Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity?
To identify: The impact on cost of debt and cost of equity if the risk-free rate increases but the market risk premium remains constant.
Introduction:
Risk-Free Rate:
Risk-free rate is the rate for an investment that has zero or no risk. This is the least return that an investor will look forward to receive from a risk-free investment for a period.
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