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The article studies the process of selecting a portfolio or investment. It is explained that the process of selecting a portfolio is divided into two stages. The article reports that the first stage begins with observation and experience and ends with ideas about the future performances of available securities. The second stage begins with the relevant beliefs about future performances and ends with the choice of portfolio. The author analyzes the second stage further, claiming that the rule has many sound points, both as a maxim for, and hypothesis about, investment behavior. The author also illustrates relations between beliefs and choice of portfolio according to the expected returns-variance of returns rule.

The article focuses on a report related to the role of economic and financial research in addressing the practical problems of capital management. The author believes there is a detrimental gap between innovative management techniques and their adoption by companies. He outlines three problems of capital management: measuring worth of investment proposals, devising standards for evaluating proposals, projecting the firm's need for capital funds. He claims that good estimates of investment worth are vital to efficient capital management.

The article presents a reply from Theodore Levitt to comments made by Warren J. Gustus concerning Levitt's paper "Investment, Depression, and the Assurance of Prosperity," which apppeared in the September, 1954 issue of the "Journal of Finance." In that paper Levitt proposed an initiative under which the U.S. federal government would guarantee the yields on bonds issued by certain industries, a proposal Gustus criticized on several counts. Levit disagrees with Gustus' contention that the plan amounts to socialism, and explains why he believes none of Gustus' other criticisms fatally undermine his ideas.

The article discusses pension fund investment policies. The author examines the framework within which pension fund investments are made. The author explains that there is a long period of gathering and distribution of funds and that a pension fund which is qualified is exempt from income and capital-gains taxation as a "charitable" trust. The article also discusses the importance of yield and appreciation, the benefits of independent professional investment counsel, and the need for "balanced" investment. Several tables are provided to help illustrate the study.

The article discusses the basic yields from corporate bonds in the U.S. during the period 1952-1957. The yield series first examines a short period right after the Republicans came into power in the spring and summer of 1953. Next, a period beginning in the middle of 1956 and lasting until 1957 is examined, which the author states is more dramatic and longer. The article also discusses the uncertainty of short-term basic yields, basic yields and time series, and the implied forecasts of future yields. Several tables and equations are provided to help illustrate the study.

The article discusses the investment returns yielded by industrial stocks in the U.S. during 1952-1956. The author states that the study attempts to contribute some statistical evidence on the relative yields which were available during the five year period of 1952-1956 from a number of stocks from "growth" industries as compared to those from "defensive" and "cyclical" industries. The article also discusses the scope and applicability of the analysis, description of the data, and the dividend and dividend growth during 1958. Several tables are provided to help illustrate the study.

The article explores the relationships between public utility rate-base type, permitted rate of return, and utility earnings. The author compares 15 local companies of AT&T, known as Bell operating telephone companies, as examples of local variation of utility regulation for the period of 1944 through 1959. For Bell telephone companies operating within a single regulatory jurisdiction, the permitted rates of return varied inversely with the rate base. The permitted rate of returns are generally based on either reproduction cost as a percent over original cost, fair value percent over original cost, or percent weight given reproduction cost in determining fair value.

The article discusses the demand and supply for money in the U.S. during the 1950s and 1960s. During this time government securities and savings deposits were the most popular items in the portfolios of individual capitalists and financers as well as business enterprises. This caused rational people to find they should not hold money in their portfolios as well as a change in the demand for money explained by transaction needs. This, however, may be a function of wealth as some rational capitalists will hold money in their portfolios until it is needed for transactions.

This paper is intended to contribute to the theory of capital budgeting by showing, conclusively, that although the cost of capital (as generally defined) is the correct cut-off point for one investment decision, it is not correct when more than one is being considered. When several investments are simultaneously evaluated, the required rate of return should be higher than the cost of capital. The authors propose for the multi-investment case, instead of using the cost of capital as a hurdle rate, the following decision-rule: Rank projects according to their rate of return, then consider each sequentially and accept the project if its contribution to the percentage increase in profits (taking into consideration all previously accepted projects) exceeds the percentage increase in equity capital required for that project. [ABSTRACT FROM AUTHOR]

The article comments on the work of M. H. Miller and F. Modigliani, who created a controversy with their ideas on capital costs. While the author concedes that this research was "internally consistent" he also believes that it was linked with traditional theory and aims to show the similarities between this research and that done by A. Barges. A hypothetical is presented in which a merchant in the U.S. considers whether or not to export and import goods from China. The businessperson is aware of the variables involved and makes his final decision on whether or not he believes that the ship will return with its cargo and on expected returns. An additional factor is how the expected return would be affected if the businessperson borrowed the money for the venture.

