PRINCIPLES OF EQUITY VALUATION
Ian Davidson and Mark Tippett
Errata
1. page 37 – the last sentence on this page running into page 38 should read:
“This will mean that for every unit increase in the risk (or standard deviation) on the portfolio, the return on the portfolio will have to increase by approximately 0.36.”
2. page 51 - immediately under the 3×3 variance-covariance matrix, W, about a third of the way down the page the expression for the variance of the return on the first asset ought to read as
3. page 52 - about a third of the way down the page the expression for the Global Minimum Variance Asset Pricing Model should read as:
4. page 54 - The final sentence in section §3-1 should read:
“There are, however, many other approaches to asset pricing theory that due to limitations of space, we are unable to treat in this chapter.”
The word “to” has been omitted between “unable” and “treat”.
5. page 61 – a “minus” sign has been omitted from the long equation in the middle of the page. This equation should read:
6. page 108 – the last two lines on this page read: “Most importantly, note that the dividend, which the firm pays at time t does not explicitly appear in this version of the Hamilton-Jacobi-Bellman equation.” This sentence should read as follows: “Most importantly, note that the dividend, which the firm pays at time does not explicitly appear in this version of the Hamilton-Jacobi-Bellman equation.”
7. page 128 – seven lines above the §5-11 section marker , there should be a space between “quadrature” and “(n = 19)”.
8. page 189 – fourth line from the top of the page: “matix” should be “ matrix”.
9. page 229 – Six lines from the top of this page the following text occurs: “Now, under the clean surplus identity, book or accounting earnings are related to the book value of equity and abnormal earnings through the formula, where x(t) is the instantaneous accounting earnings. Using this definition of the clean surplus identity and a little algebra shows that the recursion value of equity can then be restated in terms of the earnings attributable to equity, as follows:
”
This text should read as follows: “Now, here it will be recalled that book or accounting earnings are related to the book value of equity and abnormal earnings through the formula, where x(t) is the instantaneous accounting earnings. Using this definition and a little algebra shows that the recursion value of equity can then be restated in terms of the earnings attributable to equity, as follows:
”
Three lines below this formula, the sentence beginning with “Moreover, if we takes the derivative of P(h) …” should read as with “Moreover, if we take ….” That is “takes” should be singular, not plural.
10. page 245 - the final term in the expression for at the bottom of the page should read as and not
11. page 257 – the stochastic differential equation for a(t) in the middle of this page should read:
That is, “dt” should not appear after the first term on the right hand side of this equation.
12. page 258 – the stochastic differential equations for n(t) and e(t) in the middle of this page should read:
and:
That is, “dt” should not appear after the first term on the right hand side of both these equations.
13. page 274 – eleven lines from the bottom of the page. This sentence reads: “Note how this result shows that the probability of the recursion value eventually falling away to nothing increases exponentially as the firm increases its dividend pay-out rate, h.” The h should instead be a so that the sentence reads: “Note how this result shows that the probability of the recursion value eventually falling away to nothing increases exponentially as the firm increases its dividend pay-out rate, a.”
14. page 300 – the last equation on this line should read:
That is, the integral sign, appearing in this equation should be a summation sign,