REVIEW OF ARBITRAGE PRICING THEORY

Pricing of Assets refers to valuing the assets at their present values. According to financial Management, every investment that is made by an investor has an element of time of value which states that the value of money decreases as the time goes on. That is a rupee invested today is more valuable than a rupee invested later. Any investment made by an investor has to be valued in terms of present value by discounting it at a discount factor. A discount factor is one which equates the future value of an asset to its present value of investment where the asset is said to be as fairly priced. All assets need not be fairly priced, some may be underpriced and some assets may be over priced. Assets are considered as underpriced when the discounted future value of an asset value is more than the present value of investment on an asset. It is also said to be as overpriced where the discounted future value of an asset value is less than the present value of investment on an asset.