Write an assessment in which you address the following problems/questions: 1. Assess how diversification benefits the investor.

Question:

Write an assessment in which you address the following problems/questions:
1. Assess how diversification benefits the investor. Can you imagine circumstances where an investor would not want to diversify? Then explain why or why not.
2. Analyze the formulation of the including the definition of the model with identification of each component. Explain how the CAPM development effectively makes use of the diversification as a foundation for the development of the model. Discuss the uses of the within finance.
3. Develop the using the assumptions that the risk-free rate is 3%, the on the market is 8%, and the relevant beta is 1.05.
4. Use problem 3 to develop the alternative solutions presented within a table for the assumptions that the beta is 0.75, 1.05, and 1.75 as well as the assumption that the risk free rate is 1%, 3%, and 6.5%.
5. Develop a valuation model for a assuming that a company just paid a of $1.75 per share. It's assumed that the will grow at a constant rate of 6% per year forever. The risk-free rate is 6% with an on the market of 12% and a beta of 1.1. Show each step in generating the resulting valuation.
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...