Introduction to finance: financial management and investment management
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| Main Authors: | , , |
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| Format: | Book |
| Language: | English |
| Published: |
New Jersey
World Scientific Publishing
[2022]
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| Subjects: | |
| Online Access: | Inhaltsverzeichnis |
| Physical Description: | xxvi, 802 Seiten Illustrationen |
| ISBN: | 9789811239656 |
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MARC
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| adam_text | Contents Preface vii About the Authors ix Chapter 1 What is Finance? Capital Markets and Capital Market Theory Financial Management Investment Management Risk Risk versus uncertainty Black swans and uncertainty Investment Considerations Beyond FinancialPerformance Organization of this Book The Bottom Line Practice Questions 1 3 5 8 9 9 11 12 13 14 15 Part One Financial System and the Players 17 Chapter 2 Financial Assets, Markets, and Intermediaries Financial Assets Why do we needfinancial assets? What is the difference between debt and equity? The Role of Financial Markets Price discovery Liquidity Reduced transaction costs 19 20 20 21 22 22 23 24 xi
xii Introduction to Finance The Role of Financial Intermediaries Maturity intermediation Risk reduction via diversification Reducing the costs of contracting and information processing Financial technology andfinancial disintermediation Regulating Financial Activities Disclosure regulation Financial activity regulation Regulation offinancial institutions Regulation offoreign participants US securities market and securities legislation Types of Financial Markets The money market The capital market The derivatives market The primary market The secondary market Market Efficiency The Bottom Line Practice Questions Chapter 3 The Financial System’s Cast of Characters Domestic Nonfinancial Sectors The government sector The federal government Government-owned corporations Government-sponsored enterprises State and local governments Nonfinancial Businesses Domestic Financial Sectors Depository institutions Bank services Bank fUnding Bank regulation Nondepository financial institutions Insurance companies Investment companies Regulated investment companies Exchange-traded fUnds 24 26 26 27 28 29 29 31 32 33 33 35 36 38 39 40 40 41 . 43 44 45 46 46 46 49 50 51 51 52 53 54 54 56 56 57 59 59 61
Contents xiii Hedge funds Separately managed accounts Pension funds Investment banks Private placement of securities Trading securities Advising in mergers, acquisitions, and financial restructuring advising Merchant banking Securities finance and prime brokerage services Asset management The Foreign Sector The Bottom Line Practice Questions 62 64 64 66 68 68 Part Two Fundamental Concepts 75 Chapter 4 Financial Statements Accounting Principles: What are They? Assumptions in creating financial statements The Basic Financial Statements The balance sheet Assets Liabilities Equity A note on minority interest The structure of the balance sheet The income statement Earnings per share More on depreciation The statement of cash flows The statement ofstockholders ’ equity More about Financial Disclosures How are the statements related? Why bother about the footnotes? Accountingflexibility US Accounting vs. Accounting Outside of the US The Bottom Line Practice Questions 77 77 78 79 80 80 83 84 85 86 86 88 88 92 94 95 95 95 96 98 99 99 69 70 70 71 71 72 73
xiv Introduction to Finance Chapter 5 Mathematics of Finance Why the Time Value of Money? Calculating a Future Value Growth rates and returns Compounding more than once per year Continuous compounding Multiple rates Determining the unknown interest rate Determining the unknown number ofperiods Calculating a Present Value The Time Value of a Series of Cash Flows Future value of a series of cash flows Multiple rates Annuities Valuing a perpetuity Valuing an annuity due Valuing a deferred annuity Loan amortization Interest Rates and Yields Annual percentage rate vs. effective annual rate Yields on investments The Bottom Line Practice Questions 101 101 103 107 108 111 111 112 113 114 117 121 121 123 127 128 132 135 137 137 140 143 143 Part Three Financial Management 145 Chapter 6 Business Finance Forms of Business Enterprise Sole proprietorships and partnerships Corporations Limited liability companies Other forms of business The Objective of Financial Management A measure of owners ’ economic well-being Financial Management and the Maximization of Owners’ Wealth The agency relationship Problems with the agency relationship Costs of the agency relationship Motivating managers: Executive compensation 147 148 148 150 153 154 155 156 157 158 158 159 160
