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Investments

by ; ;
Edition:
6th
ISBN13:

9780072861785

ISBN10:
0072861789
Format:
Hardcover
Pub. Date:
12/1/2003
Publisher(s):
McGraw-Hill College
List Price: $178.60
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Summary

Prepared by Bruce Swenson of Adelphi University, provides detailed solutions to the end of chapter problems. This manual is available bundled with the text for students to purchase by permission of the instructor by ordering ISBN 0072976322.

Table of Contents

PART ONE INTRODUCTION 1(134)
CHAPTER 1 THE INVESTMENT ENVIRONMENT
3(28)
1.1 Real Assets versus Financial Assets
4(2)
1.2 Financial Markets and the Economy
6(5)
Consumption Timing
6(1)
Allocation of Risk
6(1)
Separation of Ownership and Management
7(1)
A Crisis in Corporate Governance
8(3)
Accounting Scandals
8(2)
Analyst Scandals
10(1)
Initial Public Offerings
11(1)
1.3 Clients of the Financial System
11(3)
The Household Sector
12(1)
The Business Sector
12(1)
The Government Sector
13(1)
1.4 The Environment Responds to Clientele Demands
14(6)
Financial Intermediation
14(2)
Investment Banking
16(1)
Financial Innovation and Derivatives
17(1)
Response to Taxation and Regulation
18(2)
1.5 Markets and Market Structure
20(1)
1.6 Ongoing Trends
21(4)
Globalization
21(1)
Securitization
22(2)
Financial Engineering
24(1)
Computer Networks
25(1)
Summary
25(1)
Key Terms
26(1)
Websites
26(1)
Problems
27(2)
Standard and Poor's
29(1)
E-Investments: Track Your Portfolio
29(1)
Solutions to Concept Checks
30(1)
CHAPTER 2 FINANCIAL INSTRUMENTS
31(34)
2.1 The Money Market
32(3)
Treasury Bills
32(1)
Certificates of Deposit
33(1)
Commercial Paper
33(1)
Bankers' Acceptances
33(1)
Eurodollars
34(1)
Repos and Reverses
34(1)
Federal Funds
34(1)
Brokers' Calls
35(1)
The LIBOR Market
35(1)
Yields on Money Market Instruments
35(1)
2.2 The Bond Market
35(9)
Treasury Notes and Bonds
36(1)
Federal Agency Debt
36(2)
International Bonds
38(1)
Municipal Bonds
39(2)
Corporate Bonds
41(1)
Mortgages and Mortgage-Backed Securities
42(2)
2.3 Equity Securities
44(3)
Common Stocks as Ownership Shares
44(1)
Characteristics of Common Stock
45(1)
Stock Market Listings
46(1)
Preferred Stock
47(1)
2.4 Stock and Bond Market Indexes
47(7)
Stock Market Indexes
47(1)
Dow Jones Averages
48(3)
Standard & Poor's Indexes
51(1)
Other U.S. Market-Value Indexes
52(1)
Equally Weighted Indexes
52(1)
Foreign and International Stock Market Indexes
53(1)
Bond Market Indicators
53(1)
2.5 Derivative Markets
54(4)
Options
54(3)
Futures Contracts
57(1)
Summary
58(1)
Key Terms
59(1)
Websites
59(1)
Problems
60(3)
Standard and Poor's
63(1)
E-Investments: Security Prices and Returns
63(1)
Solutions to Concept Checks
63(2)
CHAPTER 3 HOW SECURITIES ARE TRADED
65(42)
3.1 How Firms Issue Securities
66(5)
Investment Bankers and Underwriting
66(2)
Shelf Registration
68(1)
Private Placements
68(1)
Initial Public Offerings
68(3)
3.2 Where Securities Are Traded
71(6)
The Secondary Markets
72(1)
The Over-the-Counter Market
73(2)
The Third and Fourth Markets
75(1)
The National Market System
76(1)
Bond Trading
77(1)
3.3 Trading on Exchanges
77(5)
The Participants
77(1)
Types of Orders
78(2)
Market Orders
78(1)
Limit Orders
78(2)
Specialists and the Execution of Trades
80(1)
Block Sales
81(1)
The SuperDOT System
82(1)
Settlement
82(1)
3.4 Trading on the OTC Market
82(4)
Market Structure in Other Countries
84(1)
London
84(1)
Euronext
84(1)
Tokyo
85(1)
Globalization of Stock Markets
85(1)
3.5 Trading Costs
86(2)
3.6 Buying on Margin
88(3)
3.7 Short Sales
