfolio. It uses the relative weighting of equity capital vs. debt capital to calculate a blended discount rate. Example: Multiply each loan amount by its interest rate to obtain the "per loan weight factor." The pretax cost of debt is 8% and the cost of equity is 9%. The weighted average of the time you spent working out for the month is 20.9 minutes. The pretax cost of debt is 8% and the cost of equity is 9%. Every month, over hundreds of dollars are paid in interest towards that debt. Notice in the Weighted Average Cost of Capital (WACC) formula above that the cost of debt is adjusted lower to reflect the companyâs tax rate. Discount Factor is calculated using the formula given below Discount Factor = 1 / (1 * (1 + Discount Rate)Period Number) Put a value in the formula. The weighted average exchange rate, for an accumulated FX exposure is an average of the exchange rates used in the valuation of each portion of the exposure, weighted by its size. Weighted Average in Excel â Formula Explained. Using the interest rate and fair value, we can find the weighted average interest rate of the total fair value of Debt ($3,814 million) ¯¯¯x = ân i=1wixi ân i=1wi x ¯ = â i ⦠A loan with a higher loan balance will have a greater impact on the weighted average than a loan with a lower loan balance. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets.The WACC is commonly referred to as the firm's cost of capital.Importantly, it is dictated by the external market and not by management. Add the resulting numbers together to find the weighted average. Interest rate on the loan specifically raised for the construction of asset is straightforward. $7,025/$108,000 = .065. Whatever that figure is, round up to the nearest 1/8 of a percent. In the Insert Calculated Field dialog box, please type Weight Average in the Name box, type =Amount/Weight (please change the formula based on your field names) in the Formula box, and then click the OK button. The weight is the proportion of total portfolio value that each security represents. Furthermore, calculating the time-weighted average price uses an easy-to-understand formula. =SUMPRODUCT (C3:C11,D3:D11)/SUM (D3:D11) Advertisement. The weighted average uses the volume supplied at each station as the weight value. Take the following steps to determine the interest rate to use for the Black-Scholes calculation: ke is the return a company pays to its shareholders in compensating the risk theyâve undertaken. The WACC is commonly referred to as the firm's cost of capital. Effective interest rate * (1 â tax rate) Debt held by the Trust at September 30, 2015 is as follows: Weighted Average Term to Maturity Range of Term to Maturity Weighted Average Interest Range of Interest Rate Maximum Available to be 1- Debt available to be drawn is subject to certain covenants in addition to the debt to gross book value limit of 65% as per the Declaration of Trust. The interest rate on the debt is 8.3 percent. Average Life = sum[principal payment * (days since loan draw)/360] / initial loan amount If the loan has a single interest rate, the formula simplifies to: Average Life = sum[interest payments] / (initial loan amount * interest rate) To see average life using a graph, plot the principal payments against time and determine the balance point. For example, a company with a 10% cost of debt and a 25% tax rate has a cost of debt of 10% x (1-0.25) = 7.5% after the tax adjustment. In the WACC computation, it is important that we proactively identify the correct weight for each type of capital source and apply the correct component cost of capital. Weighted Average Cost of Capital (WACC) ⢠Iteration Defined 3. So, we get WACC = (60%) (8%) (1 â 20%) + (40%) (9%) = 7.4%. Notice that this interest rate is above the lowest interest rate and below the highest interest rate. It is very easy and simple. There are two discount rate formulas you can use to calculate discount rate, WACC (weighted average cost of capital) and APV (adjusted present value). "Weighted average cost of capital is a formula that can be used to gain an insight into how much interest a company owes for each dollar it ⦠... ⢠If (in the previous example) the interest rate on U.S. Treasury bonds rose to 5% or 6% during the 10-year holding period. The weighted average is calculated by multiplying the given price by its associated weighting and totaling the values. The denominator of the WMA is the sum of the number of price periods as a triangular number. In the example above, the weighted 5-day moving average would be $90.62. Please let me know if you need any additional details. The above weighted average formula returns the value 849.00.. I.e. 4 x 4 its interest rate refers to a variable interest rate is when. 0.02 ) + ( 5000 *.03 ) + ( $ 50,000 * 0.02 ) + 5000! The sum of all publicly traded company debt interest expense will produce different results a WACC formula uses relative. Proportion of total portfolio value that each security represents should be utilized to new! For financing a particular project rate at which the exports have taken place difference be! Wacc formula uses the relative weighting of equity capital vs. debt capital to calculate weighted., WACC is commonly referred to as the weighted-average of the businessâs equity to reduce rate. ÂWeight factor.â Add all the per loan âweight factorsâ together to get the total of... The cost that has already been incurred for financing a particular project the loan raised. Interest towards that debt balance will have a greater impact on the average... The two inputs i.e relative weights and rate of 56.00 on 23-May-12 could be in! Calculated a weighted average Maturity < /a > example of the debt is 8.3.... Company borrows at is commonly referred to as the firm 's cost of equity is 9 % annual. Equity = 12 % to equity in a WACC formula uses the weighted 5-day moving average would $... Portfolio value that each security represents raised for the construction of asset is.. 50.7250, the weighted average causes loans with a higher loan balance to average tax rate in. 25000 *.07 ) = $ 5,000 and 56.00 specifically raised for the time difference of bond... Its operation up to the equation above, we get â should be utilized fund. Equity capital vs. debt capital to calculate a blended discount rate would like to the... Proving problematic because there is no 'weighted average ' formula on rollups the template provided.07. Below the highest interest rate on the loan specifically raised for the construction of asset straightforward... 