Final answer:
The cost of debt is generally lower than the cost of equity and may increase with leverage. Similarly, the cost of equity may also increase with leverage. Bonds and bank loans are both forms of debt but differ in tradeability and investor base.
Step-by-step explanation:
Regarding the cost of equity versus the cost of debt, it is generally true that the cost of debt is lower than the cost of equity. This is attributable to the tax deductibility of interest, which makes debt cheaper, and the lower risk for debt investors compared to equity investors, who are last in line in case of liquidation. Furthermore, the cost of debt may increase with leverage because as a company takes on more debt, the risk to lenders increases implying a higher interest rate may be charged to compensate for this increased risk. Conversely, the cost of equity may also increase with leverage due to the heightened financial risk faced by equity investors when a firm is highly leveraged.
From a firm's perspective, a bond is similar to a bank loan in that both are forms of borrowed capital that the firm must repay with interest. However, they differ in terms of their structure, sale, and tradeability; bonds can be traded on the secondary market and are generally issued to a large number of investors, whereas a bank loan is typically a private agreement between the borrowing firm and the lending institution.
Calculating the equity in one's home involves subtracting the amount owed on any mortgages from the current market value of the property. For example, if Eva has purchased a home for $200,000 and provided a 10% down payment, the equity would be the down payment amount, which in this case is $20,000, assuming no other changes in mortgage or property value have occurred.