Assume a firm has a beta of 1.2. All else held constant, the cost of equity for this firm will increase if the: A.beta decreases. B.decreases as the beta of the firm's stock increases C.either the risk-free rate or the market rate of return decreases. D.must equal the market rate of return

Assume a firm has a beta of 1.2. All else held constant, the cost of equity for this firm will increase if the: A.beta decreases. B.decreases as the beta of the firm's stock increases C.either the risk-free rate or the market rate of return decreases. D.must equal the market rate of return

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 15MC: Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds)...

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Assume a firm has a beta of 1.2. All else held constant, the cost of equity for this firm will increase if the:

A.beta decreases.

B.decreases as the beta of the firm's stock increases

C.either the risk-free rate or the market rate of return decreases.

D.must equal the market rate of return

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

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