According to MM II, if the expected return on assets decreases, what happens to the expected return on equity?

Question

Quizplus · Accepted Answer

According to MM II, the expected return on equity is directly proportional to the firm’s cost of equity and the equity risk premium. Therefore, if the expected return on assets decreases, the cost of equity will remain the same or decrease due to the decrease in the risk-free rate. As a result, the expected return on equity will also decrease.

According to MM II, If the Expected Return on Assets