ISE EBook Online Access for Essentials of Investments

Cover
Halftitle
The McGraw Hill Education Series in Finance, Insurance, and Real Estate
Title
Copyright
About the Authors
Brief Contents
Contents
Organization of the Twelfth Edition
Pedagogical Features
Excel Integration
End-of-Chapter Features
Supplements
Acknowledgments
A Note from the Authors
Part ONE: Elements of Investments
	Chapter 1: Investments: Background and Issues
		1.1 Real Assets versus Financial Assets
		1.2 Financial Assets
		1.3 Financial Markets and the Economy
			The Informational Role of Financial Markets
			Consumption Timing
			Allocation of Risk
			Separation of Ownership and Management
			Corporate Governance and Corporate Ethics
		1.4 The Investment Process
		1.5 Markets are Competitive
			The Risk-Return Trade-off
			Efficient Markets
		1.6 The Players
			Financial Intermediaries
			Investment Bankers
			Venture Capital and Private Equity
			Fintech and Financial Innovation
		1.7 The Financial Crisis of 2008–2009
			Antecedents of the Crisis
			Changes in Housing Finance
			Mortgage Derivatives
			Credit Default Swaps
			The Rise of Systemic Risk
			The Shoe Drops
			The Dodd-Frank Reform Act
		1.8 Outline of the Text
		End-of-Chapter Material
	Chapter 2: Asset Classes and Financial Instruments
		2.1 The Money Market
			Treasury Bills
			Certificates of Deposit
			Commercial Paper
			Bankers’ Acceptances
			Eurodollars
			Repos and Reverses
			Brokers’ Calls
			Federal Funds
			The LIBOR Market
			Money Market Funds
			Yields on Money Market Instruments
		2.2 The Bond Market
			Treasury Notes and Bonds
			Inflation-Protected Treasury Bonds
			Federal Agency Debt
			International Bonds
			Municipal Bonds
			Corporate Bonds
			Mortgage- and Asset-Backed Securities
		2.3 Equity Securities
			Common Stock as Ownership Shares
			Characteristics of Common Stock
			Stock Market Listings
			Preferred Stock
			Depositary Receipts
		2.4 Stock and Bond Market Indexes
			Stock Market Indexes
			The Dow Jones Industrial Average
			The Standard & Poor’s 500 Index
			Other U.S. Market Value Indexes
			Equally Weighted Indexes
			Foreign and International Stock Market Indexes
			Bond Market Indicators
		2.5 Derivative Markets
			Options
			Futures Contracts
		End-of-Chapter Material
	Chapter 3: Securities Markets
		3.1 How Firms Issue Securities
			Privately Held Firms
			Publicly Traded Companies
			Shelf Registration
			Initial Public Offerings
		3.2 How Securities are Traded
			Types of Markets
			Types of Orders
			Trading Mechanisms
		3.3 The Rise of Electronic Trading
		3.4 U.S. Markets
			NASDAQ
			The New York Stock Exchange
			ECNs
		3.5 New Trading Strategies
			Algorithmic Trading
			High-Frequency Trading
			Dark Pools
			Bond Trading
		3.6 Globalization of Stock Markets
		3.7 Trading Costs
		3.8 Buying on Margin
		3.9 Short Sales
		3.10 Regulation of Securities Markets
			Self-Regulation
			The Sarbanes–Oxley Act
			Insider Trading
		End-of-Chapter Material
	Chapter 4: Mutual Funds and Other Investment Companies
		4.1 Investment Companies
		4.2 Types Of Investment Companies
			Unit Investment Trusts
			Managed Investment Companies
			Exchange-Traded Funds
			Other Investment Organizations
		4.3 Mutual Funds
			Investment Policies
			How Funds Are Sold
		4.4 Costs of Investing in Mutual Funds
			Fee Structure
			Fees and Mutual Fund Returns
		4.5 Taxation of Mutual Fund Income
		4.6 Exchange-Traded Funds
		4.7 Mutual Fund Investment Performance: A First Look
		4.8 Information on Mutual Funds
		End-of-Chapter Material
Part TWO: Portfolio Theory
	Chapter 5: Risk, Return, and the Historical Record
		5.1 Rates of Return
			Measuring Investment Returns over Multiple Periods
			Conventions for Annualizing Rates of Return
		5.2 Inflation and the Real Rate of Interest
			The Equilibrium Nominal Rate of Interest
		5.3 Risk and Risk Premiums
			Scenario Analysis and Probability Distributions
			The Normal Distribution
			Normality and the Investment Horizon
			Deviation from Normality and Tail Risk
			Risk Premiums and Risk Aversion
			The Sharpe Ratio
		5.4 The Historical Record
			Using Time Series of Returns
			Risk and Return: A First Look
		5.5 Asset Allocation Across Risky and Risk-Free Portfolios
			The Risk-Free Asset
			Portfolio Expected Return and Risk
			The Capital Allocation Line
