Under some assumptions the fundamental value of a firm may be expressed as P = (1-k)y,...

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Under some assumptions the fundamental value of a firm may be expressed as P₁ = (1-k)y, +k(px, - d₂) Where P, y, x and d denote Price, book value, income and dividends respectively, t is the time subscript, and is the ratio of (1+r)/r, r being the cost of capital. Does this formula lead to arbitrage free pricing? Why or why not? [Hint: Differentiate with respect to dividend to verify if there is an arbitrage possibility] Under some assumptions the fundamental value of a firm may be expressed as P₁ = (1-k)y, +k(px, - d₂) Where P, y, x and d denote Price, book value, income and dividends respectively, t is the time subscript, and is the ratio of (1+r)/r, r being the cost of capital. Does this formula lead to arbitrage free pricing? Why or why not? [Hint: Differentiate with respect to dividend to verify if there is an arbitrage possibility]

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