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

Jack Becker

Journal of Financial and Quantitative Analysis, 1978, vol. 13, issue 1, 65-69

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, .

Date: 1978
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