Q. Market condition Affecting cost of capital?
Market condition: if an investor is purchasing a security where the risk of the investment in significant the opportunity for addition return is necessary to make the Investment attractive. Essentially as the risk increase, the investor requires a higher rate of return require. This increase is called risk premium. if investor is increase their require rate of return this will be simulate cause a higher cost of the capital. If the security is not readily rate of return this will simultaneously cause a higher cost of the capital. If the security is not readily marketable when the investors wants to sell or even if a continuous demand for the security is not readily marketable when the investor wants to sell and even a continuous demand for the security exists but the price significant an investor will require a relatively high rate of the return. On the other hands if a security readily marketable and the price of the security is reasonable stable, the investor will have a lower require rate of the return and they company, s cost of capital will be lower.