Fundamentals of Investments: Valuation and Management Edition 7 by Bradford Jordan EBOOK PDF Instant Download




Fundamentals of Investments: Valuation and Management Edition 7 by Bradford Jordan EBOOK PDF Instant Download

Table of Contents

About the Authors
Part One. Introduction
Chapter 1. A Brief History of Risk and Return
1.1. Returns
Dollar Returns
Percentage Returns
A Note on Annualizing Returns
1.2. The Historical Record
A First Look
A Longer Range Look
A Closer Look
2008: The Bear Growled and Investors Howled
1.3. Average Returns: The First Lesson
Calculating Average Returns
Average Returns: The Historical Record
Risk Premiums
The First Lesson
1.4. Return Variability: The Second Lesson
Frequency Distributions and Variability
The Historical Variance and Standard Deviation
The Historical Record
Normal Distribution
The Second Lesson
1.5. More on Average Returns
Arithmetic versus Geometric Averages
Calculating Geometric Average Returns
Arithmetic Average Return or Geometric Average Return?
Dollar-Weighted Average Returns
1.6. Risk and Return
The Risk-Return Trade-Off
A Look Ahead
1.7. Summary and Conclusions
Chapter 2. The Investment Process
2.1. The Investment Policy Statement
Objectives: Risk and Return
Investor Constraints
Strategies and Policies
2.2. Investment Professionals
Choosing a Broker/Advisor
Online Brokers
Investor Protection
Broker–Customer Relations
2.3. Types of Accounts
Cash Accounts
Margin Accounts
Annualizing Returns on a Margin Purchase
Hypothecation and Street Name Registration
Retirement Accounts
2.4. Types of Positions
Basics of a Short Sale
Short Sales: Some Details
Short-Sale Constraints
2.5. Forming an Investment Portfolio
Some Risk Tolerance Scores
Risk and Return
Investor Constraints
Strategies and Policies
More on Asset Allocation
2.6. Summary and Conclusions
Chapter 3. Overview of Security Types
3.1. Classifying Securities
3.2. Interest-Bearing Assets
Money Market Instruments
Fixed-Income Securities
3.3. Equities
Common Stock
Preferred Stock
Common Stock Price Quotes
3.4. Derivatives
Futures Contracts
Futures Price Quotes
Gains and Losses on Futures Contracts
3.5. Option Contracts
Option Terminology
Options versus Futures
Option Price Quotes
Gains and Losses on Option Contracts
Investing in Stocks versus Options
3.6. Summary and Conclusions
Chapter 4. Mutual Funds and Other Investment Companies
4.1. Advantages and Drawbacks of Mutual Fund Investing
4.2. Investment Companies and Fund Types
Open-End versus Closed-End Funds
Net Asset Value
4.3. Mutual Fund Operations
Mutual Fund Organization and Creation
Taxation of Investment Companies
The Fund Prospectus and Annual Report
4.4. Mutual Fund Costs and Fees
Types of Expenses and Fees
Expense Reporting
Why Pay Loads and Fees?
4.5. Short-Term Funds
Money Market Mutual Funds
Money Market Deposit Accounts
4.6. Long-Term Funds
Stock Funds
Taxable and Municipal Bond Funds
Stock and Bond Funds
Mutual Fund Objectives: Recent Developments
4.7. Mutual Fund Performance
Mutual Fund Performance Information
How Useful Are Fund Performance Ratings?
