FinancePreface p. xix Part I Finance and the Financial System p. 1 Chapter 1 What Is Finance? p. 1 1.1 Defining Finance p. 2 1.2 Why Study Finance? p. 2 1.3 Financial Decisions of Households p. 5 1.4 Financial Decisions of Firms p. 6 1.5 Forms of Business Organization p. 7 1.6 Separation of Ownership and Management p. 9 1.7 The Goal of Management p. 10 1.8 Market Discipline: Takeovers p. 14 1.9 The Role of the Finance Specialist in a Corporation p. 15 Chapter 2 The Financial System p. 21 2.1 What Is the Financial System? p. 22 2.2 The Flow of Funds p. 22 2.3 The Functional Perspective p. 24 2.4 Financial Innovation and the "Invisible Hand" p. 33 2.5 Financial Markets p. 35 2.6 Financial Market Rates p. 36 2.7 Financial Intermediaries p. 50 2.8 Financial Infrastructure and Regulation p. 52 2.9 Governmental and Quasi-Governmental Organizations p. 53 Appendix A p. 61 Appendix B p. 62 Chapter 3 Interpreting and Forecasting Financial Statements p. 63 3.1 Functions of Financial Statements p. 64 3.2 Review of Financial Statements p. 65 3.3 Market Values versus Book Values p. 73 3.4 Accounting versus Economic Measures of Income p. 75 3.5 Returns to Shareholders versus Return on Book Equity p. 76 3.6 Analysis Using Financial Ratios p. 77 3.7 The Financial Planning Process p. 82 3.8 Constructing a Financial Planning Model p. 83 3.9 Growth and the Need for External Financing p. 86 3.10 Working Capital Management p. 89 3.11 Liquidity and Cash Budgeting p. 90 Part II Time and Resource Allocation p. 101 Chapter 4 The Time Value of Money and Discounted Cash Flow Analysis p. 101 4.1 Compounding p. 102 4.2 The Frequency of Compounding p. 108 4.3 Present Value and Discounting p. 109 4.4 Alternative Discounted Cash Flow Decision Rules p. 112 4.5 Multiple Cash Flows p. 116 4.6 Annuities p. 118 4.7 Perpetual Annuities p. 122 4.8 Loan Amortization p. 124 4.9 Exchange Rates and Time Value of Money p. 125 4.10 Inflation and Discounted Cash Flow Analysis p. 127 4.11 Taxes and Investment Decisions p. 133 Appendix p. 142 Chapter 5 Life-Cycle Financial Planning p. 143 5.1 A Life-Cycle Model of Saving p. 143 5.2 Taking Account of Social Security p. 151 5.3 Deferring Taxes through Voluntary Retirement Plans p. 152 5.4 Should You Invest in a Professional Degree? p. 154 5.5 Should You Buy or Rent? p. 155 Chapter 6 How to Analyze Investment Projects p. 165 6.1 The Nature of Project Analysis p. 166 6.2 Where Do Investment Ideas Come From? p. 167 6.3 The Net Present Value Investment Rule p. 168 6.4 Estimating a Project's Cash Flows p. 169 6.5 Cost of Capital p. 172 6.6 Sensitivity Analysis Using Spreadsheets p. 173 6.7 Analyzing Cost-Reducing Projects p. 176 6.8 Projects with Different Lives p. 179 6.9 Ranking Mutually Exclusive Projects p. 179 6.10 Inflation and Capital Budgeting p. 181 Part III Valuation Models p. 193 Chapter 7 Principles of Asset Valuation p. 193 7.1 The Relation between an Asset's Value and Its Price p. 194 7.2 Value Maximization and Financial Decisions p. 194 7.3 The Law of One Price and Arbitrage p. 196 7.4 Arbitrage and the Prices of Financial Assets p. 197 7.5 Interest Rates and the Law of One Price p. 198 7.6 Exchange Rates and Triangular Arbitrage p. 199 7.7 Valuation Using Comparables p. 202 7.8 Valuation Models p. 202 7.9 Accounting Measures of Value p. 204 7.10 How Information Is Reflected in Security Prices p. 206 7.11 The Efficient Markets Hypothesis p. 206 Appendix p. 213 Chapter 8 Valuation of Known Cash Flows: Bonds p. 215 8.1 Using Present Value Formulas to Value Known Cash Flows p. 216 8.2 The Basic Building Blocks: Pure Discount Bonds p. 218 8.3 Coupon Bonds, Current Yield, and Yield to Maturity p. 220 8.4 Reading Bond Listings p. 224 8.5 Why Yields for the Same Maturity May Differ p. 225 8.6 The Behavior of Bond Prices over Time p. 227 Chapter 9 Valuation of Common Stocks p. 234 9.1 Reading Stock Listings p. 234 9.2 The Discounted Dividend Model p. 235 9.3 Earnings and Investment Opportunities p. 238 