Contents XV Shareholder wealth maximization and accounting “irregularities ” Shareholder wealth maximization and corporate social responsibility The Bottom Line Practice Questions 163 166 166 Chapter 7 Financial Strategy and Financial Planning Strategy and Value Comparative and competitive advantages Strategy and adding value Financial planning and budgeting Sale forecasting Forecasting with regression analysis Market surveys Management forecasts Budgeting The cash budget Pro forma financial statements Performance Evaluation Economic value added Balanced scorecard Strategy and Value Creation Sources of value creation The triple bottom line The Bottom Line Practice Questions 169 170 171 172 174 ill 179 179 180 180 181 181 182 182 184 187 187 191 191 192 Chapter 8 Dividend and Dividend Policies Dividends Cash dividends Dividend reinvestment plans Stock Distributions Types of distributions Reasons for stock distributions Dividend Policy The dividend irrelevance theory The “bird in the hand” theory The tax-preference explanation The signaling explanation 195 195 196 199 199 199 200 203 206 206 207 208 162
xvi Introduction to Finance The agency explanation To pay or not to pay dividends Stock Repurchases Methods of repurchasing stock Reasons to repurchase stock Criticisms of dividends and stock repurchases The Bottom Line Practice Questions 209 210 210 210 211 214 217 218 Chapter 9 The Corporate Financing Decision Debt Instruments Features of debt instruments Rights of debt holders in the US Debt vs. Equity Capital Structure and Financial Leverage Interest deductibility Financial leverage and risk Leverage andfinancialflexibility Governance value of debt financing Financial distress The role of limited liability Costs of financial distress Bankruptcy and bankruptcy costs Financial distress and capital structure The cost of capital Optimal Capital Structure: Theory and Practice Modigliani-Miller theory of capital structure M M irrelevance proposition M M with tax deductibility of interest paid on debt Capital structure theory and costs to financial distress Current capital structure theory and practice The Bottom Line Practice Questions 219 220 220 220 221 224 228 230 232 232 234 234 235 236 237 238 242 243 244 246 246 247 248 250 Chapter 10 Entrepreneurial Finance Risks Faced by New Ventures Classifying risks Sources of risk of a new venture Market risks 253 253 254 255 256
Contents xvii Product development risks Operational risks Financial risks Why Do New Ventures Fail? Stages of a Venture Exit Planning Founders’ Stock and Employee Stock Options Factor to consider in allocation offounders ’stock Vesting requirements Equity award plans Sources of Financing Early-stage financing Expansion-stage financing Sources of Seed Stage Financing Angelfinancing: Angel investors, angel groups, and super angels Equity crowdfunding platforms Seed accelerators and incubators Pre-Going Public Expansion Financing Venture capitalists Institutional investors: Mutualfunds and hedge funds Initial public offering and direct listings Why go public? How do companies go public? Financing Via Equity and Equity Dilutive Securities Ownership and control issues Convertible preferred stock Convertible note Pre-Money Valuation and Post-Money Valuation Option pools in financing rounds and post-money valuation The Bottom Line Practice Questions 256 257 257 258 259 262 264 264 267 268 269 269 271 271 287 289 292 Chapter 11 Financial Risk Management The Definition of Risk Core risks and noncore risks Sustainability risk 295 295 296 296 272 274 274 275 276 277 278 278 279 280 280 282 285 286
xviii Introduction to Finance Enterprise Risk Management Definitions ofERM ERMprocess Themes ofERM Specifying an entity ’s risk policy Managing Risks Retained risk and riskfinance Risk neutralization Risk transfer Traditional insurance « Derivatives Alternative risk transfer Structured finance The Bottom Line Practice Questions 299 300 302 303 305 305 306 306 307 307 308 308 310 310 311 Chapter 12 Capital Budgeting: Estimating Cash Flows Investment Decisions and Owners’ Wealth The Capital Budgeting Process Stages in the capital budgeting process Classifying investment projects Classifying by economic life Classifying by risk Classifying by dependence on other projects Determining Cash Flows from Investments Investment cash flows Asset acquisition Asset disposition Operating cash flows Change in revenues Change in expenses Change in taxes Change in working capital Putting it all together Net cash flows Simplifications A Comprehensive Example The Bottom Line Practice Questions 313 314 316 316 316 318 319 320 321 322 322 324 328 329 329 330 333 336 338 339 340 341 343 *