4.8. Closed-End Funds, Exchange-Traded Funds, and Hedge Funds
Closed-End Funds Performance Information
The Closed-End Fund Discount Mystery
Exchange-Traded Funds
Hedge Funds
4.9. Summary and Conclusions
Part Two. Stock Markets
Chapter 5. The Stock Market
5.1. Private Equity versus Selling Securities to the Public
Private Equity
The Structure of Private Equity Funds
Types of Private Equity Funds
Selling Securities to the Public
The Primary Market for Common Stock
The Secondary Market for Common Stock
Dealers and Brokers
5.2. The New York Stock Exchange
NYSE Membership History
Designated Market Makers
Other NYSE Participants
The NYSE Hybrid Market
NYSE-Listed Stocks
5.3. Operation of the New York Stock Exchange
NYSE Floor Activity
Special Order Types
NASDAQ Operations
NASDAQ Participants
5.5. NYSE and NASDAQ Competitors
5.6. Stock Market Information
The Dow Jones Industrial Average
Stock Market Indexes
More on Price-Weighted Indexes
The Dow Jones Divisors
More on Index Formation: Base-Year Values
5.7. Summary and Conclusions
Chapter 6. Common Stock Valuation
6.1. Security Analysis: Be Careful Out There
6.2. The Dividend Discount Model
Constant Perpetual Growth
Historical Growth Rates
The Sustainable Growth Rate
Analyzing ROE
6.3. The Two-Stage Dividend Growth Model
Nonconstant Growth in the First Stage
The H-Model
Discount Rates for Dividend Discount Models
Observations on Dividend Discount Models
6.4. The Residual Income Model
Residual Income
The RIM versus the Constant Growth DDM
6.5. The Free Cash Flow Model
Free Cash Flow
The FCF Model versus the Constant Growth DDM
6.6. Price Ratio Analysis
Price-Earnings Ratios
Price-Cash Flow Ratios
Price-Sales Ratios
Price-Book Ratios
Applications of Price Ratio Analysis
Enterprise Value Ratios
6.7. An Analysis of the Procter & Gamble Company
Using the Dividend Discount Model
Using the Residual Income Model
Using Price Ratio Analysis
6.8. Summary and Conclusions
Chapter 7. Stock Price Behavior and Market Efficiency
7.1. Introduction to Market Efficiency
7.2. What Does “Beat the Market” Mean?
7.3. Foundations of Market Efficiency
7.4. Forms of Market Efficiency
7.5. Why Would a Market Be Efficient?
7.6. Some Implications of Market Efficiency
Does Old Information Help Predict Future Stock Prices?
Random Walks and Stock Prices
How Does New Information Get into Stock Prices?
Event Studies
7.7. Informed Traders and Insider Trading
Informed Trading
Insider Trading
7.8. How Efficient Are Markets?
Are Financial Markets Efficient?
Some Implications of Market Efficiency
7.9. Market Efficiency and the Performance of Professional Money Managers
7.10. Anomalies
The Day-of-the-Week Effect
The Amazing January Effect
Turn-of-the-Year Effect
Turn-of-the-Month Effect
The Earnings Announcement Puzzle
The Price-Earnings (P/E) Puzzle
7.11. Bubbles and Crashes
The Crash of 1929
The Crash of October 1987
The Asian Crash
The “Dot-Com” Bubble and Crash
The Crash of October 2008
7.12. Summary and Conclusions
Chapter 8. Behavioral Finance and the Psychology of Investing
8.1. Introduction to Behavioral Finance
8.2. Prospect Theory
Frame Dependence
Loss Aversion
Mental Accounting and House Money
8.3. Overconfidence
Overconfidence and Trading Frequency
Overtrading and Gender: “It’s (Basically) a Guy Thing”
What Is a Diversified Portfolio to the Everyday Investor?
Illusion of Knowledge
Snakebite Effect
8.4. Misperceiving Randomness and Overreacting to Chance Events
The “Hot-Hand” Fallacy
The Gambler’s Fallacy
8.5. More on Behavioral Finance
How Do We Overcome Bias?
8.6. Sentiment-Based Risk and Limits to Arbitrage
Limits to Arbitrage
The 3Com/Palm Mispricing
The Royal Dutch/Shell Price Ratio
8.7. Technical Analysis
Why Does Technical Analysis Continue to Thrive?
Dow Theory
Elliott Waves
Support and Resistance Levels
Technical Indicators
Relative Strength Charts
Fibonacci Numbers
Other Technical Indicators
8.8. Summary and Conclusions
Part Three. Interest Rates and Bond Valuation
Chapter 9. Interest Rates
9.1. Interest Rate History and Money Market Rates
Interest Rate History
Money Market Rates
9.2. Money Market Prices and Rates
Bank Discount Rate Quotes
Treasury Bill Quotes
Bank Discount Yields versus Bond Equivalent Yields
Bond Equivalent Yields, APRs, and EARs
9.3. Rates and Yields on Fixed-Income Securities
The Treasury Yield Curve
Rates on Other Fixed-Income Investments
9.4. The Term Structure of Interest Rates
Treasury STRIPS
Yields for U.S. Treasury STRIPS
9.5. Nominal versus Real Interest Rates
Real Interest Rates
The Fisher Hypothesis
Inflation-Indexed Treasury Securities
9.6. Traditional Theories of the Term Structure
Expectations Theory
Maturity Preference Theory
Market Segmentation Theory
9.7. Determinants of Nominal Interest Rates: A Modern Perspective