91(3)
3.8 Regulation of Securities Markets
94(5)
Government Regulation
94(1)
Regulatory Responses to Recent Scandals
95(1)
Self-Regulation and Circuit Breakers
96(2)
Insider Trading
98(1)
Summary
99(1)
Key Terms
100(1)
Websites
100(1)
Problems
101(4)
Standard and Poor's
105(1)
E-Investments: Short Sales
105(1)
Solutions to Concept Checks
105(2)
CHAPTER 4 MUTUAL FUNDS AND OTHER INVESTMENT COMPANIES
107(28)
4.1 Investment Companies
108(1)
4.2 Types of Investment Companies
109(3)
Unit Investment Trusts
109(1)
Managed Investment Companies
109(2)
Other Investment Organizations
111(1)
Commingled Funds
111(1)
Real Estate Investment Trusts (REITS)
111(1)
Hedge Funds
111(1)
4.3 Mutual Funds
112(4)
Investment Policies
112(1)
Money Market Funds
112(1)
Equity Funds
112(1)
Bond Funds
113(1)
International Funds
113(1)
Balanced and Income Funds
113(1)
Asset Allocation and Flexible Funds
113(1)
Index Funds
113(2)
How Funds Are Sold
115(1)
4.4 Costs of Investing in Mutual Funds
116(3)
Fee Structure
116(1)
Front-End Load
116(1)
Back-End Load
116(1)
Operating Expenses
116(1)
2b-1 Charges
116(1)
Fees and Mutual Fund Returns
117(2)
4.5 Taxation of Mutual Fund Income
119(1)
4.6 Exchange-Traded Funds
120(2)
4.7 Mutual Fund Investment Performance: A First Look
122(3)
4.8 Information on Mutual Funds
125(4)
Summary
129(1)
Key Terms
129(1)
Websites
130(1)
Problems
131(2)
Standard and Poor's
133(1)
E-Investments: Choosing a Mutual Fund
133(1)
Solutions to Concept Checks
133(2)
PART TWO PORTFOLIO THEORY 135(144)
CHAPTER 5 HISTORY OF INTEREST RATES AND RISK PREMIUMS
137(28)
5.1 Determinants of the Level of Interest Rates
138(4)
Real and Nominal Rates of Interest
138(1)
The Equilibrium Real Rate of Interest
139(1)
The Equilibrium Nominal Rate of Interest
140(1)
Bills and Inflation, 1963-2002
141(1)
Taxes and the Real Rate of Interest
142(1)
5.2 Risk and Risk Premiums
142(2)
5.3 The Historical Record
144(6)
Bills, Bonds, and Stocks, 1926-2002
144(6)
5.4 Real Versus Nominal Risk
150(1)
5.5 Return Distributions and Value at Risk
151(3)
5.6 A Global View of the Historical Record
154(1)
5.7 Forecasts for the Long Haul
154(2)
Summary
156(1)
Key Terms
157(1)
Websites
157(1)
Problems
158(4)
Standard and Poor's
162(1)
E-Investments: Analytics Tutorial
162(1)
Solutions to Concept Checks
162(1)
Appendix: Continuous Compounding
162(3)
CHAPTER 6 RISK AND RISK AVERSION
165(32)
6.1 Risk and Risk Aversion
166(7)
Risk with Simple Prospects
166(1)
Risk, Speculation, and Gambling
167(1)
Risk Aversion and Utility Values
168(5)
6.2 Portfolio Risk
173(6)
Asset Risk versus Portfolio Risk
173(1)
A Review of Portfolio Mathematics
174(60)
Rule 1
174(1)
Rule 2
174(1)
Rule 3
175(1)
Rule 4
175(3)
Rule 5
178(1)
Summary
179(1)
Key Terms
179(1)
Websites
179(1)
Problems
180(2)
Standard and Poor's
182(1)
E-Investments: Risk and Return
182(1)
Solutions to Concept Checks
182(2)
Appendix A: A Defense of Mean-Variance Analysis
184(7)
Appendix B: Risk Aversion. Expected Utility, and the St. Petersburg Paradox
191(6)
CHAPTER 7 CAPITAL ALLOCATION BETWEEN THE RISKY ASSET AND THE RISK-FREE ASSET
197(26)
7.1 Capital Allocation across Risky and Risk-Free Portfolios
198(2)
7.2 The Risk-Free Asset
200(1)
7.3 Portfolios of One Risky Asset and One Risk-Free Asset
201(4)
7.4 Risk Tolerance and Asset Allocation
205(5)
7.5 Passive Strategies: The Capital Market Line
210(4)
Summary
214(1)
Key Terms
214(1)
Websites
215(1)
Problems
215(4)
Standard and Poor's
219(1)
E-Investments: The S&P 500
219(1)
Solutions to Concept Checks
219(4)
CHAPTER 8 OPTIMAL RISKY PORTFOLIOS
223(56)