Contents xix Chapter 13 Capital Budgeting Evaluation Techniques Overview of Project Evaluation Payback Period Discounted Payback Period Net Present Value NPVdecision rule NPV investment profile Solvingfor the crossover rate Profitability Index Internal Rate of Return Modified Internal Rate of Return Issues to Consider Comparing Techniques Incorporating Risk Into Capital Budgeting Analysis Real Options Approach to Capital Budgeting Evaluation Capital Budgeting Evaluation Techniques in Practice The Bottom Line Practice Questions 345 345 347 349 352 354 355 356 358 359 365 367 369 372 374 375 378 378 Part Four Investment Management 381 Chapter 14 Overview of Investment Management Setting the Investment Objectives Classification of investment objectives Benchmark Selecting a portfolio strategy Establishing an Investment Policy Asset classes The different asset classes Cash equivalents Equities Fixed income Alternative assets Asset allocation strategies Strategic asset allocation strategy Dynamic asset allocation strategy Identifying Investment Constraints Client-imposed constraints 383 384 385 387 388 389 390 391 392 392 393 394 395 395 396 397 397
XX Introduction to Finance Regulatory constraints Tax considerations Constructing and Monitoring a Portfolio Measuring and Evaluating Performance Measuring performance Alternative return measures Arithmetic average rate of return Time-weighted rate of return Dollar-weighted rate of return Evaluating performance Risk-adjusted return: Reward-risk ratio The Sharpe ratio The information ratio Performance attribution models Style boxes The Bottom Line Practice Questions 397 398 398 399 399 399 402 403 404 407 408 408 412 415 416 416 418 Chapter 15 The Different Types of Risk in Investing Total Risk, Systematic Risk, and Unsystematic Risk Diversification, total risk, systematic risk, and unsystematic risk Major Investment Risks Price risk Price risk of stock Price risk for bonds Credit risk Liquidity risk Inflation risk Foreign exchange-rate risk The Bottom Line Practice Questions 421 421 422 424 424 424 427 427 431 431 432 433 434 Chapter 16 Company Analysis Industry Analysis Financial Ratio Analysis Liquidity Operating cycle Measures of liquidity 435 436 438 441 442 446
Contents xxi Profitability ratios Activity ratios Inventory management Accounts receivable management Overall asset management Financial leverage Component percentage ratios Coverage ratios Return on investment The Dupont System: Putting It Altogether Common-Size Analysis Using Financial Ratio Analysis Cash Flow Analysis Difficulties with measuring cash flow Cash flows and the statement of cash flows Free cash flow Calculating free cash flow Usefulness of cash flows in financial analysis Using cash flow information Additional Tools for Company Analysis Value Chain Analysis RBVAnalysis SWOT Analysis The Bottom Line Practice Questions 448 451 451 452 453 454 455 456 459 460 464 465 468 469 470 472 474 475 477 479 479 480 481 482 483 Chapter 17 Valuing Common Stock Discounted Cash Flow Models Dividend discount models Dividend measures Basic DDMs The finite-life general DDM Assuming a constant discount rate Required inputs Assessing relative value Constant growth DDM Multiphase DDMs Expected Returns and DDMs 487 487 488 488 490 491 492 492 494 495 497 498
xxii Introduction to Finance Relative Valuation Methods The basic principles of relative valuation Choose comparable companies Determine an appropriate multiple Calculate the multiple for the comparable companies Estimate to base of the multiple for the subject company Apply the multiple to the subject company ’s base The Bottom Line Practice Questions Chapter Í8 The Theory of Portfolio Selection Some Basic Concepts Utility junction and indifference curves Efficient portfolios and the optimal portfolio Risky assets vs. risk-free assets Estimating a Portfolio’s Expected Return For a single-period portfolio return Expected return for a portfolio of risky assets Measuring Portfolio Risk Variance and standard deviation as a measure of risk Measuring the portfolio risk of a two-asset portfolio Covariance Measuring the risk of a portfolio comprising more than two assets Portfolio Diversification Portfolio risk and correlation Choosing a Portfolio of Risky Assets Constructing efficient portfolios Feasible and efficient portfolios Choosing the optimal portfolio in the efficient set Issues in the theory of portfolio selection Illustration of portfolio selection Alternative risk measures for portfolio selection Dispersion measures Safety-first risk measures Robust portfolio optimization Behavioral Finance and Portfolio Theory The Bottom Line Practice Questions 500 502 504 504 505 506 507 509 510 513 514 514 516 516 517 517 518 520 520 522 523 526 526 527 529 530 532 534 535 535 537 541 541 542 545 548 549
Contents xxiii Chapter 19 Asset Pricing Theory Characteristics of an Asset Pricing Model CAPM Assumptions of the CAPM The capital market line What is Portfolio M? The risk premium in the CML Systematic and unsystematic risk The security market line Tests of the CAPM Criticisms of the CAPM The APT Model The arbitrage principle APT model formulation Multifactor risk models in practice Some Principles to Take Away The Bottom Line Practice Questions 551 551 553 554 557 560 561 562 564 566 567 568 568 571 572 573 574 575 Chapter 20 Investing in the Common Stock Market Common Stock Market Indexes Trading Mechanics Types of orders Margin transactions Trading arrangements for institutional investors Transaction Costs Common Stock Investment Strategies Passive investment strategies Enhanced indexing Smart beta strategy Common stock active strategies Strategies based on fundamental analysis Strategies based on technical analysis Equity-style investing Factor investing Responsible investing and environmental, social, and governance investing Evaluating Investment Performance The Brinson model 577 578 580 580 582 584 584 585 585 586 586 592 592 597 604 605 608 609 610
