A Note on the Computation of the Equity Premium and the Market Value of Firm Equity

Turnovsky (1995) derives in a continuous-time model of a decentralized economy that the correct specification of the firm’s objective function is to maximize the initial value of its outstanding securities. The firm value is the discounted flow of real earnings. For the discrete-time version of the model, we show that the correct computation of the firm value needs to be modified. Depending on the specific formula employed, different values of the equity premium result.

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Year of publication:	2010
Authors:	Heer, Burkhard ; Maussner, Alfred
Institutions:	CESifo
Subject:	asset prices \| firm value \| equity premium

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Extent:	application/pdf
Series:	CESifo Working Paper Series.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 3042
Classification:	C63 - Computational Techniques ; E22 - Capital; Investment (including Inventories); Capacity ; E32 - Business Fluctuations; Cycles ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008534021