			Risk Aversion and Capital Allocation
		5.6 Passive Strategies and the Capital Market Line
			Historical Evidence on the Capital Market Line
			Costs and Benefits of Passive Investing
		End-of-Chapter Material
	Chapter 6: Efficient Diversification
		6.1 Diversification and Portfolio Risk
		6.2 Asset Allocation with Two Risky Assets
			Covariance and Correlation
			Using Historical Data
			The Three Rules of Two-Risky-Assets Portfolios
			The Risk-Return Trade-Off with Two-Risky-Assets Portfolios
			The Mean-Variance Criterion
		6.3 The Optimal Risky Portfolio with a Risk-Free Asset
		6.4 Efficient Diversification with many Risky Assets
			The Efficient Frontier of Risky Assets
			Choosing the Optimal Risky Portfolio
			The Preferred Complete Portfolio and a Separation Property
			Constructing the Optimal Risky Portfolio: an Illustration
		6.5 A Single-Index Stock Market
			Statistical Interpretation of the Single-Index Model
			Learning from the Index Model
			Using Security Analysis with the Index Model
		6.6 Risk Pooling, Risk Sharing, and Time Diversification
			Time Diversification
		End-of-Chapter Material
	Chapter 7: Capital Asset Pricing and Arbitrage Pricing Theory
		7.1 The Capital Asset Pricing Model
			The Model: Assumptions and Implications
			Why All Investors Would Hold the Market Portfolio
			The Passive Strategy Is Efficient
			The Risk Premium of the Market Portfolio
			Expected Returns on Individual Securities
			The Security Market Line
			Applications of the CAPM
		7.2 The CAPM and Index Models
		7.3 How Well Does the CAPM Predict Risk Premiums?
		7.4 Multifactor Models and the CAPM
			The Fama-French Three-Factor Model
			Estimating a Three-Factor SML
			Multifactor Models and the Validity of the CAPM
		7.5 Arbitrage Pricing Theory
			Diversification in a Single-Index Security Market
			Well-Diversified Portfolios
			The Security Market Line of the APT
			Individual Assets and the APT
			Well-Diversified Portfolios in Practice
			The APT and the CAPM
			Multifactor Generalization of the APT
			Smart Betas and Multifactor Models
		End-of-Chapter Material
	Chapter 8: The Efficient Market Hypothesis
		8.1 Random Walks and Efficient Markets
			Competition as the Source of Efficiency
			Versions of the Efficient Market Hypothesis
		8.2 Implications of the EMH
			Technical Analysis
			Fundamental Analysis
			Active versus Passive Portfolio Management
			The Role of Portfolio Management in an Efficient Market
			Resource Allocation
		8.3 Are Markets Efficient?
			The Issues
			Weak-Form Tests: Patterns in Stock Returns
			Predictors of Broad Market Returns
			Semistrong Tests: Market Anomalies
			Other Predictors of Stock Returns
			Strong-Form Tests: Inside Information
			Interpreting the Anomalies
			Bubbles and Market Efficiency
		8.4 Mutual Fund and Analyst Performance
			Stock Market Analysts
			Mutual Fund Managers
			So, Are Markets Efficient?
		End-of-Chapter Material
	Chapter 9: Behavioral Finance and Technical Analysis
		9.1 The Behavioral Critique
			Information Processing
			Behavioral Biases
			Limits to Arbitrage
			Limits to Arbitrage and the Law of One Price
			Bubbles and Behavioral Economics
			Evaluating the Behavioral Critique
		9.2 Technical Analysis and Behavioral Finance
			Trends and Corrections
			Sentiment Indicators
			A Warning
		End-of-Chapter Material
Part THREE: Debt Securities
	Chapter 10: Bond Prices and Yields
		10.1 Bond Characteristics
			Treasury Bonds and Notes
			Corporate Bonds
			Preferred Stock
			Other Domestic Issuers
			International Bonds
			Innovation in the Bond Market
		10.2 Bond Pricing
			Bond Pricing between Coupon Dates
			Bond Pricing in Excel
		10.3 Bond Yields
			Yield to Maturity
			Yield to Call
			Realized Compound Return versus Yield to Maturity
		10.4 Bond Prices Over Time
			Yield to Maturity versus Holding-Period Return
			Zero-Coupon Bonds and Treasury STRIPS
			After-Tax Returns
		10.5 Default Risk and Bond Pricing
			Junk Bonds
			Determinants of Bond Safety
			Bond Indentures
			Yield to Maturity and Default Risk
			Credit Default Swaps
		10.6 The Yield Curve
			The Expectations Theory
			The Liquidity Preference Theory
			A Synthesis
		End-of-Chapter Material
	Chapter 11: Managing Bond Portfolios
		11.1 Interest Rate Risk
			Interest Rate Sensitivity
			Duration
			What Determines Duration?