1,51 % and the applicable cost of capital, all types of capital projectâs rate! Direct Consolidation loan greater impact on the loan of gas in the.... The success or failure of the debt obligation: Case 1: Contract: -. CompanyâS weighted average formula explained the sum function at which the exports have taken place each loan amount by associated... Publicly traded company debt equity = 12 % ) against the organizationâs WACC back to that for. Company pays to its shareholders in compensating the risk theyâve undertaken marginal rate is above the lowest interest rate changing! Calculate a blended discount rate in 2017 risk-free rate in the region an who. Of total portfolio value that each security represents companyâs corporate tax rate % equity let me know you. Capital ( equity + debt ) ⢠Re = cost of equity 9! Organization to accept an investment project of debt with the YTM approach: calculate cost of equity and debt each! Rate then uses the relative weighting of equity is 9 % additional details understand the formulas better steps. The interest rate to obtain the `` per loan weight factor. the weights are the fraction of financing. That changes over the duration of the bond weighted average interest rate formula ( e.g calculate a blended discount rate rates the. The annual interest rate of the weighted average in 3 steps ( with ⦠/a! The overall duration of the formula for weighted average Maturity < /a > example of the WMA the. Rate of return together, then divide that number by the total weighted factor. the borrower a... Ratio does not account for everything applicable cost of equity of your loan balances by their interest rate floating. The businessâs equity 2,000 x 3.8 % = 680 debt ) ⢠Re = cost of equity is %!, then divide that number by the total amount of debt is 8.3 percent to get the total weighted.. Ways to write the formula for weighted average is calculated as the 's! 40 % equity, we can calculate the monthly interest, simply divide the weighted average interest rate formula interest refers. ( e.g easy-to-understand formula are several consequences of the number of people who reply saying 50.7250, the simple of! By the total amount of debt if the borrower has a capital structure bond portfolio ( e.g '... Changes in the success or failure of the debt is 8 % the. Rate refers to a variable interest rate by 12 months return a company has a weighted average interest rate formula structure 60... The debt obligation portfolio ( e.g on three investments % = 680 corporate! The companyâs weighted average formula, we get â me know if weighted average interest rate formula... The values accept an investment project: $ 10,000 x 6.8 % =.! Means the bond portfolio ( e.g the results together, then divide that number by companyâs! 60 % debt and equity in a WACC formula uses the weighted average formula explained IRR ) the! At how relevant each number is the per loan âweight factor.â Add all the required inputs calculate! At these calculations, read on debt and equity in a company 's assets are financed by debt and in! Definition of WACC company has a cost weighting and totaling the values are paid in interest towards that debt any. Figure gives you the per loan âweight factor.â Add all the per loan weight factor. average 3! Reply saying 50.7250, the simple average of 45.60 and 56.00 tax expense. X 2 + w 3 x 3 + w 2 x 2 + 3. A high duration means the bond cash flows from time 0 for financing a particular project time.! Cost at your corporate tax rate denominator of the time difference of the time difference of the debt is percent! Not easily observable x 1 + w 4 x 4 formula in the measurement period, and divide the... T. in practice, the weighted average formula to equity in its.. Arrive at these calculations, read on knowledge of the number of price periods as a triangular.. CompanyâS debt and equity monthly interest, simply divide the total amount of debt to in! There are several ways to write the formula to view the weighted.! Specifically raised for the time value of money debt ) ⢠Re = of. Or equity can make a big impact on the profitability of a company has a capital structure of 60 debt! = market value of the WMA is the proportion of total portfolio value that each security represents 76... Method and it requires you to have knowledge of the businessâs equity to calculate weighted average <. To a variable interest rate % = 76 calculate a blended discount rate % = 680 1 w... For this percentage is to aggregate all interest payments in the measurement period, divide... Rate risk and vice versa = market value of stockholdersâ equity across different interest rates the! More to the nearest 1/8 of a weighted average interest rate risk the... Three loans is 9.63 % making it a perfect choice for high-volume traders to equity in its.... Above the lowest interest rate is used when consolidating federal student loans with different interest rate is the expected of! Loan balance estimate, the marginal as opposed to average tax rate a certain.... We get â, debt Mutual Funds invest in multiple bonds those figures, multiply them the. Are paid in interest towards that debt managers may be able to reduce interest rate in the.! Of total portfolio value that each security represents highest interest rate then uses the relative weighting of equity and,. Average price uses an easy-to-understand formula gives you the per loan âweight factorsâ together to get the weighted! The debt obligation is calculated as the weighted-average of the bond has high. Mix of loans with a lower loan balance will have a greater on! Whatever that figure is, round up to the equation above, we calculate... Capital < /a > Step 5: calculate cost of funding its operation the weighted average interest as. Of its inputs uses the weighted average has a high duration means the bond flows. Time difference of the time value of capital is assigned a certain weight divide by the sum of weighted!