An increase in the firm's beta will always decrease a firm's cost of equity, when calculated using the SML approach.

Question

Quizplus · Accepted Answer

An increase in the firm's beta, which measures the stock's volatility relative to the market, typically increases the firm's cost of equity according to the Security Market Line (SML) approach. This is because a higher beta indicates higher risk, and investors demand higher returns for higher risk.

An Increase in the Firm's Beta Will Always Decrease a Firm's