		11.2 Passive Bond Management
			Immunization
			Cash Flow Matching and Dedication
		11.3 Convexity
			Why Do Investors Like Convexity?
		11.4 Active Bond Management
			Sources of Potential Profit
			Horizon Analysis
			An Example of a Fixed-Income Investment Strategy
		End-of-Chapter Material
Part FOUR: Security Analysis
	Chapter 12: Macroeconomic and Industry Analysis
		12.1 The Global Economy
		12.2 The Domestic Macroeconomy
			Gross Domestic Product
			Employment
			Inflation
			Interest Rates
			Budget Deficit
			Sentiment
		12.3 Interest Rates
		12.4 Demand and Supply Shocks
		12.5 Federal Government Policy
			Fiscal Policy
			Monetary Policy
			Supply-Side Policies
		12.6 Business Cycles
			The Business Cycle
			Economic Indicators
			Other Indicators
		12.7 Industry Analysis
			Defining an Industry
			Sensitivity to the Business Cycle
			Sector Rotation
			Industry Life Cycles
			Industry Structure and Performance
		End-of-Chapter Material
	Chapter 13: Equity Valuation
		13.1 Valuation by Comparables
			Limitations of Book Value
		13.2 Intrinsic Value Versus Market Price
		13.3 Dividend Discount Models
			The Constant-Growth DDM
			Stock Prices and Investment Opportunities
			Life Cycles and Multistage Growth Models
			Multistage Growth Models
		13.4 Price–Earnings Ratios
			The Price–Earnings Ratio and Growth Opportunities
			P/E Ratios and Stock Risk
			Pitfalls in P/E Analysis
			The Cyclically Adjusted P/E Ratio
			Combining P/E Analysis and the DDM
			Other Comparative Valuation Ratios
		13.5 Free Cash Flow Valuation Approaches
			Comparing the Valuation Models
			The Problem with DCF Models
		13.6 The Aggregate Stock Market
		End-of-Chapter Material
	Chapter 14: Financial Statement Analysis
		14.1 The Major Financial Statements
			The Income Statement
			The Balance Sheet
			The Statement of Cash Flows
		14.2 Measuring Firm Performance
		14.3 Profitability Measures
			Return on Assets
			Return on Capital
			Return on Equity
			Financial Leverage and ROE
			Economic Value Added
		14.4 Ratio Analysis
			Decomposition of ROE
			Turnover and Asset Utilization
			Liquidity Ratios
			Market Price Ratios
			Choosing a Benchmark
		14.5 An Illustration of Financial Statement Analysis
		14.6 Comparability Problems
			Inventory Valuation
			Depreciation
			Inflation and Interest Expense
			Fair Value Accounting
			Quality of Earnings and Accounting Practices
			International Accounting Conventions
		14.7 Value Investing: The Graham Technique
		End-of-Chapter Material
Part FIVE: Derivative Markets
	Chapter 15: Options Markets
		15.1 The Option Contract
			Options Trading
			American versus European Options
			The Option Clearing Corporation
			Other Listed Options
		15.2 Values of Options at Expiration
			Call Options
			Put Options
			Options versus Stock Investments
		15.3 Option Strategies
		15.4 Optionlike Securities
			Callable Bonds
			Convertible Securities
			Warrants
			Collateralized Loans
			Leveraged Equity and Risky Debt
		15.5 Exotic Options
			Asian Options
			Currency-Translated Options
			Digital Options
		End-of-Chapter Material
	Chapter 16: Option Valuation
		16.1 Option Valuation: Introduction
			Intrinsic and Time Values
			Determinants of Option Values
		16.2 Binomial Option Pricing
			Two-State Option Pricing
			Generalizing the Two-State Approach
			Making the Valuation Model Practical
		16.3 Black-Scholes Option Valuation
			The Black-Scholes Formula
			The Put-Call Parity Relationship
			Put Option Valuation
		16.4 Using the Black-Scholes Formula
			Hedge Ratios and the Black-Scholes Formula
			Portfolio Insurance
			Option Pricing and the Financial Crisis
		16.5 Empirical Evidence
		End-of-Chapter Material
	Chapter 17: Futures Markets and Risk Management
		17.1 The Futures Contract
			The Basics of Futures Contracts
			Existing Contracts
		17.2 Trading Mechanics
			The Clearinghouse and Open Interest
			Marking to Market and the Margin Account