A conference paper on the yield of common stock and the reasoning behind why capitalists choose to invest in shares instead of government securities or corporate bonds. Capitalists may choose to buy shares because of expected future returns, bond yields, and a change in the yield. As a hypothetical, the author considers the growth stock of International Business Machines Corp. and the questions that should be asked of potential investors who may buy shares.

The article discusses a model of capital assets pricing that can be used to predict market behavior with risk as a factor in the analysis. A graph is shown that depicts how the risk that investors are willing to take can impact the expected return. When managing a portfolio, investors are likely to choose investments on the basis of the expected value that will increase their personal wealth and the standard deviation. The article concludes that investors will settle for a modest rate of return on defensive securities than they would expect from more aggressive kinds of investments.

The article discusses the Euro-dollar market, particularly how it developed and became so important to the world economy. It is noted that it has become feasible to make long-term investments in the market when capitalists had previously used the market in only the short-term. It is believed that this has happened due to the oil industry that is located primarily in Middle Eastern countries, which have invested heavily in the Euro-dollar market. The possibility of a financial crisis that might force some capitalists to withdraw their investments in the market is considered.

This article looks at the results of a study which tests a theory of investment's ability to explain the annual investment of a firm. The theory assumes that an individual or firm desires security in addition to income, maximizing expected future incomes that are subject to the constraint that an acceptable level of security is met or maintained. It is assumed that the firm's debt-equity ratio is used as a measure of risk. A significant correlation was found to exist between investment and profits prior to depreciation. The author concludes that either firms are influenced by the desire for security or levels are determined by profitability of investment.

The study analyzes the relationship between two commonly used measures of profit- ability: the conventional book yield on investment (measured as the ratio of net income to the net book value of assets employed) and the true yield on investment (measured as the annual rate of discount at which the present value of investment outlays is just equal to the present value of cash inflows expected from the investment). [ABSTRACT FROM AUTHOR]

The article discusses the paper "Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk," by W. F. Sharpe, published in the September 1964 issue of "Journal of Finance." The article explores the conditions for equilibrium in the market for capital assets, assuming investors to be risk averters, have similar beliefs about the future performance of various assets, and can borrow or lend funds at a common interest rate. The author analyzes the annual returns of open-ended mutual funds from 1954 to 1963 to provide evidence for the behavior of the capital market.

This article assesses corporate financial decision making and share price function and the way that shareholders are assumed to consider variables as expected normal values. The author presents a share price maximization model that has the weakness of not considering corporate borrowing and uncertainty. The article presents equations that measure shareholder expectations concerning corporate earnings, rate of return on investments, retention rate, capital structure, and interest rates, and the price at which the security will change.

Financial decision-making involves two separate and distinct considerations: (1) forming probability beliefs about potential returns from various assets and (2) allocating financial resources among assets on the basis of these beliefs. This paper deals exclusively with the second consideration. No effort is made to determine how management forms probability beliefs about returns on investment opportunities; the emphasis of this paper is on the proper financial decisions to be made given such beliefs. [ABSTRACT FROM AUTHOR]

In summary, this paper has illustrated the application of a potentially useful decision criterion to the selection of a security portfolio where borrowing and lending is permitted, I look forward to further refinements. [ABSTRACT FROM AUTHOR]

The article discusses the report by A. A. Robichek and S. C. Myers, "Optimal Financing Decisions," which makes the point that financial decisions made by a firm under uncertainty can be very unsatisfactory, and which offers some innovations that can reduce risk. These include giving the investor more than one utility function, and offering information to the investor about returns over time that may reduce the risk of investing. The author points out the difference between investment rules governing management and the market.

The paper focuses on financial institution liquidity planning using the chance-constrained method. It states that modern reserve theory is a mixture of elements from the reserve position doctrine and a "profitability" doctrine emphasizing comparisons between different asset relative yields, and the costs of different types of borrowing. It demonstrates and analyzes a chance-constrained model with linear decision rules. It mentions that deterministic programming techniques have been successful for analyzing financial budgeting problems. It comments on the absence of interest costs of borrowing in the list of causal factors that determine the free liquidity optimal holdings of the associations.

