In an Efficient Market,the Cost of Equity for a Risky

question 65

Multiple Choice

In an efficient market,the cost of equity for a risky firm does which one of the following according to the security market line?

• A)Produces a return that will be less than the market rate but higher than the risk-free rate
• B)Equals the market rate of return for all stocks
• C)Has a maximum cost equal to the market rate of return
• D)Decreases as the beta of the firm's stock increases
• E)Increases in direct relation to the stock's systematic risk

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Definitions:

Observed Score

The score actually obtained by an individual on a test or measurement.

True Score

The true score in psychometrics is an estimate of an individual's actual ability or trait level, free from measurement error.

Error Score

The difference between an observed value and the true value in data collections or experiments, indicating the amount of error in measurements.

Real Score

The actual measurement or true value that reflects the characteristic or ability being assessed, without error.