When Accounting Principles Board issued Opinion No. 14 it completed a full cycle in its atttitude toward classification of convertible securities. The Board concluded that no portion of proceeds from a convertible bond issue be accounted for as attributable to conversion features. 1 Its earlier position had been that the portion of proceeds attributable to conversion feature or warrants should be accounted for as paid-in capital. 2 The purpose of this paper is to question conclusion of APB 14 by comparing debt-equity distinction on basis of traditional criteria supported by some empirical evidence on conversions.3 The empirical data are examined in context of debt-equity distinctions as they are found in accounting, finance, investment, and legal literature. These distinctions are: (1) maturity date, (2) claim on assets, (3) claim on income, (4) voice in management, (5) maturity value, (6)

The relationship between capital market equilibrium and firm financial policy has received extensive attention in recent years. Until recently, accepted theory was generally consistent in its view that the diversification effect of new investment on firm earnings is a necessary consideration in project selection. In arguing this position, no distinction was made between the perfect market situation exemplified by the models of Modigliani and Miller (M-M) [9, 10, 11] and those of Sharpe [19], Lintner [6, 7] and Mossin [12] (LSM model) and the traditional case in which firm value is not independent of debt policy, e.g., as might be the case if individual investors cannot lever on terms comparable to those available to firms. In a recent article, Mossin [13] examines the implications of the former case of perfect markets. Using a single period model with riskless rate borrowing and lending by individuals and firms, homogeneous expectations, mean-variance portfolio selection, and no taxes, Mossin shows that the effect on the investing firm's value of a new project is independent of the stochastic properties of the other income earned by the firm. This conclusion and the M-M [10] Proposition I follow from the statistical property of Mossin's model that any income stream has the same value regardless of how that stream is divided into the equity or debt streams of one or more firms; or, equivalently, firm value and financial structure are independent. Schall [18] presents a general proof that firm value and financial structure are independent and that firm investment diversification effects are irrelevant in perfect capital markets.

The purpose of this study is to analyze the behavior of the cost of equity capital in the commercial banks by looking at whether there exists an optimal composition of the bank “fund structure” that would maximize bank earnings through the minimization of its cost of funds. The analysis should give an approximate cut-off point for testing such projects as “checking plus, ” checkless payment systems, etc.

This paper has discussed the importance of stationary data in statistical applications and has at the same time suggested one method for testing for stationarity. An application of the testing procedure is made to common stock prices. The results indicate that these data could be nonstationary in the usual sense of stability of the mean and mean-square values despite efforts to transform the data into a stationary form using first differences.

Recent studies of mutual funds have all arrived at the same conclusion: mutual fund performance has been inferior to the performance of the market indices. One of the most prominent of these studies was conducted by William F. Sharpe. He showed that if his measure of mutual fund performance, the reward-to-variability ratio, is calculated net of management expenses for each fund in his sample of thirty-four, then the average value of this ratio over the thirty-four funds is significantly less than the same measure applied to the Dow Jones Industrials over the 1954–1963 period. From this evidence, Sharpe concluded that average mutual fund performance was distinctly inferior to an investment in the Dow Jones Industrial Average. It is the intent of this paper to show that if another variable, namely the third moment of the fund's annual rate of return, is introduced into the investor's decision process, Sharpe's conclusion must be altered.

Edgar D. Cook, Jr.*: Harry C. Friedman in his paper, Real Estate Investment and Portfolio Theory, has put his mind to an increasingly important area of financial concern, the relationship of real estate as a security in developing portfolio theory. Between now and the year 2000, it has been estimated that $1,500 billion will be spent on building and remodeling nonfarm housing. There will be an estimated $1,000 billion spent on commercial, industrial, and utility construction. In addition, $1,000 billion will probably be spent on public utilities and service institutions, plus $30 billion annually on community facilities. It is anticipated that each year in coming generations we will add to our existing inventory the equivalent of fifteen cities of 200,000 persons each. Predictions are that there will be a need for an additional 2 million dwelling units per year during the 1970's and that this need will climb steadily thereafter.I

In “An Investigation of the Extrapolative Determinants of Short-Run Earnings Expectations,” Professor McEnally has presented a wide spectrum of research results dedicated to the following questions: Are short-run earnings estimates extrapolative and to what extent can these earnings estimates be approximated by familiar extrapolation techniques? His thesis is that expected future earnings are in part a function of prior earnings and that there is much to be learned by fitting a series of regressions or other forecasting models to historical data.

Journal Article The Stability of Kaldor's 1957 Model Get access D. G. Champernowne D. G. Champernowne Trinity College, Cambridge Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 38, Issue 1, January 1971, Pages 47–62, https://doi.org/10.2307/2296622 Published: 01 January 1971

Journal Article The Invariably Stable Cobweb Model Get access R. D. Auster R. D. Auster The City College of the City University of New York Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 38, Issue 1, January 1971, Pages 117–121, https://doi.org/10.2307/2296630 Published: 01 January 1971