9.4 A Reconsideration of the Price/Earnings Multiple Approach p. 242 9.5 Does Dividend Policy Affect Shareholder Wealth? p. 242 Part IV Risk Management and Portfolio Theory p. 255 Chapter 10 An Overview of Risk Management p. 255 10.1 What Is Risk? p. 256 10.2 Risk and Economic Decisions p. 258 10.3 The Risk-Management Process p. 261 10.4 The Three Dimensions of Risk Transfer p. 264 10.5 Risk Transfer and Economic Efficiency p. 268 10.6 Institutions for Risk Management p. 269 10.7 Portfolio Theory: Quantitative Analysis for Optimal Risk Management p. 272 10.8 Probability Distributions of Returns p. 273 10.9 Standard Deviation as a Measure of Risk p. 275 Appendix p. 282 Chapter 11 Hedging, Insuring, and Diversifying p. 284 11.1 Using Forward and Futures Contracts to Hedge Risk p. 285 11.2 Hedging Foreign-Exchange Risk with Swap Contracts p. 290 11.3 Hedging Shortfall Risk by Matching Assets to Liabilities p. 291 11.4 Minimizing the Cost of Hedging p. 292 11.5 Insuring versus Hedging p. 293 11.6 Basic Features of Insurance Contracts p. 294 11.7 Financial Guarantees p. 295 11.8 Caps and Floors on Interest Rates p. 296 11.9 Options as Insurance p. 296 11.10 The Diversification Principle p. 298 11.11 Diversification and the Cost of Insurance p. 303 Appendix p. 314 Chapter 12 Choosing an Investment Portfolio p. 318 12.1 The Process of Personal Portfolio Selection p. 319 12.2 The Trade-Off between Expected Return and Risk p. 323 12.3 Efficient Diversification with Many Risky Assets p. 329 Appendix p. 342 Part V Asset Pricing p. 343 Chapter 13 The Capital Asset Pricing Model p. 343 13.1 The Capital Asset Pricing Model in Brief p. 344 13.2 Determinants of the Risk Premium on the Market Portfolio p. 347 13.3 Beta and Risk Premiums on Individual Securities p. 348 13.4 Using the CAPM in Portfolio Selection p. 349 13.5 Valuation and Regulating Rates of Return p. 352 13.6 Modifications and Alternatives to the CAPM p. 354 Chapter 14 Forward and Futures Prices p. 360 14.1 Distinctions between Forward and Futures Contracts p. 361 14.2 The Economic Function of Futures Markets p. 363 14.3 The Role of Speculators p. 364 14.4 Relation between Commodity Spot and Futures Prices p. 365 14.5 Extracting Information from Commodity Futures Prices p. 366 14.6 Forward-Spot Price Parity for Gold p. 366 14.7 Financial Futures p. 369 14.8 The "Implied" Riskless Rate p. 372 14.9 The Forward Price Is Not a Forecast of the Future Spot Price p. 373 14.10 Forward-Spot Price-Parity Relation with Cash Payouts p. 373 14.11 "Implied" Dividends p. 374 14.12 The Foreign-Exchange Parity Relation p. 375 14.13 The Role of Expectations in Determining Exchange Rates p. 376 Chapter 15 Options and Contingent Claims p. 383 15.1 How Options Work p. 384 15.2 Investing with Options p. 387 15.3 The Put-Call Parity Relation page. |
Contents
FINANCE AND THE FINANCIAL SYSTEM | 1 |
The Financial System | 21 |
Interpreting Financial Statements | 63 |
Copyright | |
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amount annual annuity Answer arbitrage assume balance sheet bank borrowing bushel call option CAPM cash dividend cash flows Chapter compute corporate cost of capital coupon bond debt Debtco's stock discount rate diversification earnings equity example exchange rate exercise price expected rate expected return face value financial system firm firm's formula forward contract forward price funds future value futures contract futures price hedge income investment investors liabilities loan market portfolio market price market value maturity million nominal one-year payment payoffs present value profit purchase pure discount bond put option PV FV PMT Quick Check rate of return real rate replicating portfolio risk-free interest rate risk-free rate riskless asset risky assets securities sell share of stock shareholders spot price standard deviation stock price Suppose Table taxes U.S. dollars U.S. Treasury volatility wheat yield yield to maturity yield-to-maturity