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

question 96

Multiple Choice

In an efficient market, the cost of equity for a highly risky firm:

• A)will be less than the market rate but higher than the risk-free rate.
• B)must equal the market rate of return.
• C)changes by 1 percent for every 1 percent change in the risk-free rate.
• 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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