I. Introduction and summary, 376. — II. Fixed coefficients model: first analysis, 377.—III. Smooth substitution model: first analysis, 382.—IV. Fixed coefficients model: extended analysis, 385. — V. Smooth substitution I model: extended analysis, 394.—Appendix, 396.

This paper investigates the properties of a for risky assets on the basis of a simple model of general equilibrium of exchange, where individual investors seek to maximize preference functions over expected yield and variance of yield on their port- folios. A theory of risk premiums is outlined, and it is shown that general equilibrium implies the existence of a so-called market line, relating per dollar expected yield and standard deviation of yield. The concept of price of risk is discussed in terms of the slope of this line.

Recently, Jan Mossin presented a security pricing model within the framework of a market equilibrium theory. The model is based on particular preference structures of investors, specified in terms of quadratic utility functions with final wealth as the argument of the functions. As an implication of his model for the firm's optimal investment policy, Mossin demonstrates how Proposition III put forth by Franco Modigliani and Merton Miller (1958) can be validated. In addition, the analysis is extended to suggest investment criteria for investments with completely arbitrary yield characteristics. The purpose of this comment is twofold. First, to show that Mossin's proof of the validity of M-M's Proposition III is questionable, given his assumptions. Second, an attempt is made to show how a troublesome assumption of Mossin's analysis could possibly be eliminated. For the sake of exposition, Mossin's securitv pricing model as shown on page 752, equation (6), is stated below with all relevant definitions: