Equilibrium in the Pricing of Capital Assets, Risk-Bearing Debt Instruments, and the Question of Optimal Capital structure: A Comment

Yutaka Imai and Mark Rubinstein

Journal of Financial and Quantitative Analysis, 1972, vol. 7, issue 4, 2001-2003

Abstract: In a recent article in this Journal, Haugen and Pappas (H-P, hereafter) [1] attempted to prove, within the framework of the capital asset pricing model, the already proven proposition that the cost of capital is invariant with respect to leverage even with risky debt. The H-P proof contains a serious error which we would like to point out in this note.

Date: 1972
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