xxiv Introduction to Finance The Bottom Line Practice Questions 615 617 Chapter 21 Interest Rates and the Structure of Interest Rates The Base Interest Rate The risk premium Risk premium due to default risk Inclusion of attractive and unattractive provisions Taxability of interest Expected liquidity of a bond issue The Term-Structure of Interest Rates Forward rates Determinants of the shape of the term structure Term structure of interest rates theories Expectations theories Market segmentation theory Swap Rate Yield Curve Negative Interest Rates More on Interest Rates The natural interest rate Risk-free interest rate Reference interest rates The Bottom Line Practice Questions 619 619 621 621 623 625 626 627 628 632 633 633 635 635 636 637 637 638 638 639 641 Chapter 22 Investing in the Bond Market Valuing Bonds Convention for Quoting Bond Prices Principles of bond valuation Relationship between coupon rate, yield, and price Relationship between a bond’s value and time Reasons for the change in the price of a bond Different discount rates may apply to each cash flow Valuing bonds that have embedded options Valuing convertible bonds Traditional value of convertible bonds Yield Measures Current yield Yield to maturity ЋеШ to call 643 643 643 644 650 651 653 653 654 656 657 661 661 662 666
Contents xxv Potential Sources of a Bond’s Dollar Return Major Risks in Managing a Bond Portfolio Credit risk Default risk Downgrade risk Credit spread risk Interest rate risk Measuring interest rate risk Bond Portfolio Strategies Spectrum of bond portfolio strategies Value-added strategies Interest rate expectations strategies Yield curve strategies Yield spread strategies The Bottom Line Practice Questions 668 669 669 670 670 671 671 672 675 675 677 678 678 679 679 681 Part Five 683 Derivatives Chapter 23 Derivatives for Controlling Risk Futures and Forward Contracts Futures contracts Liquidating a futures position The role of the clearinghouse Margin requirements Leveraging Forward contracts The basics ofpricing futures andforward contracts A closer look at the theoretical futures price Usingfutures andforward contracts Options Basic features of options Differences between options andfatures contracts Risk and return of options Buying call options Writing (selling) call options Buying put options Writing (selling) put options Basic components of the option price 685 687 687 689 690 690 691 692 693 698 700 701 702 703 704 704 706 707 708 709
xxvi Introduction to Finance Factors that influence an option’s price Option pricing models Using options Swaps Interest rate swap Currency swaps Commodity swaps Credit default swaps The Bottom Line Practice Questions Appendix Black-Scholes option pricing model 712 713 714 715 715 716 717 718 718 720 721 721 Appendix 727 Cost Estimation for Infrastructure Projects Solutions to Practice Questions 743 Index 775
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Contents Preface vii About the Authors ix Chapter 1 What is Finance? Capital Markets and Capital Market Theory Financial Management Investment Management Risk Risk versus uncertainty Black swans and uncertainty Investment Considerations Beyond FinancialPerformance Organization of this Book The Bottom Line Practice Questions 1 3 5 8 9 9 11 12 13 14 15 Part One Financial System and the Players 17 Chapter 2 Financial Assets, Markets, and Intermediaries Financial Assets Why do we needfinancial assets? What is the difference between debt and equity? The Role of Financial Markets Price discovery Liquidity Reduced transaction costs 19 20 20 21 22 22 23 24 xi
xii Introduction to Finance The Role of Financial Intermediaries Maturity intermediation Risk reduction via diversification Reducing the costs of contracting and information processing Financial technology andfinancial disintermediation Regulating Financial Activities Disclosure regulation Financial activity regulation Regulation offinancial institutions Regulation offoreign participants US securities market and securities legislation Types of Financial Markets The money market The capital market The derivatives market The primary market The secondary market Market Efficiency The Bottom Line Practice Questions Chapter 3 The Financial System’s Cast of Characters Domestic Nonfinancial Sectors The government sector The federal government Government-owned corporations Government-sponsored enterprises State and local governments Nonfinancial Businesses Domestic Financial Sectors Depository institutions Bank services Bank fUnding Bank regulation Nondepository financial institutions Insurance companies Investment companies Regulated investment companies Exchange-traded fUnds 24 26 26 27 28 29 29 31 32 33 33 35 36 38 39 40 40 41 . 43 44 45 46 46 46 49 50 51 51 52 53 54 54 56 56 57 59 59 61
