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SUBJECT : Financial Management
AUTHOR : Mohammed Arif pasha
PUBLISHED ON : 19/12/17
NUMBER OF PAGES : ( 10 Pages)
PRICE : Rs 6

Developed by economist Stephen Ross in 1976, the underlying principle of the pricing theory involves the recognition that the anticipated return on any asset may be charted as a linear calculation of relevant macro-economic factors in conjunction with market indices. This theory predicts a relationship between the returns of a portfolio and the returns of a single asset through a linear combination of many independent macroeconomic variables. It is expected that there will be some rate of change in most if not all of the relevant factors. Running scenarios using this model helps to arrive at a price that is equitable to the anticipated performance of the asset. The desired result is that the asset price will equal to the anticipated price for the end of the period cited, with the end price discounted at the rate implied by the Capital Asset Pricing Model. It is understood that if the asset price gets off course, that arbitrage will help to bring the price back into reasonable perimeters.

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