Financial Economics

EconomicsAdvanced Level

10 flashcards

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Question

What is the purpose of asset pricing models in financial economics?

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Answer

Definition

Asset pricing models help determine the fair value of financial assets by assessing their risk and expected returns.

Example

The Capital Asset Pricing Model (CAPM) calculates expected returns based on the risk-free rate, the asset's beta, and the expected market return.

Quick Tip

Think of it as a way to price risk versus reward.

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