Question

In an efficient market, the cost of equity for a highly risky firm: In an efficient market, the cost of equity for a highly risky firm: decreases as the beta of the firm's stock increases. will be less than the market rate but higher than the risk-free rate. changes by 1 percent for every 1 percent change in the risk-free rate. must equal the market rate of return. increases in direct relation to the stock's systematic risk.

Answer 1

In an efficient market, the cost of of the firm's equity e. increases in direct relation to the stock's systematic risk.

An efficient market bears these characteristics:

• Perfect, complete, and instant transmission of information
• There is no cost to information.
• Stock prices reflect available information.
• Forecasting cannot help in generating returns.

Thus, in an efficient market, the cost of equity reflects the market's systematic risk.

Learn more about the efficient market, systematic risk, and cost of equity here: brainly.com/question/25651592