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What is asset pricing?
Asset pricing pinpoints what an item is worth. This is done in most major retail stores and will usually show in the difference in price between two of the seemingly the same items.
What is the difference between capital asset pricing model and constant growth difference between capital asset pricing model and constant growth approach?
The Constant growth model does not address risk; it uses the current market price, as the reflection of the expected risk return preference of investor in marketplace, whereas CAPM consider the firm's risk, as reflected by beta, in determining required return or cost of ordinary share equity.Another difference is that when constant growth model is used to find the cost of ordinary share equity, it can easily be adjusted with flotation cost to find the cost of new ordinary share capital. whereas CAPM does not provide simple adjustment.Although CAPM Model has strong theoretical foundation, the ease of the calculation of the constant growth model justifies it use.
What is the delta of an option?
The delta of an option is the mathematical parameter that measures how much the price of an option changes with price changes in the underlying asset. For instance, an option with 0.5 delta would gain $0.50 in value with every $1 gain in price of the underlying asset. It will also drop by $0.50 in value with every $1 drop in price of the underlying asset. Take note that delta is also changing all the time due to Gamma so it should be taken more as a research reference rather than an absolute prediction of options prices.
What is the capital asset pricing model?
The CAPM is a model for pricing an individual security (asset) or a portfolio. For individual security perspective, we made use of the security market line (SML) and its relation to expected return and systematic risk (beta) to show how the market must price individual securities in relation to their security risk class. The SML enables us to calculate the reward-to-risk ratio for any security in relation to that of the overall market. Therefore, when the expected rate of return for any security is deflated by its beta coefficient, the reward-to-risk ratio for any individual security in the market is equal to the market reward-to-risk ratio
Risk Weighted Asset?
A bank's assets weighted according to credit risk. Some assets, such as debentures, are assigned a higher risk than others, such as cash. This sort of asset calculation is used in determining the capital requirement for a financial institution, and is regulated by the Federal Reserve Board. Source: investorwords.com