Problems with Traditional Theories
Modern Term Structure Theory
Liquidity and Default Risk
9.8. Summary and Conclusions
Chapter 10. Bond Prices and Yields
10.1. Bond Basics
Straight Bonds
Coupon Rate and Current Yield
10.2. Straight Bond Prices and Yield to Maturity
Straight Bond Prices
Premium and Discount Bonds
Relationships among Yield Measures
A Note on Bond Price Quotes
10.3. More on Yields
Calculating Yields
Yield to Call
10.4. Interest Rate Risk and Malkiel’s Theorems
Promised Yield and Realized Yield
Interest Rate Risk and Maturity
Malkiel’s Theorems
10.5. Duration
Macaulay Duration
Modified Duration
Calculating Macaulay Duration
Properties of Duration
10.6. Bond Risk Measures Based on Duration
Dollar Value of an 01
Yield Value of a 32nd
10.7. Dedicated Portfolios and Reinvestment Risk
Dedicated Portfolios
Reinvestment Risk
10.8. Immunization
Price Risk versus Reinvestment Rate Risk
Immunization by Duration Matching
Dynamic Immunization
10.9. Summary and Conclusions
Part Four. Portfolio Management
Chapter 11. Diversification and Risky Asset Allocation
11.1. Expected Returns and Variances
Expected Returns
Calculating the Variance of Expected Returns
11.2. Portfolios
Portfolio Weights
Portfolio Expected Returns
Portfolio Variance of Expected Returns
11.3. Diversification and Portfolio Risk
The Effect of Diversification: Another Lesson from Market History
The Principle of Diversification
The Fallacy of Time Diversification
11.4. Correlation and Diversification
Why Diversification Works
Calculating Portfolio Risk
The Importance of Asset Allocation, Part 1
More on Correlation and the Risk-Return Trade-Off
11.5. The Markowitz Efficient Frontier
The Importance of Asset Allocation, Part 2
11.6. Summary and Conclusions
Chapter 12. Return, Risk, and the Security Market Line
12.1. Announcements, Surprises, and Expected Returns
Expected and Unexpected Returns
Announcements and News
12.2. Risk: Systematic and Unsystematic
Systematic and Unsystematic Risk
Systematic and Unsystematic Components of Return
12.3. Diversification, Systematic Risk, and Unsystematic Risk
Diversification and Unsystematic Risk
Diversification and Systematic Risk
12.4. Systematic Risk and Beta
The Systematic Risk Principle
Measuring Systematic Risk
Portfolio Betas
12.5. The Security Market Line
Beta and the Risk Premium
The Reward-to-Risk Ratio
The Basic Argument
The Fundamental Result
The Security Market Line
12.6. More on Beta
A Closer Look at Beta
Where Do Betas Come From?
Another Way to Calculate Beta
Why Do Betas Differ?
12.7. Extending CAPM
A (Very) Brief History of Testing CAPM
The Fama-French Three-Factor Model
12.8. Summary and Conclusions
Chapter 13. Performance Evaluation and Risk Management
13.1. Performance Evaluation
Performance Evaluation Measures
The Sharpe Ratio
The Treynor Ratio
Jensen’s Alpha
Another Method to Calculate Alpha
Information Ratio
13.2. Comparing Performance Measures
Global Investment Performance Standards
Sharpe-Optimal Portfolios
13.3. Investment Risk Management
13.4. More on Computing Value-at-Risk
13.5. Summary and Conclusions
Part Five. Futures and Options
Chapter 14. Futures Contracts
14.1. Futures Contracts Basics
Modern History of Futures Trading
Futures Contract Features
Futures Prices
14.2. Why Futures?
Speculating with Futures
Hedging with Futures
14.3. Futures Trading Accounts
14.4. Cash Prices versus Futures Prices
Cash Prices
Cash-Futures Arbitrage
Spot-Futures Parity
More on Spot-Futures Parity
14.5. Stock Index Futures
Basics of Stock Index Futures
Index Arbitrage
Hedging Stock Market Risk with Futures
Hedging Interest Rate Risk with Futures
Futures Contract Delivery Options
14.6. Summary and Conclusions
Chapter 15. Stock Options
15.1. Options on Common Stocks
Option Basics
Option Price Quotes
15.2. The Options Clearing Corporation
15.3. Why Options?
15.4. Stock Index Options
Index Options: Features and Settlement
Index Option Price Quotes
15.5. Option Intrinsic Value and “Moneyness”
Intrinsic Value for Call Options
Intrinsic Value for Put Options
Time Value
Three Lessons about Intrinsic Value
Show Me the Money
15.6. Option Payoffs and Profits
Option Writing
Option Payoffs
Option Payoff Diagrams
Option Profit Diagrams
15.7. Using Options to Manage Risk
The Protective Put Strategy
Credit Default Swaps
The Protective Put Strategy and Corporate Risk Management
Using Call Options in Corporate Risk Management
15.8. Option Trading Strategies
The Covered Call Strategy
15.9. Arbitrage and Option Pricing Bounds
The Upper Bound for Call Option Prices
The Upper Bound for Put Option Prices
The Lower Bounds for Call and Put Option Prices
15.10. Put-Call Parity
Put-Call Parity with Dividends
What Can We Do with Put-Call Parity?