Contents xiii Hedge funds Separately managed accounts Pension funds Investment banks Private placement of securities Trading securities Advising in mergers, acquisitions, and financial restructuring advising Merchant banking Securities finance and prime brokerage services Asset management The Foreign Sector The Bottom Line Practice Questions 62 64 64 66 68 68 Part Two Fundamental Concepts 75 Chapter 4 Financial Statements Accounting Principles: What are They? Assumptions in creating financial statements The Basic Financial Statements The balance sheet Assets Liabilities Equity A note on minority interest The structure of the balance sheet The income statement Earnings per share More on depreciation The statement of cash flows The statement ofstockholders ’ equity More about Financial Disclosures How are the statements related? Why bother about the footnotes? Accountingflexibility US Accounting vs. Accounting Outside of the US The Bottom Line Practice Questions 77 77 78 79 80 80 83 84 85 86 86 88 88 92 94 95 95 95 96 98 99 99 69 70 70 71 71 72 73
xiv Introduction to Finance Chapter 5 Mathematics of Finance Why the Time Value of Money? Calculating a Future Value Growth rates and returns Compounding more than once per year Continuous compounding Multiple rates Determining the unknown interest rate Determining the unknown number ofperiods Calculating a Present Value The Time Value of a Series of Cash Flows Future value of a series of cash flows Multiple rates Annuities Valuing a perpetuity Valuing an annuity due Valuing a deferred annuity Loan amortization Interest Rates and Yields Annual percentage rate vs. effective annual rate Yields on investments The Bottom Line Practice Questions 101 101 103 107 108 111 111 112 113 114 117 121 121 123 127 128 132 135 137 137 140 143 143 Part Three Financial Management 145 Chapter 6 Business Finance Forms of Business Enterprise Sole proprietorships and partnerships Corporations Limited liability companies Other forms of business The Objective of Financial Management A measure of owners ’ economic well-being Financial Management and the Maximization of Owners’ Wealth The agency relationship Problems with the agency relationship Costs of the agency relationship Motivating managers: Executive compensation 147 148 148 150 153 154 155 156 157 158 158 159 160
Contents XV Shareholder wealth maximization and accounting “irregularities ” Shareholder wealth maximization and corporate social responsibility The Bottom Line Practice Questions 163 166 166 Chapter 7 Financial Strategy and Financial Planning Strategy and Value Comparative and competitive advantages Strategy and adding value Financial planning and budgeting Sale forecasting Forecasting with regression analysis Market surveys Management forecasts Budgeting The cash budget Pro forma financial statements Performance Evaluation Economic value added Balanced scorecard Strategy and Value Creation Sources of value creation The triple bottom line The Bottom Line Practice Questions 169 170 171 172 174 ill 179 179 180 180 181 181 182 182 184 187 187 191 191 192 Chapter 8 Dividend and Dividend Policies Dividends Cash dividends Dividend reinvestment plans Stock Distributions Types of distributions Reasons for stock distributions Dividend Policy The dividend irrelevance theory The “bird in the hand” theory The tax-preference explanation The signaling explanation 195 195 196 199 199 199 200 203 206 206 207 208 162
xvi Introduction to Finance The agency explanation To pay or not to pay dividends Stock Repurchases Methods of repurchasing stock Reasons to repurchase stock Criticisms of dividends and stock repurchases The Bottom Line Practice Questions 209 210 210 210 211 214 217 218 Chapter 9 The Corporate Financing Decision Debt Instruments Features of debt instruments Rights of debt holders in the US Debt vs. Equity Capital Structure and Financial Leverage Interest deductibility Financial leverage and risk Leverage andfinancialflexibility Governance value of debt financing Financial distress The role of limited liability Costs of financial distress Bankruptcy and bankruptcy costs Financial distress and capital structure The cost of capital Optimal Capital Structure: Theory and Practice Modigliani-Miller theory of capital structure M M irrelevance proposition M M with tax deductibility of interest paid on debt Capital structure theory and costs to financial distress Current capital structure theory and practice The Bottom Line Practice Questions 219 220 220 220 221 224 228 230 232 232 234 234 235 236 237 238 242 243 244 246 246 247 248 250 Chapter 10 Entrepreneurial Finance Risks Faced by New Ventures Classifying risks Sources of risk of a new venture Market risks 253 253 254 255 256