8.1 Diversification and Portfolio Risk
224(1)
8.2 Portfolios of Two Risky Assets
225(9)
8.3 Asset Allocation with Stocks, Bonds, and Bills
234(6)
The Ultimate Risky Portfolio with Two Risky Assets and a Risk-Free Asset
235(5)
8.4 The Markowicz Portfolio Selection Model
240(6)
Security Selection
240(6)
8.5 The Spreadsheet Model
246(8)
Calculation of Expected Return and Variance
246(5)
Capital Allocation and the Separation Property
251(2)
Asset Allocation and Security Selection
253(1)
8.6 Optimal Portfolios with Restrictions on the Risk-Free Asset
254(4)
Summary
258(1)
Key Terms
259(1)
Websites
259(1)
Problems
260(6)
E-Investments: Risk Comparisons
266(1)
Solutions to Concept Checks
266(3)
Appendix A: The Power of Diversification
269(3)
Appendix B: The Insurance Principle: Risk-sharing versus Risk-Pooling
272(2)
Appendix C: The Fallacy of Time Diversification
274(5)
PART THREE EQUILIBRIUM IN CAPITAL MARKETS 279(166)
CHAPTER 9 THE CAPITAL ASSET PRICING MODEL
281(36)
9.1 The Capital Asset Pricing Model
281(11)
Why Do All Investors Hold the Market Portfolio?
283(2)
The Passive Strategy Is Efficient
285(1)
The Risk Premium of the Market Portfolio
285(1)
Expected Returns on Individual Securities
286(3)
The Security Market Line
289(3)
9.2 Extensions of the APM
292(5)
The CAPM with Restricted Bon-owing: The Zero-Beta Model
293(4)
Lifetime Consumption and the CAPM
297(1)
9.3 The CAPM and Liquidity
297(6)
Summary
303(1)
Key Terms
304(1)
Websites
304(1)
Problems
304(5)
Standard and Poor's
309(1)
E-Investments: Beta Comparisons
309
Solutions to Concept Checks 3
10(301)
Appendix: Demand for Stocks and Equilibrium Prices
311(6)
CHAPTER 10 INDEX MODELS
317(26)
10.1 A Single-Index Security Market
318(8)
Systematic Risk versus Firm-Specific Risk
318(3)
Estimating the Index Model
321(3)
The Index Model and Diversification
324(2)
10.2 The CAPM and the Index Model
326(3)
Actual Returns versus Expected Returns
326(1)
The Index Model and Realized Returns
326(1)
The Index Model and the Expected Return-Beta Relationship
327(2)
10.3 The Industry Version of the Index Model
329(5)
Predicting Betas
333(1)
10.4 Index Models and Tracking Portfolios
334(2)
Summary
336(1)
Key Terms
336(1)
Websites
336(1)
Problems
336(4)
Standard and Poor's
340(1)
E-Investments: Comparing Volatilities and Beta Coefficients
340(1)
Solutions to Concept Checks
341(2)
CHAPTER 11 ARBITRAGE PRICING THEORY AND MULTIFACTOR MODELS OF RISK AND RETURN
343(26)
11.1 Multifactor Models: An Overview
344(4)
Factor Models of Security Returns
344(2)
A Multifactor Security Market Line
346(2)
11.2 Arbitrage Pricing Theory
348(7)
Arbitrage, Risk Arbitrage, and Equilibrium
349(1)
Well-Diversified Portfolios
350(1)
Beta and Expected Returns
351(2)
The One-Factor Security Market Line
353(2)
11.3 Individual Assets and the APT
355(1)
The APT and the CAPM
356(1)
11.4 A Multifactor APT
356(2)
11.5 Where Should We Look for Factors?
358(3)
11.6 A Multifactor CAPM
361(1)
Summary
362(1)
Key Terms
363(1)
Websites
363(1)
Problems
363(4)
Standard and Poor's
367(1)
E-Investments: APT versus CAPM
368(1)
Solutions to Concept Checks
368(1)
CHAPTER 12 MARKET EFFICIENCY AND BEHAVIORAL FINANCE
369(46)
12.1 Random Walks and the Efficient Market Hypothesis
370(3)
Competition as the Source of Efficiency
372(1)
Versions of the Efficient Market Hypothesis
373(1)
12.2 Implications of the EMH
373(8)
Technical Analysis
373(4)
Fundamental Analysis
377(1)
Active versus Passive Portfolio Management
378(2)
The Role of Portfolio Management in an Efficient Market
380(1)
Resource Allocation
380(1)
12.3 Event Studies
381(3)
