Interest rates and equity capital costs

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Reference no: EM13953694

Please, explain in a very accurate and detailed way, provide logical and consistent answer. It is very important in this task. Provide VERY DETAILED explanation.

If the price of money (e.g., interest rates and equity capital costs) increases due to an increase of anticipated inflation, the risk-free rate will also increase. If there is no change in investment aversion, then the market risk premium (r_M - r_RF) will remain constant. Also if there is change in stocks' betas, then the required rate of return on each stock as measured by will increase by the same amount as the increase in expected inflation.

Reference no: EM13953694

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