Contents xvii Product development risks Operational risks Financial risks Why Do New Ventures Fail? Stages of a Venture Exit Planning Founders’ Stock and Employee Stock Options Factor to consider in allocation offounders ’stock Vesting requirements Equity award plans Sources of Financing Early-stage financing Expansion-stage financing Sources of Seed Stage Financing Angelfinancing: Angel investors, angel groups, and super angels Equity crowdfunding platforms Seed accelerators and incubators Pre-Going Public Expansion Financing Venture capitalists Institutional investors: Mutualfunds and hedge funds Initial public offering and direct listings Why go public? How do companies go public? Financing Via Equity and Equity Dilutive Securities Ownership and control issues Convertible preferred stock Convertible note Pre-Money Valuation and Post-Money Valuation Option pools in financing rounds and post-money valuation The Bottom Line Practice Questions 256 257 257 258 259 262 264 264 267 268 269 269 271 271 287 289 292 Chapter 11 Financial Risk Management The Definition of Risk Core risks and noncore risks Sustainability risk 295 295 296 296 272 274 274 275 276 277 278 278 279 280 280 282 285 286
xviii Introduction to Finance Enterprise Risk Management Definitions ofERM ERMprocess Themes ofERM Specifying an entity ’s risk policy Managing Risks Retained risk and riskfinance Risk neutralization Risk transfer Traditional insurance « Derivatives Alternative risk transfer Structured finance The Bottom Line Practice Questions 299 300 302 303 305 305 306 306 307 307 308 308 310 310 311 Chapter 12 Capital Budgeting: Estimating Cash Flows Investment Decisions and Owners’ Wealth The Capital Budgeting Process Stages in the capital budgeting process Classifying investment projects Classifying by economic life Classifying by risk Classifying by dependence on other projects Determining Cash Flows from Investments Investment cash flows Asset acquisition Asset disposition Operating cash flows Change in revenues Change in expenses Change in taxes Change in working capital Putting it all together Net cash flows Simplifications A Comprehensive Example The Bottom Line Practice Questions 313 314 316 316 316 318 319 320 321 322 322 324 328 329 329 330 333 336 338 339 340 341 343 *
Contents xix Chapter 13 Capital Budgeting Evaluation Techniques Overview of Project Evaluation Payback Period Discounted Payback Period Net Present Value NPVdecision rule NPV investment profile Solvingfor the crossover rate Profitability Index Internal Rate of Return Modified Internal Rate of Return Issues to Consider Comparing Techniques Incorporating Risk Into Capital Budgeting Analysis Real Options Approach to Capital Budgeting Evaluation Capital Budgeting Evaluation Techniques in Practice The Bottom Line Practice Questions 345 345 347 349 352 354 355 356 358 359 365 367 369 372 374 375 378 378 Part Four Investment Management 381 Chapter 14 Overview of Investment Management Setting the Investment Objectives Classification of investment objectives Benchmark Selecting a portfolio strategy Establishing an Investment Policy Asset classes The different asset classes Cash equivalents Equities Fixed income Alternative assets Asset allocation strategies Strategic asset allocation strategy Dynamic asset allocation strategy Identifying Investment Constraints Client-imposed constraints 383 384 385 387 388 389 390 391 392 392 393 394 395 395 396 397 397
XX Introduction to Finance Regulatory constraints Tax considerations Constructing and Monitoring a Portfolio Measuring and Evaluating Performance Measuring performance Alternative return measures Arithmetic average rate of return Time-weighted rate of return Dollar-weighted rate of return Evaluating performance Risk-adjusted return: Reward-risk ratio The Sharpe ratio The information ratio Performance attribution models Style boxes The Bottom Line Practice Questions 397 398 398 399 399 399 402 403 404 407 408 408 412 415 416 416 418 Chapter 15 The Different Types of Risk in Investing Total Risk, Systematic Risk, and Unsystematic Risk Diversification, total risk, systematic risk, and unsystematic risk Major Investment Risks Price risk Price risk of stock Price risk for bonds Credit risk Liquidity risk Inflation risk Foreign exchange-rate risk The Bottom Line Practice Questions 421 421 422 424 424 424 427 427 431 431 432 433 434 Chapter 16 Company Analysis Industry Analysis Financial Ratio Analysis Liquidity Operating cycle Measures of liquidity 435 436 438 441 442 446
