All Else Equal,an Increase in Beta Results in

question 114

Multiple Choice

All else equal,an increase in beta results in

• A) an increase in the cost of retained earnings.
• B) an increase in the cost of newly issued common stock.
• C) an increase in the after-tax cost of debt.
• D) an increase in the cost of common equity, whether or not the funds come from retained earnings or newly issued common stock.

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market, indicating the level of risk associated with a particular investment.

Market Risk

The risk of losses in financial markets due to factors such as economic recessions, political turmoil, or changes in interest rates, affecting the overall market.

Asset Allocation

The strategy of distributing investments among various asset classes, such as stocks, bonds, and cash, to achieve a desired risk-reward balance.

Stock Selection

The process of choosing stocks for investment based on criteria such as financial health, market position, and growth potential to maximize returns.