Asset Pricing Model

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Definition: Asset Pricing Model

Asset Pricing models are tools to quantify the value of an asset such as a stock/bond. It enables one to attach a numerical value to an asset rather than it being in an abstract form.

One of the most commonly used asset pricing model is the capital asset pricing model (CAPM) which is used to estimate the cost of equity of a firm using the risk-free rate, market risk premium and the risk factor (β).

 

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