Question 1 Cost of equity capital is:

a. the return that lenders require on their investment

b. the return that debtholders require on their investment

c. the return that bondholders require on their investment

d. the return that stockholders require on their investment

__________ of a bond can be interpreted as a measure of the average rate of return that will be earned on a bond if the bond is held until maturity. Average maturity Duration Bond maturity YTM

All else constant, which one of the following will decrease a firm's cost of equity if the firm computes that cost using the security market line approach? Assume the firm has paid dividends and has a beta of 1.5.

a. A reduction in the risk-free rate.

b. An increase in the risk-free rate.

c. An increase in the market rate of return.

d. An increase in the dividend amount.

e. A reduction in the dividend amount.