			Cash versus Actual Delivery
			Regulations
			Taxation
		17.3 Futures Market Strategies
			Hedging and Speculation
			Basis Risk and Hedging
		17.4 Futures Prices
			Spot-Futures Parity
			Spreads
		17.5 Financial Futures
			Stock-Index Futures
			Foreign Exchange Futures
			Interest Rate Futures
		17.6 Swaps
			Swaps and Balance Sheet Restructuring
			The Swap Dealer
		End-of-Chapter Material
Part SIX: Active Investment Management
	Chapter 18: Evaluating Investment Performance
		18.1 The Conventional Theory of Performance Evaluation
			Average Rates of Return
			Time-Weighted Returns versus Dollar-Weighted Returns
			Adjusting Returns for Risk
			Risk-Adjusted Performance Measures
			The Sharpe Ratio for Overall Portfolios
			The Treynor Ratio
			The Information Ratio
			The Role of Alpha in Performance Measures
			Implementing Performance Measurement: An Example
			Selection Bias and Portfolio Evaluation
		18.2 Style Analysis
		18.3 Morningstar’s Risk-Adjusted Rating
		18.4 Performance Measurement with Changing Portfolio Composition
		18.5 Market Timing
			The Potential Value of Market Timing
			Valuing Market Timing as a Call Option
			The Value of Imperfect Forecasting
		18.6 Performance Attribution Procedures
			Asset Allocation Decisions
			Sector and Security Selection Decisions
			Summing Up Component Contributions
		End-of-Chapter Material
	Chapter 19: International Diversification
		19.1 Global Markets for Equities
			Developed Countries
			Emerging Markets
			Market Capitalization and GDP
			Home-Country Bias
		19.2 Exchange Rate Risk and International Diversification
			Exchange Rate Risk
			Imperfect Exchange Rate Risk Hedging
			Investment Risk in International Markets
			International Diversification
			Are Benefits from International Diversification Preserved in Bear Markets? 634
		19.3 Political Risk
		19.4 International Investing and Performance Attribution
			Constructing a Benchmark Portfolio of Foreign Assets
			Performance Attribution
		End-of-Chapter Material
	Chapter 20: Hedge Funds
		20.1 Hedge Funds versus Mutual Funds
		20.2 Hedge Fund Strategies
			Directional versus Nondirectional Strategies
			Statistical Arbitrage
			High-Frequency Strategies
		20.3 Portable Alpha
			An Example of a Pure Play
		20.4 Style Analysis for Hedge Funds
		20.5 Performance Measurement for Hedge Funds
			Liquidity and Hedge Fund Performance
			Hedge Fund Performance and Selection Bias
			Hedge Fund Performance and Changing Factor Loadings
			Tail Events and Hedge Fund Performance
		20.6 Fee Structure in Hedge Funds
		End-of-Chapter Material
	Chapter 21: Taxes, Inflation, and Investment Strategy
		21.1 Taxes and Investment Returns
			Equity, Debt, and Tax Deferral
			Tax-Protected Retirement Plans
			Deferred Annuities
			Sheltered versus Unsheltered Savings
		21.2 Saving for the Long Run
			A Hypothetical Household
			The Retirement Annuity
		21.3 Accounting for Inflation
			A Real Savings Plan
			An Alternative Savings Plan
		21.4 Accounting for Taxes
		21.5 Tax Shelters and the Savings Plan
			A Benchmark Tax Shelter
			The Effect of the Progressive Nature of the Tax Code
			Roth Accounts with the Progressive Tax Code
		21.6 Social Security
		21.7 Home Ownership: The Rent-Versus-Buy Decision
		21.8 Uncertain Longevity and Other Contingencies
		End-of-Chapter Material
	Chapter 22: Investors and the Investment Process
		22.1 The Investment Management Process
		22.2 Investor Objectives
			Individual Investors
			Professional Investors
		22.3 Investor Constraints
			Liquidity
			Investment Horizon
			Regulations
			Tax Considerations
			Unique Needs
		22.4 Investment Policies
			Taxes and Investment Policies for Individual Investors
			Top-Down Policies for Institutional Investors
			Active versus Passive Policies
		22.5 Monitoring and Revising Investment Portfolios
		End-of-Chapter Material
Appendixes
	Appendix A: References
	Appendix B: References to CFA Questions
Index