12.4 Are Markets Efficient?
384(12)
The Issues
384(2)
The Magnitude Issue
384(1)
The Selection Bias Issue
385(1)
The Lucky Event Issue
385(1)
Weak-Form Tests: Patterns in Stock Returns
386(2)
Returns over Short Horizons
386(1)
Returns over Long Horizons
387(1)
Predictors of Broad Market Returns
388(1)
Semistrong Tests: Market Anomalies
388(6)
The Small-Firm-in-January effect
389(2)
The Neglected-Firm Effect and Liquidity Effects
391(1)
Book-to-Market Ratios
391(1)
Post-Earnings-Announcement Price Drift
392(2)
Strong-Form Tests: Inside Information
394(1)
Interpreting the Evidence
394(2)
Risk Premiums or Inefficiencies?
394(2)
Anomalies or Data Mining?
396(1)
12.5 A Behavioral Interpretation
396(5)
Information Processing
397(1)
Forecasting Errors
397(1)
Overconfidence
397(1)
Conservatism
398(1)
Sample-Size Neglect and Representativeness
398(1)
Behavioral Biases 398
Framing
398(1)
Mental Accounting
398(1)
Regret Avoidance
399(1)
Limits to Arbitrage
399(1)
Fundamental Risk
399(1)
Implementation Costs
400(1)
Model Risk
400(1)
Evaluating the Behavioral Critique
400(1)
12.6 Mutual Fund Performance
401(4)
So, Are Markets Efficient?
405(1)
Summary
405(1)
Key Terms
406(1)
Websites
406(1)
Problems
407(6)
Standard and Poor's
413(1)
E-Investments: Efficient Markets and Insider Trading
413(1)
Solutions to Concept Checks
413(2)
CHAPTER 13 EMPIRICAL EVIDENCE ON SECURITY RETURNS
415(30)
13.1 The Index Model and the Single-Factor APT
416(10)
The Expected Return-Beta Relationship
416(2)
Setting Up the Sample Data
417(1)
Estimating the SCL
417(1)
Estimating the SML
417(1)
Tests of the CAPM
418(1)
The Market Index
419(3)
Measurement Error in Beta
422(2)
The EMH and the CAPM
424(1)
Accounting for Human Capital and Cyclical Variations in Asset Betas
424(2)
13.2 Tests of Multifactor CAPM and APT
426(3)
A Macro Factor Model
426(3)
13.3 The Fama-French Three-Factor Model
429(3)
13.4 Time-Varying Volatility
432(3)
13.5 The Equity Premium Puzzle
435(3)
Expected versus Realized Returns
435(2)
Survivorship Bias
437(1)
13.6 Survivorship Bias and Tests of Market Efficiency
438(3)
Summary
441(1)
Key Terms
441(1)
Websites
441(1)
Problems
442(2)
Standard and Poor's
444(1)
E-Investments: Portfolio Theory
444(1)
Solutions to Concept Checks
444(1)
PART FOUR FIXED-INCOME SECURITIES 445(124)
CHAPTER 14 BOND PRICES AND YIELDS
447(40)
14.1 Bond Characteristics
448(7)
Treasury Bonds and Notes
448(2)
Accrued Interest and Quoted Bond Prices
450(1)
Corporate Bonds
450(2)
Call Provisions on Corporate Bonds
451(1)
Convertible Bonds
452(1)
Puttable Bonds
452(1)
Floating-Rate Bonds
452(1)
Preferred Stock
452(1)
Other Issuers
453(1)
International Bonds
453(1)
Innovation in the Bond Market
453(2)
Inverse Floaters
454(1)
Asset-Backed Bonds
454(1)
Catastrophe Bonds
454(1)
Indexed Bonds
454(1)
14.2 Bond Pricing
455(4)
Bond Pricing between Coupon Dates
458(1)
14.3 Bond Yields
459(7)
Yield to Maturity
459(3)
Yield to Call
462(2)
Realized Compound Yield versus Yield to Maturity
464(2)
14.4 Bond Prices over Time
466(5)
Yield to Maturity versus Holding-Period Return
468(1)
Zero-Coupon Bonds
468(1)
After-Tax Returns
469(2)
14.5 Default Risk and Bond Pricing
471(7)
Junk Bonds
471(1)
Determinants of Bond Safety
471(3)
Bond Indentures
474(1)
Sinking Funds
474(14)
Subordination of Further Debt
475(1)
Dividend Restrictions
475(1)
Collateral
476(1)
Yield to Maturity and Default Risk
477(1)
Summary
478(1)
Key Terms
479(1)
Websites
479(1)
Problems
480(5)
Standard and Poor's
485(1)
E-Investments: Credit Spreads
485(1)
Solutions to Concept Checks
485(2)
CHAPTER 15 THE TERM STRUCTURE OF INTEREST RATES
487(32)
15.1 The Term Structure Under Certainty
