Portfolio selection involves the formation of prior beliefs about expected rates of return and risk on available securities and the utilization of these beliefs in the choice of a portfolio. Markowitz has developed a pioneering theory of portfolio choice based on the assumption that the investor has formed prior cardinal beliefs about the expected rates of return, variances of rates of return, and covariances of rates of return among individual securities. Unfortunately, a feasible method of accurately generating the massive information requirements of the Markowitz model has not been developed. Historical measures of mean rates of, return and covariances of rates of return among individual securities have been shown to be unstable over time and to be ineffectual in generating ex ante efficient portfolios.

George Kaufman and Cynthia Latta in “The Demand for Money: Preliminary Evidence from Industrial Countries,” have presented econometric evidence that the money-demand function may shift with the development of financial markets. The thesis depends on the heightened cross-elasticities and lowered wealth-elasticities (or income-elasticities) that are supposed to attend the development of new near-money forms. Their evidence is based on a summary of statistics from money-demand equations for developed and less-developed countries.

In my article, I have discussed the relationship between the internal rate of return, K, and Kp which denotes the reciprocal of the payoff period under several alternative assumptions.

For some time there has been disagreement among financial economists as to the effect of dividend policy on the valuation of a firm under conditions of uncertainty. On one side of the debate Miller and Modigliani (MM) [11] argue that the capitalization rate on shares is independent of the dividend policy of the firm. Gordon [6], [7], [8], and others, on the other hand, reject this proposition and present theories of valuation where share prices and capitalization rates are very much dependent upon the dividend policies of firms.

A recent article in this journal [1] described a model for the computation of taxadjusted true yields to maturity on discount bonds and explained the use of a computer routine implementing this model. Unfortunately, the translation of the computer program into equation form contained a number of notational errors. In addition, there was an equals sign missing from the third equation [1, page 267]. As a result, the reader, in attempting to implement the model as it was formulated in the original article, will probably fail.

This article has described a technique for evaluating intercorporate performance using risk, return, and trend. By regressing risk and trend on return for a large number of companies, an average performance plane has been established. A company's performance is measured by determining its position relative to the plane.

When measures such as the average or the midrange are used to report a typical value for the price series in each interval, the stochastic character of the underlying price process is subtly transformed. Fortunately, the spurious serial dependence introduced by averaging measures is sufficiently well understood to allow direct tests of many hypotheses to be made from averaged data. Moreover, a simple autoregressive transformation of the averaged data can be used to unscramble the effects of averaging on the lower-frequency components of the spectrum of the underlying process. These statistical devices are presented and are then illustrated by applications to the Cowles Commission Common- Stock Indexes, a massive collection of New York Stock Exchange price indexes tabulated in the form of monthly midranges.

In a recent note in this journal, Professor Levy discussed the relative merits of the payback method and the discounted rate-of-return (IRR) method. In examining the relationship between K (IRR) and Kp (the reciprocal of the payback), he reaffirmed that the two were approximately equal based on the assumption that:

(1) annual earnings were the same every year, and

(2) ,

where N is the life of the asset.

This paper has explored a problem presented by introducing formal measures of risk into firm decision making. Risk measured in the firm's asset collection may not equal risk in the claims against the assets, with a resulting inequality of valuations in an a priori balance sheet. This nonadditivity problem does not occur if covariance with some external portfolio is used as the risk measure. Computer testing has suggested that the nonadditivity problem could occur in considerable magnitude if variance were used as a risk measure, and to a substantially lesser extent if standard deviation (or the coefficient of variation) were used. Nonadditivity problems in the measures were worse in rather high (but not ultra-high) debt-use ranges and did not exist at all as long as debt was used so moderately that no chance of default was foreseen. While no findings were stated on this point, intuition and some unreported work done by one of the authors both suggest that nonadditivity would also be a problem in mixed risk measures, in which both covariance with an external portfolio and a measure of dispersion in the firm's own portfolio are employed.

Each business firm has a large body of fundamental data that can be organized so that it can aid in graphically determining the firm's optimum profit. In this paper an attempt has been made to bring forth a method by which some choice of policy may be followed in order to select a particular profit curve. More precisely, a policy will be determined that leads to a given optimal profit curve. In this paper “optimal profit curve” will mean the profit curve that has been selected from a fixed set of possible profit curves. The purpose of the paper is to describe a method to determine the policy that will reduce the optimal curve. The method is based on a general form of the Riesz- Kakutani Representation Theorem, which states that a bounded linear operator from the space of continuous functions of one variable t where 0 ≤ t ≤ 1 to the space of continuous functions can be represented as an integral to a Gowurin measure.

All the stock price models discussed in this paper are based on the assumption that the present value of a share of common stock is equal to the discounted value of all future expected dividends accruing to the stockholder:

where Po : current value of a share of common stock,

Dt: dividend expected to be received at end of period t,

k : investor's discount or time-value rate, and

t : time.