An Examination of the Yields of Corporate Bonds and Stocks

Norgaard, Richard

doi:10.1111/j.1540-6261.1974.tb03104.x

The Journal of Finance

1974

DOI: 10.1111/j.1540-6261.1974.tb03104.x

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An Examination of the Yields of Corporate Bonds and Stocks

Richard Norgaard¹

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1976

1977

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Cited by 10 publications

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“…They suggest that this makes bonds a worthwhile component in the construction of a portfolio. Norgaard [9] argues the opposite, however, stating that the riskreward tradeoff isn't adequate to justify the addition of corporate bonds to a common stock portfolio. In support of Fisher and Weil, Sarnat [11] has shown that the percentage of funds invested in corporate and government bonds rises monotonically as the expected return is decreased along the efficient set.…”

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Mixed Security Testing of Alternative Portfolio Selection Models

Alexander¹

1977

The Journal of Financial and Quantitative Analysis

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mentioning

confidence: 99%

Mixed Security Testing of Alternative Portfolio Selection Models

Alexander¹

1977

The Journal of Financial and Quantitative Analysis

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The Investment Discount Rate—In Defence of the Market Rate of Interest

Keane¹

1976

Accounting and Business Research

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A Note on the Superiority of Levered Shares Under the Positive NPV Rule

Keane

1976

Business Fin & Account

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It is a commonly held assumption that the now famous Modigliani and Miller (1) theorem which states that without firm taxes the value of the firm is independent of its financing decision, implies equally that the price of a firm's shares is independent of the degree of leverage. For example, Van Horne (2) states that "the financing decision does not matter from the standpoint of our objective of maximising market price per share.''The purpose of this note is to demonstrate that given MM's assumptions and arbitrage argument, the price of a firm's shares varies directly with the degree of leverage employed in the firm, although the total value of the firm itself remains unaffected. The only additional specific assumption made in this paper is that the NPV 2 0 rule is a valid description of corporate decision-makers' investment selection criteria, that is, that firms accept only projects which have zero or positive NPVs when the projects' cash flows are discounted at the appropriate risk-adjusted discount rate, or when the cash flows as adjusted by a certainty-equivalent factor are discounted at the risk-free rate.The significance of the NPV 2 0 rule is that it implies that some projects are capable of offering an ex-ante I R R which exceeds the rate necessary to compensate serurity-holders for perceived risk. and that acceptable projects within the same risk class are believed to be capable of yielding excess returns of varying magnitudes, some marginally in excess, some possibly significantly in excess. Indeed most writers indicate (3) that it is not worthwhile undertaking a project with zero NPV because it does not further the assumed objective of maximising existing shareholders' wealth. wealth-maximising objective and the positive NPV rule appear to be embedded in the assumption that competition amongst the users of productive assets and between labour and capital is sufficiently imperfect to present opportunities to equity owners to achieve rewards for innovation, inventiveness etc. which are surplus to the rewards needed to compensate them for risk. anything at all, it is that those firms which achieve their goal will earn for their shareholders more than the minimum required by the shareholders. Some firms, of course, will achieve returns far The If that objective and rule mean

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An Examination of the Yields of Corporate Bonds and Stocks

Cited by 10 publications

References 17 publications

Mixed Security Testing of Alternative Portfolio Selection Models

Mixed Security Testing of Alternative Portfolio Selection Models

The Investment Discount Rate—In Defence of the Market Rate of Interest

A Note on the Superiority of Levered Shares Under the Positive NPV Rule

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