If the equity risk premium (ERP) expands, K_e will:

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The equity risk premium (ERP) is the extra return that investing in the stock market provides over a risk-free rate. When the ERP expands, it means that the expected return from equities is increasing relative to risk-free assets. The cost of equity (denoted here as KS) is typically calculated using the Capital Asset Pricing Model (CAPM), which includes the equity risk premium adjusted by the stock's beta (a measure of its volatility relative to the market). Therefore, if the ERP expands, the cost of equity will increase by an amount proportional to the stock's beta, reflecting the higher expected returns required by investors for taking on additional risk.

If the Equity Risk Premium (ERP) Expands, Ke Will

If the Equity Risk Premium (ERP) Expands, K_e Will