Assume a Firm Has a Beta of 1

question 72

Multiple Choice

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)market risk premium decreases.
• B)risk-free rate decreases.
• C)market rate of return decreases.
• D)beta decreases.
• E)either the risk-free rate or the market rate of return decreases.

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Definitions:

Par Value

The nominal value of a bond or stock as declared by the issuer, which might not represent its actual market value.

Exchange Rate

The price at which one currency can be exchanged for another currency in the foreign exchange market.

Loss

A financial condition where expenses exceed income, leading to a negative net income.

Euros

The official currency of the Eurozone, used by 19 of the 27 European Union countries.