Investments

by Reilly, Frank K.; Norton, Edgar A.

• ISBN13: 9780030339295
• ISBN10: 0030339294
• Format: Hardcover
• Copyright: 2002-07-24
• Publisher: South-Western College Pub

Summary

Investments is a mainstream, mid-level text for the first undergraduate course. Reilly and Norton cover the major topics logically and concisely, providing a strong base for those who want to do advanced work in investment analysis and valuation. Consistently using real-world examples, the authors convey the importance of theory and its application to real world investing.

Table of Contents

Preface	vii
About the Authors	xiv
PART 1 The Investment Environment	xvi
The Investment Setting	2	(21)
What Is an Investment?	2	(3)
Key Issues in Investing	5	(6)
The Financial Environment	11	(3)
Investment Strategies	14	(2)
Ethics and Job Opportunities in Investments	16	(7)
Summary	19	(1)
Investments Online	19	(4)
Return and Risk Basics	23	(31)
An Example of Return and Risk	23	(1)
Types of Returns	24	(6)
Measures of Historical Rates of Return	30	(3)
Calculating Expected Rates of Return	33	(4)
Defining Risk	37	(1)
Measuring Risk	38	(4)
Determinants of Required Rates of Return	42	(12)
Summary	46	(1)
Investments Online	47	(7)
Selecting Investments in a Global Market	54	(42)
The Case for Global Investments	55	(11)
Global Investment Choices	66	(15)
Historical Risk/Return on Various Investments	81	(12)
Summary	85	(1)
Investments Online	86	(7)
Appendix 3	93	(3)
Mutual Funds and Other Managed Investments	96	(35)
What Is a Mutual Fund?	96	(3)
Types of Mutual Funds Based on Portfolio Objectives	99	(3)
The Prospectus	102	(7)
Other Sources of Information about Mutual Funds	109	(2)
Performance of Investment Companies	111	(8)
Suggested Mutual Fund Investment Strategies	119	(2)
A Review of Other Managed Investments	121	(10)
Summary	124	(2)
Investments Online	126	(5)
The Asset Allocation Decision	131	(41)
Managing Risk	132	(1)
Individual Investor Life Cycle	133	(2)
The Portfolio Management Process	135	(1)
The Need for a Policy Statement	136	(3)
Input to the Policy Statement	139	(10)
The Importance of Asset Allocation	149	(5)
Asset Allocation and Cultural Differences	154	(13)
Summary	156	(1)
Investments Online	157	(10)
Appendix 5	167	(5)
Organization and Functioning of Securities Markets	172	(46)
What Is a Market?	173	(2)
Primary Capital Markets	175	(3)
Secondary Financial Markets	178	(9)
Regional Exchanges and the Over-the-Counter Market	187	(5)
Detailed Analysis of Exchange Markets	192	(9)
Changes in the Securities Markets	201	(14)
Summary	209	(1)
Investments Online	210	(5)
Appendix 6	215	(3)
Security-Market Indicator Series	218	(26)
Uses of Security-Market Indexes	219	(1)
Differentiating Factors in Constructing Market Indexes	220	(1)
Stock-Market Indicator Series	220	(11)
Bond-Market Indicator Series	231	(2)
Composite Stock-Bond Indexes	233	(2)
Comparison of Indexes over Time	235	(7)
Summary	237	(2)
Investments Online	239	(3)
Appendix 7	242	(2)
PART 2 Managing Risk	244	(170)
An Introduction to Portfolio Management	246	(27)
Some Background Assumptions	246	(2)
Markowitz Portfolio Theory	248	(25)
Summary	267	(1)
Investments Online	268	(5)
An Introduction to Asset Pricing Models	273	(30)
Capital Market Theory: an Overview	274	(9)
The Capital Asset Pricing Model: Expected Return and Risk	283	(7)
Arbitage Pricing Theory (APT)	290	(13)
Summary	295	(1)
Investments Online	296	(7)
Efficient Capital Markets	303	(36)
Why Should Capital Markets Be Efficient?	304	(1)
Alternative Efficient Market Hypotheses	305	(1)
Tests and Results of Efficient Market Hypotheses	306	(19)
Behavioral Finance	325	(1)
Implications of Efficient Capital Markets	326	(13)
Summary	331	(1)
Investments Online	332	(7)
An Introduction to Derivative Instruments	339	(38)
Why Do Derivatives Exist?	340	(2)
Forward Contracts	342	(2)
Futures Contracts	344	(5)
Options	349	(9)
Option Trading Strategies	358	(11)
Put/Call Parity	369	(8)
Summary	371	(1)
Investments Online	371	(6)
Derivatives: Analysis and Valuation	377	(37)
Futures Valuation Issues	377	(4)
Advanced Applications of Financial Futures	381	(4)
