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Asset pricing model |
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Definition of Asset pricing modelAsset pricing modelA model for determining the required rate of return on an asset. Asset pricing modelA model, such as the Capital asset pricing model (CAPM), that determines the required
Related Terms:Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Capital Asset Pricing Model (CAPM)A model for estimating equilibrium rates of return and values of capital asset pricing model (CAPM)Theory of the relationship between risk and return which states that the expected risk CARs (cumulative abnormal returns)a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock. Arbitrage Pricing Theory (APT)An alternative model to the capital asset pricing model developed by Excess returnsAlso called abnormal returns, returns in excess of those required by some asset pricing model. Foreign market betaA measure of foreign market risk that is derived from the capital asset pricing model. Jensen indexAn index that uses the capital asset pricing model to determine whether a money manager Multifactor CAPMA version of the capital asset pricing model derived by Merton that includes extramarket Two-factor modelBlack's zero-beta version of the capital asset pricing model. CAPMSee capital asset pricing model. economic components modelAbramsâ€™ model for calculating DLOM based on the interaction of discounts from four economic components. Gordon modelpresent value of a perpetuity with growth. log size modelAbramsâ€™ model to calculate discount rates as a function of the logarithm of the value of the firm. QMDM (quantitative marketability discount model)model for calculating DLOM for minority interests r the discount rate Acquisition of assetsA merger or consolidation in which an acquirer purchases the selling firm's assets. Administrative pricing rulesIRS rules used to allocate income on export sales to a foreign sales corporation. Arbitrage-free option-pricing modelsYield curve option-pricing models. AssetAny possession that has value in an exchange. Asset/equity ratioThe ratio of total assets to stockholder equity. Asset/liability managementAlso called surplus management, the task of managing funds of a financial Asset activity ratiosRatios that measure how effectively the firm is managing its assets. Asset allocation decisionThe decision regarding how an institution's funds should be distributed among the Asset-backed securityA security that is collateralized by loans, leases, receivables, or installment contracts Asset-based financingMethods of financing in which lenders and equity investors look principally to the Asset classesCategories of assets, such as stocks, bonds, real estate and foreign securities. Asset-coverage testA bond indenture restriction that permits additional borrowing on if the ratio of assets to Asset for asset swapCreditors exchange the debt of one defaulting borrower for the debt of another Asset substitutionA firm's investing in assets that are riskier than those that the debtholders expected. Asset substitution problemArises when the stockholders substitute riskier assets for the firm's existing Asset swapAn interest rate swap used to alter the cash flow characteristics of an institution's assets so as to Asset turnoverThe ratio of net sales to total assets. AssetsA firm's productive resources. Assets requirementsA common element of a financial plan that describes projected capital spending and the Binomial option pricing modelAn option pricing model in which the underlying asset can take on only two Black-Scholes option-pricing modelA model for pricing call options based on arbitrage arguments that uses Constant-growth modelAlso called the Gordon-Shapiro model, an application of the dividend discount Current assetsValue of cash, accounts receivable, inventories, marketable securities and other assets that Deterministic modelsLiability-matching models that assume that the liability payments and the asset cash Discounted dividend model (DDM)A formula to estimate the intrinsic value of a firm by figuring the Dividend discount model (DDM)A model for valuing the common stock of a company, based on the Dividend growth modelA model wherein dividends are assumed to be at a constant rate in perpetuity. Dynamic asset allocationAn asset allocation strategy in which the asset mix is mechanistically shifted in Exchange of assetsAcquisition of another company by purchase of its assets in exchange for cash or stock. Extrapolative statistical modelsmodels that apply a formula to historical data and project results for a Factor modelA way of decomposing the factors that influence a security's rate of return into common and Financial assetsClaims on real assets. Fixed assetLong-lived property owned by a firm that is used by a firm in the production of its income. Fixed asset turnover ratioThe ratio of sales to fixed assets. Garmen-Kohlhagen option pricing modelA widely used model for pricing foreign currency options. Index modelA model of stock returns using a market index such as the S&P 500 to represent common or Intangible assetA legal claim to some future benefit, typically a claim to future cash. Goodwill, intellectual Liquid assetasset that is easily and cheaply turned into cash - notably cash itself and short-term securities. Long-term assetsValue of property, equipment and other capital assets minus the depreciation. This is an Limitation on asset dispositionsA bond covenant that restricts in some way a firm's ability to sell major assets. Market modelThis relationship is sometimes called the single-index model. The market model says that the ModelingThe process of creating a depiction of reality, such as a graph, picture, or mathematical Net asset value (NAV)The value of a fund's investments. For a mutual fund, the net asset value per share Net assetsThe difference between total assets on the one hand and current liabilities and noncapitalized longterm Non-reproducible assetsA tangible asset with unique physical properties, like a parcel of land, a mine, or a Other current assetsValue of non-cash assets, including prepaid expenses and accounts receivable, due Pie model of capital structureA model of the debt/equity ratio of the firms, graphically depicted in slices of Policy asset allocationA long-term asset allocation method, in which the investor seeks to assess an Pricing efficiencyAlso called external efficiency, a market characteristic where prices at all times fully Publicly traded assetsassets that can be traded in a public market, such as the stock market. Quick assetsCurrent assets minus inventories. Real assetsIdentifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a Regulatory pricing riskRisk that arises when regulators restrict the premium rates that insurance companies Reproducible assetsA tangible asset with physical properties that can be reproduced, such as a building or Residual assetsassets that remain after sufficient assets are dedicated to meet all senior debtholder's claims in full. Return on assets (ROA)Indicator of profitability. Determined by dividing net income for the past 12 months Return on total assetsThe ratio of earnings available to common stockholders to total assets. Riskless or risk-free assetAn asset whose future return is known today with certainty. The risk free asset is Risky assetAn asset whose future return is uncertain. Risk-free assetAn asset whose future return is known today with certainty. Single factor modelA model of security returns that acknowledges only one common factor. Single index modelA model of stock returns that decomposes influences on returns into a systematic factor, Simple linear trend modelAn extrapolative statistical model that asserts that earnings have a base level and Single-index modelRelated: market model Stochastic modelsLiability-matching models that assume that the liability payments and the asset cash flows Tactical Asset Allocation (TAA)An asset allocation strategy that allows active departures from the normal Tangible assetAn asset whose value depends on particular physical properties. These i nclude reproducible Total asset turnoverThe ratio of net sales to total assets. Two-state option pricing modelAn option pricing model in which the underlying asset can take on only two Underlying assetThe asset that an option gives the option holder the right to buy or to sell. UnderpricingIssue of securities below their market value. Value-at-Risk model (VAR)Procedure for estimating the probability of portfolio losses exceeding some Wasting assetAn asset which has a limited life and thus, decreases in value (depreciates) over time. Also Yield curve option-pricing modelsmodels that can incorporate different volatility assumptions along the ASSETSAnything of value that a company owns. Current assetsCash, things that will be converted into cash within a year (such as accounts receivable), and inventory. RATE OF RETURN ON TOTAL ASSETSThe percentage return or profit that management made on each dollar of assets. The formula is: AssetsThings that the business owns. Cost-plus pricingA method of pricing in which a mark-up is added to the total product/service cost. Current assetsAmounts receivable by the business within a period of 12 months, including bank, debtors, inventory and prepayments. Fixed assetsThings that the business owns and are part of the business infrastructure â€“ fixed assets may be Intangible fixed assetsNon-physical assets, e.g. customer goodwill or intellectual property (patents and trademarks). Tangible fixed assetsPhysical assets that can be seen and touched, e.g. buildings, machinery, vehicles, computers etc.
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