A decrease in the amount of systematic risk will always decrease a firm's cost of equity, when calculated using the SML approach.

Question

Quizplus · Accepted Answer

According to the Security Market Line (SML) approach, a firm's cost of equity is directly related to its systematic risk (beta). A decrease in systematic risk would lower the firm's beta, thereby reducing its cost of equity as per the SML equation.

A Decrease in the Amount of Systematic Risk Will Always