488(7)
Bond Pricing
488(3)
Bond Stripping and Pricing of Coupon Bonds
491(1)
Holding-Period Returns
492(1)
Forward Rates
493(2)
15.2 Interest Rate Uncertainty and Forward Rates
495(2)
15.3 Theories of the Term Structure
497(1)
The Expectations Hypothesis
497(1)
Liquidity Preference
497(1)
15.4 Interpreting the Term Structure
498(5)
15.5 Forward Rates as Forward Contracts
503(2)
15.6 Measuring the Term Structure
505(4)
Summary
509(1)
Key Terms
509(1)
Websites
509(1)
Problems
510(6)
E-Investments: Expectations and Term Spreads
516(1)
Solutions to Concept Checks
516(3)
CHAPTER 16 MANAGING BOND PORTFOLIOS
519(50)
16.1 Interest Rate Risk
520(11)
Interest Rate Sensitivity
520(3)
Duration
523(4)
What Determines Duration?
527(4)
Rule 1 for Duration
528(1)
Rule 2 for Duration
528(1)
Rule 3 for Duration
528(1)
Rule 4 for Duration
529(1)
Rule 5 for Duration
529(1)
Rule 6 for Duration
530(1)
Rule 7 for Duration
530(1)
Rule 8 for Duration
530(1)
16.2 Convexity
531(5)
Why Do Investors Like Convexity?
534(1)
Duration and Convexity of Callable Bonds
534(2)
16.3 Passive Bond Management
536(11)
Bond-Index Funds
537(1)
Immunization
538(8)
Cash Flow Matching and Dedication
546(1)
Other Problems with Conventional Immunization
546(1)
16.4 Active Bond Management
547(4)
Sources of Potential Profit
547(1)
Horizon Analysis
548(1)
Contingent Immunization
549(2)
16.5 Interest Rate Swaps
551(2)
Swaps and Balance Sheet Restructuring
552(1)
The Swap Dealer
552(1)
16.6 Financial Engineering and Interest Rate Derivatives
553(2)
Summary
555(1)
Key Terms
556(1)
Websites
556(1)
Problems
557(9)
Standard and Poor's
566(1)
E-Investments: Bond Calculations
566(1)
Solutions to Concept Checks
566(3)
PART FIVE SECURITY ANALYSIS 569(126)
CHAPTER 17 MACROECONOMIC AND INDUSTRY ANALYSIS
571(34)
17.1 The Global Economy
572(2)
17.2 The Domestic Economy
574(2)
17.3 Demand and Supply Shocks
576(1)
17.4 Federal Government Policy
576(3)
Fiscal Policy
577(1)
Monetary Policy
578(1)
Supply-Side Policies
579(1)
17.5 Business Cycles
579(6)
The Business Cycle
579(2)
Economic Indicators
581(4)
17.6 Industry Analysis
585(10)
Defining an Industry
586(1)
Sensitivity to the Business Cycle
587(3)
Sector Rotation
590(1)
Industry Life Cycles
591(3)
Start-Up Stage
592(1)
Consolidation Stage
592(1)
Maturity Stage
592(1)
Relative Decline
593(1)
Industry Structure and Performance
594(12)
Threat of Entry
594(1)
Rivalry between Existing Competitors
594(1)
Pressure from Substitute Products
594(1)
Bargaining Power of Buyers
594(1)
Bargaining Power of Suppliers
595(1)
Summary
595(1)
Key Terms
595(1)
Websites
595(1)
Problems
596(6)
Standard and Poor's
602(1)
E-Investments: The Macroeconomy
602(1)
Solutions to Concept Checks
602(3)
CHAPTER 18 EQUITY VALUATION MODELS
605(50)
18.1 Valuation by Companies
606(2)
Limitations of Book Value
607(1)
18.2 Intrinsic Value versus Market Price
608(1)
18.3 Dividend Discount Models
609(13)
The Constant-Growth DDM
611(3)
Convergence of Price to Intrinsic Value
614(1)
Stock Prices and Investment Opportunities
615(3)
Life Cycles and Multistage Growth Models
618(4)
Multistage Growth Models
622(1)
18.4 Price-Earnings Ratio
622(12)
The Price-Earnings Ratio and Growth Opportunities
622(4)
PIE Ratios and Stock Risk
626(1)
Pitfalls in PIE Analysis
627(4)
Combining P/E Analysis and the DDM
631(1)
Other Comparative Valuation Ratios
632(24)
Price-to-Book Ratio
632(1)
Price-to-Cash-Flow Ratio
632(1)
Price-to-Sales Ratio
633(1)
18.5 Corporate Finance and the Free Cash Flow Approach
634(2)
18.6 Inflation and Equity Valuation
636(3)
18.7 The Aggregate Stock Market
639(1)
Explaining Past Behavior
639(1)
Forecasting the Stock Market
