c. A stable well-established company with a relatively low level of borrowing and low risk operations might have to pay a slightly higher rate of return on debt capital than the UK government. Such a company, if it issued a corporate bond with a high credit rating (low risk of default), would pay, say, and extra 100 basis points (ie.) 1% per year. this is described as the risk premium (RP) on top of the risk free rate. then, the cost of debt capital, Kd is Kd=rf+RP