The MNC's cost of equity is unrelated to the local risk-free rate.

Question

Quizplus · Accepted Answer

The MNC's cost of equity is affected by the local risk-free rate as it is used in calculating the cost of equity using the Capital Asset Pricing Model (CAPM). The CAPM formula includes the risk-free rate as one of its components. Therefore, an increase in the local risk-free rate will increase the MNC's cost of equity, and a decrease in the local risk-free rate will decrease the MNC's cost of equity.

The MNC's Cost of Equity Is Unrelated to the Local