640(2)
Summary
642(1)
Key Terms
643(1)
Websites
643(1)
Problems
644(7)
Standard and Poor's
651(1)
E-Investments: Equity Valuation
652(1)
Solutions to Concept Checks
652(3)
CHAPTER 19 FINANCIAL STATEMENT ANALYSIS
655(40)
19.1 The Major Financial Statements
656(3)
The Income Statement
656(1)
The Balance Sheet
657(1)
The Statement of Cash Flows
658(1)
19.2 Accounting versus Economic Earnings
659(1)
19.3 Return on Equity
660(4)
Past versus Future ROE
661(1)
Financial Leverage and ROE
662(2)
19.4 Ratio Analysis
664(7)
Decomposition of ROE
664(1)
Turnover and Other Asset Utilization Ratios
665(2)
Liquidity and Coverage Ratios
667(1)
Market Price Ratios
667(3)
Choosing a Benchmark
670(1)
19.5 Economic Value Added
671(1)
19.6 An Illustration of Financial Statement Analysis
672(2)
19.7 Comparability Problems
674(6)
Inventory Valuation
674(1)
Depreciation
675(1)
Inflation and Interest Expense
676(1)
Quality of Earnings
676(3)
International Accounting Conventions
679(1)
19.8 Value Investing: The Graham Technique
680(1)
Summary
681(1)
Key Terms
682(1)
Websites
682(1)
Problems
683(9)
Standard and Poor's
692(1)
E-Investments: Financial Statement Analysis
693(1)
Solutions to Concept Checks
693(2)
PART SIX OPTIONS, FUTURES, AND OTHER DERIVATIVES 695(164)
CHAPTER 20 OPTIONS MARKETS: INTRODUCTION
697(48)
20.1 The Option Contract
698(7)
Options Trading
700(2)
American and European Options
702(1)
Adjustments in Option Contract Terms
702(1)
The Option Clearing Corporation
702(1)
Other Listed Options
703(2)
Index Options
703(2)
Futures Options
705(1)
Foreign Currency Options
705(1)
Interest Rate Options
705(1)
20.2 Values of Options at Expiration
705(6)
Call Options
705(2)
Put Options
707(2)
Option versus Stock Investments
709(2)
20.3 Option Strategies
711(8)
Protective Put
711(2)
Covered Calls
713(2)
Straddle
715(1)
Spreads
716(1)
Collars
716(3)
20.4 The Put-Call Parity Relationship
719(2)
20.5 Optionlike Securities
721(7)
Callable Bonds
721(2)
Convertible Securities
723(2)
Warrants
725(1)
Collateralized Loans
726(1)
Levered Equity and Risky Debt
727(1)
20.6 Financial Engineering
728(3)
20.7 Exotic Options
731(1)
Asian Options
731(1)
Barrier Options
731(1)
Lookback Options
731(1)
Currency-Traded Options
731(1)
Binary Options
732(1)
Summary
732(1)
Key Terms
732(1)
Websites
732(1)
Problems
733(7)
Standard and Poor's
740(1)
E-Investments: Options and Straddles
740(1)
Solutions to Concept Checks
740(5)
CHAPTER 21 OPTION VALUATION
745(46)
21.1 Option Valuation: Introduction
746(2)
Intrinsic and Time Values
746(1)
Determinants of Option Values
747(1)
21.2 Restrictions on Option Values
748(4)
Restrictions on the Value of a Call Option
749(2)
Early Exercise and Dividends
751(1)
Early Exercise of American Puts
751(1)
21.3 Binomial Option Pricing
752(6)
Two-State Option Pricing
752(3)
Generalizing the Two-State Approach
755(3)
21.4 Black-Scholes Option Valuation
758(9)
The Black-Scholes Formula
759(6)
Dividends and Call Option Valuation
765(1)
Put Option Valuation
766(1)
21.5 Using the Black-Scholes Formula
767(11)
Hedge Ratios and the Black-Scholes Formula
767(3)
Portfolio Insurance
770(4)
Hedging Bets on Mispriced Options
774(4)
21.6 Empirical Evidence on Option Pricing
778(1)
Summary
779(1)
Key Terms
780(1)
Websites
780(1)
Problems
781(6)
Standard and Poor's
787(1)
E-Investments: Black-Scholes Option Pricing
788(1)
Solutions to Concept Checks
788(3)
CHAPTER 22 FUTURES MARKETS
791(30)
22. The Futures Contract
792(4)
The Basics of Futures Contracts
792(4)
Existing Contracts
796(1)
22.2 Mechanics of Trading in Futures Markets
796(6)
The Clearinghouse and Open Interest
796(3)
Marking to Market and the Margin Account