The article focuses on the concept of leverage as used in examining financial problems. It states that balance sheet measures are calculated from stock figures and are derived from either market valuations of capital or from the firm's balance sheets. It mentions that income measures focus attention to the fact that a prior claim on the company's income is imposed by the use of structured capitalization and attempts to measure leverage by the contractual payments' relative burden. It states that rate of return measures is a recent approach as of 1966 to measuring leverage.

The article focuses on the theoretical properties of the internal and geometric average rates of return through an analysis of their implicit reinvestment rates. It states that the overall rate of return allows common stocks to be ranked by the rate of return which is equivalent to the ranking that could be obtained by using the present value at any positive discount rate. It mentions that maximizing the common stock's overall rate of return is tantamount to maximizing the net present value irrespective of the subjective capital costs of individuals.

The article focuses on optimal capital structure and capital costs of the firm. It states that the cost of equity capital is functionally related to the degree of leverage in the financing structure of the corporation, with the overall business capital costs being a weighted average of the market yields on debt and equity respectively. It states that no a priori necessity is imposed on any of the costs of capital and suggests that it is empirically reasonable to specify a function that through all leverage ranges is upward sloping.

The article focuses on risk variables and their relationship to the required return on equity. It states that certain types of investor risks are enabled by the principle of expected utility maximization. It suggests that statistical results of the probability distribution are reasonable risk measures while the market correlation coefficient of returns does not reasonably measure risk, and that regressions involving the dividend-earnings ration show that it is significantly and negatively related to the required returns.

The article focuses on the application of capital budgeting theory towards the efficient management of public urban renewal investment. Previous studies on the measurement of decision determinants of government investment projects by the author are cited and readdressed with additional consideration into the impact of net present value and internal rate of return calculations. Questions are raised exploring the evaluation of multiple internal rates of return, the use of mathematical programming in scenarios of limited funding, and of integrating risk assessment functions.

The article focuses on the characteristics of corporate bond purchase prices and losses in regards to term-to-maturity elements. Particular modeling is provided plotting term-to-maturity against prospective yields-to-maturity, along with empirical data of bond performance. Data is taken from corporate bond issues between 1900-1944. It is suggested that bond yields are intrinsically connected to default risk calculations and discussion is given applying this conclusion to previous theory conflicts.

The article focuses on the challenges inherent in using the internal rate of return as an investment measure due to the possibility of multiple rates becoming manifest. Mathematical modeling is provided to demonstrate the phenomena of multiple rates of return in various cash flow scenarios. Multiple equations are presented analyzing circumstances where cash inflows are negative at initial, mid-life, and final time period considerations, in each demonstrating how multiple rates of return can emerge.

The article presents commentary and criticism on the reports "Evaluation of Prospective Investment Performance," by W. Scott Bauman and "Components of a Measurement Model: Rate of Return, Risk, and Timing," by Peter O. Dietz, both included within the issue. The author focuses on Bauman's successful measurement of mutual fund behavior and policy objectives within investment analysis. Particular data interpretations and methodology choices by Bauman are criticized, focusing on the use of less stable statistical variables for measurement. Additional mention is given regarding Dietz's report, complimenting its construction but suggesting it could have displayed further conclusions.

In this paper we present the capital structure theorem within the framework of the theory of investors' behavior towards return and risk. Such an approach constitutes a first step towards integrating the theory of the firm's finance with the theory of investors' behavior. It may also help to clarify the controversy over the capital structure theorem. [ABSTRACT FROM AUTHOR]

The article addresses the issue of portfolio management, specifically the relationship between portfolio selection and diversification and risk reduction relative to portfolio returns. The author refers to Sharpe's earlier algorithm that accounts for systematic variation and unsystematic variation. The article explores the rate at which variation of returns for randomly selected portfolios is reduced as a function of the number of securities in a portfolio. The authors present the problem and the analysis. The author argue that there is a stable and predictable relationship between the variables and that it provides guidance as to the optimal number of securities that should be part of a portfolio.

