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An asset market is the complete set of markets where individuals buy and sell real and financial assets such as gold, stocks and bonds. Students studying the asset market must consider asset class which is primarily a group of investments with similar characteristics followed by rules and regulations. There are various asset classes that you should know while pursuing a degree in finance.
Alternative assets are one of the crucial categories of an asset class that is all about physical investments. The stocks or equities are the companies' shares and are not tangible assets like others. The stock market includes key components like market cap, absolute returns and inflation rate.
On the other hand, fixed-income investments are another asset class which is also known as debt. It is all about lending money to the government or even a company for availing government binds and deposit certificates.
The asset market approach is a definite method of determining an asset's true value based on identical assets' selling prices. It is among the three valuation methods and the other two include a cost approach and discounted cash-flow analysis.
Asset market equilibrium implies the equality of demand to the supply for a specific asset. There are two equilibrium conditions in economic theory: the Rate of return and the Present value.
The Rate of return is all about the profit divided by the invested amount. It defines the Rate of return as equivalent to the market interest rate.
$ t + (Pt − Pt − 1)/ Pt − 1 = R
Present value
The present value defines the current and expected payments on a specific asset with respect to attainable Dollars now by lending against future payments.
The present value defined as
PV = $ 1/ 1 + R + $ 2/ ( 1 + R ) 2 + $ 3/ ( 1 + R ) 3 +··· .
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