Answer: b. current yield to maturity
Explanation:
Interest rates charged on debt are primarily based on the risk of the borrower being able to pay back the debt. The higher the risk, the higher the interest rate charged.
The risk of not paying (default) back the debt is higher when the borrower already has existing debt. This is why in such instances, the interest on the new debt will be based on the yield to maturity (interest rate) of the existing debt so that the risk of default is adequately accounted for.