Contents xxi Profitability ratios Activity ratios Inventory management Accounts receivable management Overall asset management Financial leverage Component percentage ratios Coverage ratios Return on investment The Dupont System: Putting It Altogether Common-Size Analysis Using Financial Ratio Analysis Cash Flow Analysis Difficulties with measuring cash flow Cash flows and the statement of cash flows Free cash flow Calculating free cash flow Usefulness of cash flows in financial analysis Using cash flow information Additional Tools for Company Analysis Value Chain Analysis RBVAnalysis SWOT Analysis The Bottom Line Practice Questions 448 451 451 452 453 454 455 456 459 460 464 465 468 469 470 472 474 475 477 479 479 480 481 482 483 Chapter 17 Valuing Common Stock Discounted Cash Flow Models Dividend discount models Dividend measures Basic DDMs The finite-life general DDM Assuming a constant discount rate Required inputs Assessing relative value Constant growth DDM Multiphase DDMs Expected Returns and DDMs 487 487 488 488 490 491 492 492 494 495 497 498
xxii Introduction to Finance Relative Valuation Methods The basic principles of relative valuation Choose comparable companies Determine an appropriate multiple Calculate the multiple for the comparable companies Estimate to base of the multiple for the subject company Apply the multiple to the subject company ’s base The Bottom Line Practice Questions Chapter Í8 The Theory of Portfolio Selection Some Basic Concepts Utility junction and indifference curves Efficient portfolios and the optimal portfolio Risky assets vs. risk-free assets Estimating a Portfolio’s Expected Return For a single-period portfolio return Expected return for a portfolio of risky assets Measuring Portfolio Risk Variance and standard deviation as a measure of risk Measuring the portfolio risk of a two-asset portfolio Covariance Measuring the risk of a portfolio comprising more than two assets Portfolio Diversification Portfolio risk and correlation Choosing a Portfolio of Risky Assets Constructing efficient portfolios Feasible and efficient portfolios Choosing the optimal portfolio in the efficient set Issues in the theory of portfolio selection Illustration of portfolio selection Alternative risk measures for portfolio selection Dispersion measures Safety-first risk measures Robust portfolio optimization Behavioral Finance and Portfolio Theory The Bottom Line Practice Questions 500 502 504 504 505 506 507 509 510 513 514 514 516 516 517 517 518 520 520 522 523 526 526 527 529 530 532 534 535 535 537 541 541 542 545 548 549
Contents xxiii Chapter 19 Asset Pricing Theory Characteristics of an Asset Pricing Model CAPM Assumptions of the CAPM The capital market line What is Portfolio M? The risk premium in the CML Systematic and unsystematic risk The security market line Tests of the CAPM Criticisms of the CAPM The APT Model The arbitrage principle APT model formulation Multifactor risk models in practice Some Principles to Take Away The Bottom Line Practice Questions 551 551 553 554 557 560 561 562 564 566 567 568 568 571 572 573 574 575 Chapter 20 Investing in the Common Stock Market Common Stock Market Indexes Trading Mechanics Types of orders Margin transactions Trading arrangements for institutional investors Transaction Costs Common Stock Investment Strategies Passive investment strategies Enhanced indexing Smart beta strategy Common stock active strategies Strategies based on fundamental analysis Strategies based on technical analysis Equity-style investing Factor investing Responsible investing and environmental, social, and governance investing Evaluating Investment Performance The Brinson model 577 578 580 580 582 584 584 585 585 586 586 592 592 597 604 605 608 609 610
xxiv Introduction to Finance The Bottom Line Practice Questions 615 617 Chapter 21 Interest Rates and the Structure of Interest Rates The Base Interest Rate The risk premium Risk premium due to default risk Inclusion of attractive and unattractive provisions Taxability of interest Expected liquidity of a bond issue The Term-Structure of Interest Rates Forward rates Determinants of the shape of the term structure Term structure of interest rates theories Expectations theories Market segmentation theory Swap Rate Yield Curve Negative Interest Rates More on Interest Rates The natural interest rate Risk-free interest rate Reference interest rates The Bottom Line Practice Questions 619 619 621 621 623 625 626 627 628 632 633 633 635 635 636 637 637 638 638 639 641 Chapter 22 Investing in the Bond Market Valuing Bonds Convention for Quoting Bond Prices Principles of bond valuation Relationship between coupon rate, yield, and price Relationship between a bond’s value and time Reasons for the change in the price of a bond Different discount rates may apply to each cash flow Valuing bonds that have embedded options Valuing convertible bonds Traditional value of convertible bonds Yield Measures Current yield Yield to maturity ЋеШ to call 643 643 643 644 650 651 653 653 654 656 657 661 661 662 666
