Asset Pricing Models

Asset pricing models are tools used in finance to determine the fair value of investments, like stocks and bonds. They help investors understand how much they should pay for an asset based on its expected future cash flows, risks, and returns. Common models include the Capital Asset Pricing Model (CAPM) and the Discounted Cash Flow (DCF) model. By analyzing factors like market returns and individual asset risks, these models guide investment decisions, ensuring investors can assess whether an asset is priced fairly compared to its potential return.