Finance Assignments

1084 Words Jan 7th, 2018 4 Pages
Diversity is the quality of difference within any given grouping. In discussing financial and investment, this term is used to denote the variation within any grouping of investments. The term is quite relative, but also signifies a certain important traits within this realm of discussion.
1a. A substantial and unexpected increase in inflation would be an undiversified risk in most cases. Since inflation affects the entire band of investing in any given currency, any investment made in that particular currency would be exposed to that risk.
1b. A major recession in the US would also be an undiversified risk. A recession is not diverse in nature and affects all economic trade under its influence.
1c. A major lawsuit filed against one large, publicly traded corporation signifies a very diverse risk. The specific problem of having just one organization being a target denotes that this is diverse risk
Ri=Rf + Ba (Rm-Rf) = Expected rate of return
2a. 10.67%
2b. 10.14%
2c. Since beta is the ratio of the volatility between the market and its returns, the number should reciprocate at 1.0 if the market is truly balanced, which I assume it is.
The main message of the Capital Asset Pricing Model (CAPM) attempts to find value in financial assets by connecting an asset's return and its risk. It is a simple analytical tool used to find a rather straightforward and simple question: How much risk is contained in this investment? Since the CAPM uses only two true…

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