In: Finance
When a country's risk-free rate falls, the cost of equity to an MNC in that country ___, and the cost of debt to an MNC in that country __, other things held constant.
increases; increases
decreases; decreases
is not affected; increases
is not affected; is not affected
The correct answer is Decreases, Decreases
When the risk free rate falls, the overall required return of the investor fall down, Therefore, the cost of equity would decline and the cost of debt would also decline as the interest rates will fall down.