Finance School of management The Principle of Asset valuation Arbitrage law of One Price: The prices of equivalent assets must be the same Use information about one or more comparables whose market prices we know Market price fundamental value: The price of well-informed investors must pay for it in a free and competitive market value maximization and irrelevance of risk preference, consumption and expectations uesTc4 Finance School of Management The Principle of Asset Valuation ❖ Arbitrage & Law of One Price: The prices of equivalent assets must be the same. ❖ Use information about one or more comparables whose market prices we know. ❖ Market price & fundamental value: The price of well-informed investors must pay for it in a free and competitive market. ❖ Value maximization and irrelevance of risk preference, consumption and expectations