The author considers comments concerning the articles "State of the Finance Field," by J. Fred Weston and "State of the Finance Field: Comment," by Harry Sauvain, both in the December 1967 issue of this publication, about the changing state of the field of finance. The author states that the differences between traditional finance and new finance lies with the effectiveness with which quantitative methods are used, and suggests that new finance appears more interested in mathematical games than solving genuine problems. He mentions three reasons to expect very large errors in short-term corporate basic yields: the shortage of quotations, the question of commissions, and the sensitivity of short-term yields to minor price changes.

The author provides a response to an earlier article in this journal that criticized his work in the field of finance. The author comments on Durand's focus on statistical reliability. The author takes issue with Durand's criticism of the value of call deferment, claiming that the statistical sampling error was small. The author acknowledges that the second section of the paper presented a model, which was clearly untested, and argues that Durand cannot visit the same expectations on that model, which lacked data for testing. The author proposes that perhaps Durand's time had been better spent proposing a better solution.

This paper presents the results of an attempt to estimate the rate of return on capital by regression analysis of financial data. A model relating current profits to current and lagged inflows of long-term capital is considered and fitted to a set of data from the British Mechanical Engineering Industry. Both time-series and cross-section data are used. Acquisitions of long-term capital are measured by summing depreciation provisions, retained earnings and receipts from issues of ordinary shares and instruments of long-term debt. [ABSTRACT FROM AUTHOR]

It is the purpose of this paper to show that multiple rates are possible only when negative cash flows occur in the middle of a project's life, not when the negative inflows come at the beginning or the end of the project life. [ABSTRACT FROM AUTHOR]

This paper is based on the thesis that by studying financial theory and financial practice in relation to one another, we may find ways in which both can be improved. The paper will first present a theory of investment decision under uncertainty which incorporates the following ideas: (1) a firm should choose portfolios rather than projects, (2) investment and financing decisions must be made simultaneously if the optimal program is to be chosen, (3) the risk attributable to an investment should be measured by its contribution to the total risk of a firm viewed in a market context, (4) a firm should trade off risk and return at the market-established rate of substitution, and (5) investors view security returns in real terms rather than in monetary terms. The paper will then present the results of three case studies investigating the actual making of investment decisions. We shall examine the disparity between the theory and practice of investment decisions, and suggest some reasons why the sophisticated techniques developed by theorists are not fully implemented in practice. Finally, the paper will indicate some of the lines along which future research should be directed. [ABSTRACT FROM AUTHOR]

This article presents risk-premium curves for a wide variety of risk classes of long-term securities for the period of 1950-1966 in the U.S. These curves represent the trade-off between the potential risk associated with a security and the potential returns. The authors explain how the curves were constructed and how risk and yield were calculated. They also discuss some of the limitations presented in the data. They discuss their findings and note that cyclical patterns were observed for all risk classes. Periods of economic expansion and rising interest rates led to bond yields falling below zero while common stocks rose. They note that this trend was reversed during economic contraction.

This article explores the relationship between internal rates of return and common rules of thumb used in capital investment analysis. The authors reexamine questions that were originally posed by economist Myron Gordon while researching the relationship between payback periods, accounting rates of return and the internal rate of return. The authors attempt to achieve generality by viewing these rules of thumb as explicit functions of two variables: the investment proposals' economic lives and their internal rates of return.

This article presents information on expectations, transaction costs and asset demands. The author explores the impact that transaction costs and liquidation needs have on the relationship between expectations of future asset yields and the present demand for assets and present asset yields. The author investigates the effect that transactions costs have on an investor's decisions and how an investor's asset demands are impacted by the investment program's target date, the level of transaction costs and liquidation needs.

This article presents information on equilibrium in the equity market under conditions of uncertainty. The author extends previous research by using the mean-variability approach to uncertainty in the analysis of the market risk premium function in a capital market primarily made up of risk averse institutional investors. The author attempts to show that these investors reduce the risk in their portfolios by diversifying their financial assets. The author also explores how firms manage the risk in their portfolios.

In this article the authors apply an alternative treatment of risk to a model designed by economist W. F. Sharpe in order to study risk aversion in the stock market. They test the model with data from British trusts. The authors also use Sharpe's original model in order to compare the performances of similar investments in Great Britain and the United States. The findings indicate that the risk aversion hypothesis that was shown to be valid for U.S. mutual funds does not hold true for British trusts.