Options on Futures	385	(5)
Valuation of Call and Put Options	390	(1)
Black-Scholes Option-Pricing Formula	391	(6)
Option-Like Securities	397	(17)
Summary	405	(1)
Investments Online	405	(9)
PART 3 Equity Securities: Valuation and Management	414	(238)
Economic and Industry Analysis	416	(51)
Relating Economic Analysis to Efficient Markets	417	(1)
Generic Approaches to Security Analysis	417	(2)
Why a Three-Step Valuation Process?	419	(5)
A Quick Review of Economic Concepts	424	(6)
Influences on the Economy and Security Markets	430	(4)
Forecasting Tools	434	(4)
Risks in Economic Forecasting	438	(1)
Expectational Analysis	438	(4)
Industry Analysis	442	(1)
Links between the Economy and Industry Sectors	442	(2)
Structural Influences on the Economy and Industry	444	(4)
Competitive Structure of an Industry	448	(2)
Industry Life-Cycle Analysis	450	(3)
Conducting an Industry Analysis	453	(12)
Summary	454	(1)
Investments Online	455	(10)
Appendix 13	465	(2)
Analysis of Financial Statements	467	(58)
Purpose of This Chapter	467	(1)
Major Financial Statements	468	(6)
Analysis of Financial Ratios	474	(1)
Computation of Financial Ratios	475	(3)
Evaluating Internal Liquidity	478	(4)
Evaluating Operating Performance	482	(11)
Risk Analysis	493	(9)
Analysis of Growth Potential	502	(3)
Comparative Analysis of Ratios	505	(2)
Analysis of Non-U.S. Financial Statements	507	(1)
The Quality of Financial Statements	507	(1)
The Value of Financial Statement Analysis	508	(1)
Specific Uses of Financial Ratios	509	(16)
Summary	512	(1)
Investments Online	513	(12)
Company Analysis and Stock Valuation	525	(61)
Company Analysis versus the Valuation and Selection of Stock	526	(2)
The Search for True Growth Stocks	528	(1)
Theory of Valuation	529	(2)
Valuation of Alternative Investments	531	(12)
Economic, Industry, and Structural Links to Company Analysis	543	(1)
Company Analysis	544	(4)
Estimating Intrinsic Values for Walgreens	548	(19)
Specific Valuation with the P/E Ratio	567	(4)
Making the Investment Decision	571	(2)
Influences on Analysts	573	(7)
Summary	574	(1)
Investments Online	575	(5)
Appendix 15A	580	(4)
Appendix 15B	584	(2)
Technical Analysis	586	(27)
Underlying Assumptions of Technical Analysis	587	(2)
Advantages of Technical Analysis	589	(1)
Challenges to Technical Analysis	590	(1)
Technical Trading Rules and Indicators	591	(13)
Technical Analysis of Foreign Markets	604	(1)
Technical Analysis of Bond Markets	605	(8)
Summary	607	(1)
Investments Online	608	(5)
Equity-Portfolio Management	613	(39)
Passive versus Active Management	614	(1)
Overview of Passive Equity-Portfolio Management Strategies	614	(3)
Overview of Active Equity-Portfolio Management Strategies	617	(9)
Futures and Options in Equity-Portfolio Management	626	(10)
Taxable Portfolios	636	(6)
Asset Allocation Strategies	642	(10)
Summary	643	(1)
Investments Online	644	(8)
PART 4 Fixed-Income Securities: Analysis and Management	652	(84)
Fixed-Income Analysis	654	(45)
The Fundamentals of Bond Valuation	655	(3)
Computing Bond Yields	658	(6)
Calculating Future Bond Prices	664	(4)
What Determines Interest Rates?	668	(11)
What Determines the Price Volatility for Bonds?	679	(20)
Summary	692	(1)
Investments Online	692	(7)
Fixed-Income Portfolio Management	699	(37)
Alternative Bond-Portfolio Strategies	699	(19)
Using Derivative Securities in Fixed-Income Portfolio Management	718	(18)
Summary	728	(1)
Investments Online	729	(7)
PART 5 Monitoring Portfolios	736	(43)
Evaluation of Portfolio Management	738	(41)
Composite Portfolio Performance Measures	739	(12)
Benchmark Portfolios	751	(8)
Benchmarking and Portfolio Style	759	(4)
Determining Reasons for Superior (or Inferior) Performance	763	(2)
Evaluation of Bond-Portfolio Performance	765	(11)
Summary	768	(1)
Investments Online	768	(8)
Appendix 20	776	(3)
Appendix A How to Become a CFA® Charterholder	779	(1)
Appendix B Association for Investment Management and Research (AIMR): The Code of Ethics and Standards of Professional Conduct	780	(2)
Appendix C Interest Tables	782	(4)
Appendix D Standard Normal Probabilities	786	(1)
Name and Company Index	787	(3)
Subject Index	790