All else equal,an increase in beta results in
A) an increase in the cost of retained earnings.
B) an increase in the cost of newly issued common stock.
C) an increase in the after-tax cost of debt.
D) an increase in the cost of common equity, whether or not the funds come from retained earnings or newly issued common stock.

Question

Quizplus · Accepted Answer

Beta measures the systematic risk of an asset or investment relative to the market. An increase in beta indicates an increase in the asset's risk, which in turn increases the cost of common equity. This increase in cost occurs whether the funds come from retained earnings or newly issued common stock. Therefore, option D is the correct answer. Options A and B are incorrect because they specifically refer to retained earnings or newly issued common stock, respectively, while beta's impact is broader than that. Option C is incorrect because beta is not directly related to the cost of debt.

All Else Equal,an Increase in Beta Results in