799(2)
Cash versus Actual Delivery
801(1)
Regulations
802(1)
Taxation
802(1)
22.3 Futures Markets Strategies
802(4)
Hedging and Speculation
802(3)
Basis Risk and Hedging
805(1)
22.4 The Determination of Futures Prices
806(5)
The Spot-Futures Parity Theorem
806(3)
Spreads
809(1)
Forward versus Futures Pricing
810(1)
22.5 Futures Prices versus Expected Spot Prices
811(2)
Expectation Hypothesis
811(1)
Normal Backwardation
812(1)
Contango
812(1)
Modern Portfolio Theory
812(1)
Summary
813(1)
Key Terms
814(1)
Websites
814(1)
Problems
815(2)
Standard and Poor's
817(1)
E-Investments: Contract Specifications for Financial Futures and Options
818(1)
Solutions to Concept Checks
818(3)
CHAPTER 23 FUTURES AND SWAPS: A CLOSER LOOK
821(38)
23.1 Foreign Exchange Futures
822(7)
The Markets
822(1)
Interest Rate Parity
822(4)
Direct versus Indirect Quotes
826(1)
Using Futures to Manage Exchange Rate Risk
826(3)
23.2 Stock Index Futures
829(8)
The Contracts
829(1)
Creating Synthetic Stock Positions: An Asset Allocation Tool
830(2)
Empirical Evidence on Pricing of Stock-Index Futures
832(2)
Index Arbitrage and the Triple-Witching Hour
834(1)
Using Index Futures to Hedge Market Risk
835(2)
23.3 Interest Rate Futures
837(3)
Hedging Interest Rate Risk
837(2)
Other Interest Rate Futures
839(1)
23.4 Commodity Futures Pricing
840(4)
Pricing with Storage Costs
840(3)
Discounted Cash Flow Analysis for Commodity Futures
843(1)
23.5 Swaps
844(5)
Swap Pricing
846(1)
Credit Risk in the Swap Market
847(1)
Swap Variations
848(1)
Summary
849(1)
Key Terms
850(1)
Websites
850(1)
Problems
851(5)
Standard and Poor's
856(1)
E-Investments: Describing Different Swaps
856(1)
Solutions to Concept Checks
857(2)
PART SEVEN ACTIVE PORTFOLIO MANAGEMENT 859(146)
CHAPTER 24 PORTFOLIO PERFORMANCE EVALUATION
861(44)
24.1 Measuring Investment Returns
862(4)
Time-Weighted Returns versus Dollar-Weighted Returns
862(1)
Arithmetic versus Geometric Averages
863(3)
24.2 The Conventional Theory of Performance Evaluation
866(11)
The M2 Measure of Performance (M'-)
869(1)
Sharpe's Measure as the Criterion for Overall Portfolios
870(1)
Appropriate Performance Measures in Three Sections
871(3)
Jane's Portfolio Represents Her Entire Risky Investment Fund
871(1)
Jane's Portfolio Is an Active Portfolio and Is Mixed with a Passive Market Index
872(1)
Jane's Choice Portfolio Is One of Many Portfolios Combined into a Large Investment Fund
872(2)
Relationships among the Various Performance Measures
874(1)
Actual Performance Measurement: An Example
875(1)
Realized Returns versus Expected Returns
875(2)
24.3 Performance Measurement with Changing Portfolio Composition
877(2)
24.4 Market Timing
879(2)
24.5 Performance Attribution Procedures
881(5)
Asset Allocation Decisions
883(1)
Sector and Security Selection Decisions
884(1)
Summing Up Component Contributions
885(1)
24.6 Style Analysis
886(3)
24.7 Morningstar's Risk-Adjusted Rating
889(1)
24.8 Evaluating Performance Evaluation
890(2)
Summary
892(1)
Key Terms
893(1)
Websites
893(1)
Problems
894(7)
Standard and Poor's
901(1)
E-Investments: Performance of Mutual Funds
902(1)
Solutions to Concept Checks
902(3)
CHAPTER 25 INTERNATIONAL DIVERSIFICATION
905(34)
25.1 Global Markets for Equities
906(4)
Developed Countries
906(1)
Emerging Markets
906(2)
Market Capitalization and GDP
908(2)
Home-Country Bias
910(1)
25.2 Risk Factors in International Investing
910(7)
Exchange Rate Risk
910(4)
Country-Specific Risk
914(3)
25.3 International Investing: Risk, Return, and Benefits from Diversification
917(10)
Risk and Return: Summary Statistics
918(1)
Are Investments in Emerging Markets Riskier?
