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"Asset pricing theory helps us to understand the cross-sectional differences in expected returns for a given set of assets. It offers a framework to identify and measure risk as well as assign rewards for risk bearing. • The Capital Asset Pricing Model (CAPM) indicates what should be the expected or required rates of return on risky assets. It helps to value an asset by providing an appropriate discount rate to use in dividend valuation models. It can be used to compare an estimated rate of return to the required rate of return implied by CAPM for over/under valued securities CAPM will allow you to determine the required rate of return for any risky asset. This helps to value an asset by providing an appropriate discount rate to use in dividend valuation models. Source: http://in.docsity.com/en-docs/Capital_Market_Theory_-_Security_Analysis_and_Portfolio_Management_-_Solved_Quiz_"

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