There are a number of different risk and return models in finance used to compute the cost of equity but they typically assume that the marginal investor is well diversified. If you use these models to estimate costs of equity for private or closely held firms, are you likely to under or over estimate the cost of equity? How would you fix the bias?

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When using risk and return models in finance to estimate the cost of equity for private or closely held firms it is likely to result in an underestima... View the full answer