15.11. Summary and Conclusions
Part Six. Topics in Investments
Chapter 16. Option Valuation
16.1. A Simple Model to Value Options before Expiration
16.2. The One-Period Binomial Option Pricing Model
The One-Period Binomial Option Pricing Model—The Assumptions
The One-Period Binomial Option Pricing Model—The Setup
The One-Period Binomial Option Pricing Model—The Formula
What Is Delta?
16.3. The Two-Period Binomial Option Pricing Model
Step 1: Build a Price Tree for Stock Prices through Time
Step 2: Use the Intrinsic Value Formula to Calculate the Possible Option Prices at Expiration
Step 3: Calculate the Fractional Share Needed to Form Each Risk-Free Portfolio at the Next-to-Last D
Step 4: Calculate All Possible Option Prices at the Next-to-Last Date
Step 5: Repeat This Process by Working Back to Today
16.4. The Binomial Option Pricing Model with Many Periods
16.5. The Black-Scholes Option Pricing Model
16.6. Varying the Option Price Input Values
Varying the Underlying Stock Price
Varying the Option’s Strike Price
Varying the Time Remaining until Option Expiration
Varying the Volatility of the Stock Price
Varying the Interest Rate
16.7. Measuring the Impact of Stock Price Changes on Option Prices
Interpreting Option Deltas
16.8. Hedging Stock with Stock Options
Hedging Using Call Options—The Prediction
Hedging Using Call Options—The Results
Hedging Using Put Options—The Prediction
Hedging Using Put Options—The Results
16.9. Hedging a Stock Portfolio with Stock Index Options
16.10. Implied Standard Deviations
CBOE Implied Volatilities for Stock Indexes
16.11. Employee Stock Options
ESO Features
ESO Repricing
ESOs at The Gap, Inc.
Valuing Employee Stock Options
16.12. Summary and Conclusions
Chapter 17. Projecting Cash Flow and Earnings
17.1. Sources of Financial Information
17.2. Financial Statements
The Balance Sheet
The Income Statement
The Cash Flow Statement
Performance Ratios and Price Ratios
17.3. Financial Statement Forecasting
The Percentage of Sales Approach
The Pro Forma Income Statement
The Pro Forma Balance Sheet
Scenario One
Scenario Two
Projected Profitability and Price Ratios
17.4. Starbucks Corporation Case Study
Pro Forma Income Statement
Pro Forma Balance Sheet
Valuing Starbucks Using Ratio Analysis
Valuing Starbucks Using a Two-Stage Dividend Growth Model
Valuing Starbucks: What Does the Market Say?
17.5. Summary and Conclusions
Chapter 18. Corporate and Government Bonds
18.1. Corporate Bond Basics
18.2. Corporate Bond Indentures
Bond Seniority Provisions
Call Provisions
Put Provisions
Bond-to-Stock Conversion Provisions
Graphical Analysis of Convertible Bond Prices
Bond Maturity and Principal Payment Provisions
Sinking Fund Provisions
Coupon Payment Provisions
Protective Covenants
Adjustable-Rate Bonds
18.3. Government Bond Basics
18.4. U.S. Treasury Bills, Notes, Bonds, and STRIPS
Treasury Bond and Note Prices
Treasury Inflation-Protected Securities
18.5. U.S. Treasury Auctions
18.6. Federal Government Agency Securities
18.7. Municipal Bonds
Municipal Bond Features
Types of Municipal Bonds
Municipal Bond Insurance
Equivalent Taxable Yield
Taxable Municipal Bonds
18.8. Bond Credit Ratings
Why Bond Ratings Are Important
An Alternative to Bond Ratings
Junk Bonds
18.9. Summary and Conclusions
Chapter 19. Global Economic Activity and Industry Analysis
19.1. Top-Down Analysis
19.2. Global Macroeconomic Activity
Real GDP
Business Cycles
Economic Indicators
The Global Economy and Stock Return Correlations
The Effects of Exchange Rates on Global Investments
19.3. Monitoring Jobs and the Price Level
Labor Market Indicators
The Consumer Price Index
19.4. Monetary and Fiscal Policy
Monetary Policy
Fiscal Policy
19.5. Industry Analysis
Identifying Sectors
Porter’s Five Forces
19.6. Summary and Conclusions
A. Answers to Test Your Investment Quotient Questions
B. Answers to Selected Questions and Problems
C. Key Equations
Name Index
Equations Index
Subject Index