This article presents a comment on a paper that examined the economic variables which explain the required return on stock for the investor. The author's primary concern with the paper deals with the theoretical basis on which the empirical research was conducted. The author addresses the utility function that is presented and discusses two errors that he believes exist in this equation. The first error is related to the function being restricted due the inclusion of only three moments of probability distribution. The second error deals with inconsistencies in the analysis based on the application of a limited utility function.

This article presents a reply to a comment on a paper that presented a utility function in order to examine the variables that explain the required rate of return on stock for an investor. The author addresses the notion that he assumes a cubic utility function in the theoretical portion of his paper. The author states that he uses a general utility function and attempts to clarify the misunderstanding of this application. The author also defends the variables that are presented in the paper, noting that they were necessary in the development of a testable model.

Corporate bankruptcy and the subsequent reorganization process is typically treated by academicians as an institutional problem of limited import. Yet, the appearance of these phenomena are conspicuous in numerous publicly held firms each year. On the few occasions when bankruptcy is considered within a theoretic context, the analysis generally follows the argument that high levels of financial leverage increase the probability of bankruptcy which in turn decreases the value of that firm.
This paper is concerned with the effect of potential corporate bankruptcy on expected shareholder wealth over time and therefore its effect on total firm share value. The present study differs from prior works in that a new framework is presented enabling, for the first time, empirical testing of the problem. [ABSTRACT FROM AUTHOR]

This paper has added to the small body of data on rates of return on equity investment in real estate by combining data on insurance company loans over $100,000 with assumed values of parameters for the equity investor. The returns which result are computed before and after financing and before and after tax. The purpose of this paper was to present the equity returns rather than to editorialize on the adequacy of the rates. In this regard the paper concludes with the reminder that the rates of return are hypothetical since they are based on assumptions and not on historical analysis of realized returns by actual investors. With this in mind, it is hoped that the return relationships will be of use in investment research and planning. [ABSTRACT FROM AUTHOR]

The subject under discussion is, to say the least, a peculiar one-or perhaps it is more accurate to say that it is a familiar subject that has been given a peculiar twist. At the beginning of his paper, Professor Johnson says, "the question has nothing to do with the optimal conduct of short-run stabilization policy. Instead it belongs to the pure theorists' world of continuous full employment of resources; as such, its policy relevance is to the framework of monetary organization and the long-run environmental objectives of monetary policy." However, this view of the problem can be traced to the context in which Milton Friedman took it up in his important paper on the subject. Viewed in a different light, the issue is of more immediate significance and does, as I shall show, have relevance for the conduct of short-run stabilization policy. The problem is that unless money yields a positive rate of return to holders of it, the quantity of real cash balances held will be less than the welfare-maximizing amount, and an inordinate amount of real resources will be employed in economizing the use of bank deposits and currency which cost virtually nothing to create. [ABSTRACT FROM AUTHOR]

This paper is addressed to individuals engaged in research on portfolio management or investments. It has been prepared with two purposes in mind. The first is to describe a number of problems encountered in connection with the recommendation that the degree of risk assumed in a portfolio be measured as an important aspect of the portfolio's investment performance--a recommendation contained in the Bank Administration Institute (B.A.I.) report on pension and profit-sharing fund performance measurement [7]. The second is to identify some possible trends in future research on measuring the risk dimension of investment performance and to comment on the prospects of alternative lines of investigation. It is hoped that this material will contribute to development of the improved risk measurement methods advocated in the Institute's report. [ABSTRACT FROM AUTHOR]

The main thrust of Professor Bower's study concerns which risk variables are important and, in particular, the relative importance of systematic and diversifiable risk. He has three variants of risk variables, overall variability of price, systematic and diversifiable risk and the intercept, slope and standard error of a regression relating the return of a security to the return of a market index. These variables he tests in three separate sets of regressions. When he introduces the intercept slope and standard error of the regression just described as variables in the equation explaining the difference in price-earnings ratios between securities he encounters problems. [ABSTRACT FROM AUTHOR]

This article presents an argument for only using portfolio return as the sole criterion in measuring portfolio performance. The work builds upon previous research by H.M. Markowitz, J. Tobin, John Lintner and William F. Sharpe on portfolio analysis. The author contends that investment portfolios should be judged by a measure of risk and return combined into one value. The results of his model indicates that the mean return on a portfolio should be used as a measure of performance and utlized by portfolio managers.