918(1)
Are Average Returns in Emerging Markets Greater?
918(2)
Is Exchange Rate Risk Important in International Portfolios?
920(1)
Benefits from International Diversification
921(1)
Misleading Representation of Diversification Benefits
922(3)
Realistic Benefits from international Diversification
925(2)
Are Benefits from international Diversification Preserved in Bear Markets?
927(1)
25.4 International Investing and Performance Attribution
927(5)
Constructing a Benchmark Portfolio of Foreign Assets
928(1)
Performance Attribution
929(3)
Summary
932(1)
Key Terms
932(1)
Websites
933(1)
Problems
933(4)
Standard and Poor's
937(1)
E-Investments: International Diversification
937(1)
Solutions to Concept Checks
937(2)
CHAPTER 26 THE PROCESS OF PORTFOLIO MANAGEMENT
939(42)
26.1 Making Investment Decisions
940(3)
Objectives
940(2)
Individual Investors
942(1)
Personal Trusts
942(1)
Mutual Funds
942(1)
Pension Funds
942(1)
Endowment Funds
942(1)
Life Insurance Companies
942(1)
Non-Life Insurance Companies
943(1)
Banks
943(1)
26.2 Constraints
943(3)
Liquidity
944(1)
Investment Horizon
944(1)
Regulations
944(1)
Tax Considerations
944(1)
Unique Needs
944(2)
26.3 Asset Allocation
946(2)
Policy Statements
947(1)
Taxes and Asset Allocation
947(1)
26.4 Managing Portfolios of Individual Investors
948(7)
Human Capital and Insurance
948(1)
Investment in Residence
949(1)
Saving for Retirement and the Assumption of Risk
949(1)
Retirement Planning Models
950(1)
Manage Your Own Portfolio or Rely on Others?
950(2)
Tax Sheltering
952(3)
The Tax-Deferral Option
952(1)
Tax-Deferred Retirement Plans
953(1)
Deferred Annuities
953(1)
Variable and Universal Life Insurance
954(1)
26.5 Pension Funds
955(5)
Defined Contribution Plans
955(1)
Defined Benefit Plans
956(1)
Alternative Perspectives on Defined Benefit Pension Obligations
956(1)
Pension Investment Strategies
957(27)
Investing in Equities
958(1)
Wrong Reasons to Invest in Equities
959(1)
26.6 Future Trends in Portfolio Management
960(1)
Summary
961(1)
Key Terms
962(1)
Websites
962(1)
Problems
963(10)
E-Investments: Personal Diversification
973(1)
Solutions to Concept Checks
973(1)
Appendix: A Spreadsheet Model for Long-Term Investing
974(7)
CHAPTER 27 THE THEORY OF ACTIVE PORTFOLIO MANAGEMENT
981(24)
27.1 The Lure of Active Management
982(1)
27.2 Objectives of Active Portfolios
983(1)
27.3 Market Timing
984(4)
Valuing Market Timing as an Option
986(1)
The Value of Imperfect Forecasting
987(1)
27.4 Security Selection: The Treynor-Black Model
988(7)
Overview of the Treynor-Black Model
988(1)
Portfolio Construction
989(6)
27.5 Multifactor Models and Active Portfolio Management
995(1)
27.6 Imperfect Forecasts of Alpha Values and the Use of the Treynor-Black Model in Industry
996(2)
Summary
998(1)
Key Terms
999(1)
Problems
999(3)
Solutions to Concept Checks
1002(3)
APPENDIX A Quantitative Review 1005(38)
APPENDIX B References to CFA Questions 1043(4)
APPENDIX C Glossary 1047(14)
NAME INDEX 1061(4)
SUBJECT INDEX 1065


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