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General Proof of Modigliani-Miller Propositions I and II Using Parameter-Preference Theory

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  • Becker, Jack

Abstract

The following proof of Modigliani and Miller's (MM) [2] famous propositions concerning the valuation of the firm and the cost of capital does not require the usual risk-class or arbitrage assumptions; the proof depends only on the Fundamental Theorem of Parameter-preference, which states that the riskpremium for security A is a linear combination of its comoments with the market index, .

Suggested Citation

  • Becker, Jack, 1978. "General Proof of Modigliani-Miller Propositions I and II Using Parameter-Preference Theory," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(1), pages 65-69, March.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:01:p:65-69_00
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