The standard dividend discount model assumes an infinite stream of dividends, but many stocks disappear through merger at a premium at some point in their corporate life, with a current takeover probability of about 0.5% to 2% per year for publicly-traded firms in the U.S. Ignoring takeover...

Based on recent evidence, we may not be able to reject the hypothesis that the cost of equity for individual common stocks is close to the risk-free rate. One explanation for this outcome would be the combination of excessive optimism with risk aversion, a combination that can generate behavior...