Contents xxv Potential Sources of a Bond’s Dollar Return Major Risks in Managing a Bond Portfolio Credit risk Default risk Downgrade risk Credit spread risk Interest rate risk Measuring interest rate risk Bond Portfolio Strategies Spectrum of bond portfolio strategies Value-added strategies Interest rate expectations strategies Yield curve strategies Yield spread strategies The Bottom Line Practice Questions 668 669 669 670 670 671 671 672 675 675 677 678 678 679 679 681 Part Five 683 Derivatives Chapter 23 Derivatives for Controlling Risk Futures and Forward Contracts Futures contracts Liquidating a futures position The role of the clearinghouse Margin requirements Leveraging Forward contracts The basics ofpricing futures andforward contracts A closer look at the theoretical futures price Usingfutures andforward contracts Options Basic features of options Differences between options andfatures contracts Risk and return of options Buying call options Writing (selling) call options Buying put options Writing (selling) put options Basic components of the option price 685 687 687 689 690 690 691 692 693 698 700 701 702 703 704 704 706 707 708 709
xxvi Introduction to Finance Factors that influence an option’s price Option pricing models Using options Swaps Interest rate swap Currency swaps Commodity swaps Credit default swaps The Bottom Line Practice Questions Appendix Black-Scholes option pricing model 712 713 714 715 715 716 717 718 718 720 721 721 Appendix 727 Cost Estimation for Infrastructure Projects Solutions to Practice Questions 743 Index 775 |
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| building | Verbundindex |
| bvnumber | BV047887216 |
| classification_rvk | QP 700 |
| ctrlnum | (OCoLC)1268233429 (DE-599)BVBBV047887216 |
| discipline | Wirtschaftswissenschaften |
| discipline_str_mv | Wirtschaftswissenschaften |
| format | Book |
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| genre | (DE-588)4123623-3 Lehrbuch gnd-content |
| genre_facet | Lehrbuch |
| id | DE-604.BV047887216 |
| illustrated | Illustrated |
| index_date | 2024-07-03T19:24:52Z |
| indexdate | 2024-07-10T09:24:16Z |
| institution | BVB |
| isbn | 9789811239656 |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-033269404 |
| oclc_num | 1268233429 |
| open_access_boolean | |
| owner | DE-355 DE-BY-UBR |
| owner_facet | DE-355 DE-BY-UBR |
| physical | xxvi, 802 Seiten Illustrationen |
| publishDate | 2022 |
| publishDateSearch | 2022 |
| publishDateSort | 2022 |
| publisher | World Scientific Publishing |
| record_format | marc |
| spelling | Peterson Drake, Pamela 1954- Verfasser (DE-588)133734269 aut Introduction to finance financial management and investment management Pamela P. Drake, Frank J. Fabozzi, Francesco A. Fabozzi New Jersey World Scientific Publishing [2022] xxvi, 802 Seiten Illustrationen txt rdacontent n rdamedia nc rdacarrier Unternehmen (DE-588)4061963-1 gnd rswk-swf Management (DE-588)4037278-9 gnd rswk-swf Investition (DE-588)4027556-5 gnd rswk-swf Finanzierung (DE-588)4017182-6 gnd rswk-swf (DE-588)4123623-3 Lehrbuch gnd-content Unternehmen (DE-588)4061963-1 s Finanzierung (DE-588)4017182-6 s Investition (DE-588)4027556-5 s Management (DE-588)4037278-9 s DE-604 Fabozzi, Frank J. 1948- Verfasser (DE-588)129772054 aut Fabozzi, Francesco A. Verfasser (DE-588)1226691919 aut Erscheint auch als Online-Ausgabe 978-981-1241-28-4 Erscheint auch als Online-Ausgabe, other 978-981-1241-29-1 Digitalisierung UB Regensburg - ADAM Catalogue Enrichment application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=033269404&sequence=000001&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Peterson Drake, Pamela 1954- Fabozzi, Frank J. 1948- Fabozzi, Francesco A. Introduction to finance financial management and investment management Unternehmen (DE-588)4061963-1 gnd Management (DE-588)4037278-9 gnd Investition (DE-588)4027556-5 gnd Finanzierung (DE-588)4017182-6 gnd |
| subject_GND | (DE-588)4061963-1 (DE-588)4037278-9 (DE-588)4027556-5 (DE-588)4017182-6 (DE-588)4123623-3 |
| title | Introduction to finance financial management and investment management |
| title_auth | Introduction to finance financial management and investment management |
| title_exact_search | Introduction to finance financial management and investment management |
| title_exact_search_txtP | Introduction to finance financial management and investment management |
| title_full | Introduction to finance financial management and investment management Pamela P. Drake, Frank J. Fabozzi, Francesco A. Fabozzi |
| title_fullStr | Introduction to finance financial management and investment management Pamela P. Drake, Frank J. Fabozzi, Francesco A. Fabozzi |
| title_full_unstemmed | Introduction to finance financial management and investment management Pamela P. Drake, Frank J. Fabozzi, Francesco A. Fabozzi |
| title_short | Introduction to finance |
| title_sort | introduction to finance financial management and investment management |
| title_sub | financial management and investment management |
| topic | Unternehmen (DE-588)4061963-1 gnd Management (DE-588)4037278-9 gnd Investition (DE-588)4027556-5 gnd Finanzierung (DE-588)4017182-6 gnd |
| topic_facet | Unternehmen Management Investition Finanzierung Lehrbuch |
| url | http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=033269404&sequence=000001&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
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