RISK AND THE VALUE OF SECURITIES.

This article focuses on risk and valuation within the securities markets. The author attempts to position the problem of risk and security valuation into perspective. Risk relates to the possibility that actual returns may vary from expected returns. This paper contends that risk and valuation are inseparable. Several topics are discussed, including a mathematical formula detailing the term structure of interest rates that are a result of the equilibrium conditions in the capital markets, the risk-premium approach, and the expectation-variance portfolio approach.