Robert H. Litzenberger, Charles P. Jones, Adjusting for Risk in the Capital Budget of a Growth-Oriented Company: Comment, The Journal of Financial and Quantitative Analysis, Vol. 4, No. 3 (Sep., 1969), pp. 301-304

Charles R. Purdy, Jay M. Smith, Jack Gray, The Visibility of the Auditor's Disclosure of Deviance from APB Opinion: An Empirical Test, Journal of Accounting Research, Vol. 7, Empirical Research in Accounting: Selected Studies 1969 (1969), pp. 1-18

Introduction, 324. — I. The Ellsberg problem, 326. — II. Probabilistic interpretation, 326. — III. Utility interpretation, 327. — IV. Measuring nonmonetary utility, 328.

This paper extends the fundamental theorem of share (or capital) valuation under conditions of certainty and purely competitive markets, to allow for the distinction between capital gains and income in the taxation of personal income. The objective is to develop the theorem for the tax case in a form general enough to allow for corporations both currently and not currently paying a dividend. However, the general derivation is sufficiently tedious to warrant a presentation which begins with less general cases. Accordingly, we will first develop the share valuation equation for a continuous discount version of the taxless case for corporations either paying or not paying a dividend. Then we turn to the effect of income and capital gains taxes for corporations currently paying a dividend; and finally the more general case. The derivations will be simplified by assuming a constant rate of interest over time, but all the theorems can be extended to deal with foreseen changes in interest over time.

Risk continues to be a widely discussed topic within the field of finance. Academicians add risk variables to their quantitative models, while financial practitioners include risk considerations in their qualitative deliberations. In both contexts, risk — together with some measure of profit or return — generally comprise a dual or composite criteria for investment decision-making purposes. Whereas the decisionmaking situation can be described as ex ante, this article deals with risk in an ex post context. In particular, it reports an investigation of alternative risk-return measures which are designed to rank and evaluate the ex post performance of investment portfolios. Section I reviews three composite measures of performance and examines their interrelationships. A fourth alternative measure is also suggested. In Section II, the measures are used to rank the portfolio performance of a sample of mutual funds. Some difficulties in making performance comparisons of these funds against the market are discussed in Section III. The final section briefly explores the implications of the study and suggests areas for subsequent research.