| |
| |
| Preface | |
| |
| |
| |
| Finance and the Financial System | |
| |
| |
| |
| What Is Finance? | |
| |
| |
| |
| Defining Finance | |
| |
| |
| |
| Why Study Finance? | |
| |
| |
| |
| Financial Decisions of Households | |
| |
| |
| |
| Financial Decisions of Firms | |
| |
| |
| |
| Forms of Business Organization | |
| |
| |
| |
| Separation of Ownership and Management | |
| |
| |
| |
| The Goal of Management | |
| |
| |
| |
| Market Discipline: Takeovers | |
| |
| |
| |
| The Role of the Finance Specialist in a Corporation | |
| |
| |
| |
| The Financial System | |
| |
| |
| |
| What Is the Financial System? | |
| |
| |
| |
| The Flow of Funds | |
| |
| |
| |
| The Functional Perspective | |
| |
| |
| |
| Financial Innovation and the "Invisible Hand" | |
| |
| |
| |
| Financial Markets | |
| |
| |
| |
| Financial Market Rates | |
| |
| |
| |
| Financial Intermediaries | |
| |
| |
| |
| Financial Infrastructure and Regulation | |
| |
| |
| |
| Governmental and Quasi-Governmental Organizations | |
| |
| |
| Appendix A | |
| |
| |
| Appendix B | |
| |
| |
| |
| Interpreting and Forecasting Financial Statements | |
| |
| |
| |
| Functions of Financial Statements | |
| |
| |
| |
| Review of Financial Statements | |
| |
| |
| |
| Market Values versus Book Values | |
| |
| |
| |
| Accounting versus Economic Measures of Income | |
| |
| |
| |
| Returns to Shareholders versus Return on Book Equity | |
| |
| |
| |
| Analysis Using Financial Ratios | |
| |
| |
| |
| The Financial Planning Process | |
| |
| |
| |
| Constructing a Financial Planning Model | |
| |
| |
| |
| Growth and the Need for External Financing | |
| |
| |
| |
| Working Capital Management | |
| |
| |
| |
| Liquidity and Cash Budgeting | |
| |
| |
| |
| Time and Resource Allocation | |
| |
| |
| |
| The Time Value of Money and Discounted Cash Flow Analysis | |
| |
| |
| |
| Compounding | |
| |
| |
| |
| The Frequency of Compounding | |
| |
| |
| |
| Present Value and Discounting | |
| |
| |
| |
| Alternative Discounted Cash Flow Decision Rules | |
| |
| |
| |
| Multiple Cash Flows | |
| |
| |
| |
| Annuities | |
| |
| |
| |
| Perpetual Annuities | |
| |
| |
| |
| Loan Amortization | |
| |
| |
| |
| Exchange Rates and Time Value of Money | |
| |
| |
| |
| Inflation and Discounted Cash Flow Analysis | |
| |
| |
| |
| Taxes and Investment Decisions | |
| |
| |
| Appendix | |
| |
| |
| |
| Life-Cycle Financial Planning | |
| |
| |
| |
| A Life-Cycle Model of Saving | |
| |
| |
| |
| Taking Account of Social Security | |
| |
| |
| |
| Deferring Taxes through Voluntary Retirement Plans | |
| |
| |
| |
| Should You Invest in a Professional Degree? | |
| |
| |
| |
| Should You Buy or Rent? | |
| |
| |
| |
| How to Analyze Investment Projects | |
| |
| |
| |
| The Nature of Project Analysis | |
| |
| |
| |
| Where Do Investment Ideas Come From? | |
| |
| |
| |
| The Net Present Value Investment Rule | |
| |
| |
| |
| Estimating a Project's Cash Flows | |
| |
| |
| |
| Cost of Capital | |
| |
| |
| |
| Sensitivity Analysis Using Spreadsheets | |
| |
| |
| |
| Analyzing Cost-Reducing Projects | |
| |
| |
| |
| Projects with Different Lives | |
| |
| |
| |
| Ranking Mutually Exclusive Projects | |
| |
| |
| |
| Inflation and Capital Budgeting | |
| |
| |
| |
| Valuation Models | |
| |
| |
| |
| Principles of Asset Valuation | |
| |
| |
| |
| The Relation between an Asset's Value and Its Price | |
| |
| |
| |
| Value Maximization and Financial Decisions | |
| |
| |
| |
| The Law of One Price and Arbitrage | |
| |
| |
| |
| Arbitrage and the Prices of Financial Assets | |
| |
| |
| |
| Interest Rates and the Law of One Price | |
| |
| |
| |
| Exchange Rates and Triangular Arbitrage | |
| |
| |
| |
| Valuation Using Comparables | |
| |
| |
| |
| Valuation Models | |
| |
| |
| |
| Accounting Measures of Value | |
| |
| |
| |
| How Information Is Reflected in Security Prices | |
| |
| |
| |
| The Efficient Markets Hypothesis | |
| |
| |
| Appendix | |
| |
| |
| |
| Valuation of Known Cash Flows: Bonds | |
| |
| |
| |
| Using Present Value Formulas to Value Known Cash Flows | |
| |
| |
| |
| The Basic Building Blocks: Pure Discount Bonds | |
| |
| |
| |
| Coupon Bonds, Current Yield, and Yield to Maturity | |
| |
| |
| |
| Reading Bond Listings | |
| |
| |
| |
| Why Yields for the Same Maturity May Differ | |
| |
| |
| |
| The Behavior of Bond Prices over Time | |
| |
| |
| |
| Valuation of Common Stocks | |
| |
| |
| |
| Reading Stock Listings | |
| |
| |
| |
| The Discounted Dividend Model | |
| |
| |
| |
| Earnings and Investment Opportunities | |
| |
| |
| |
| A Reconsideration of the Price/Earnings Multiple Approach | |
| |
| |
| |
| Does Dividend Policy Affect Shareholder Wealth? | |
| |
| |
| |
| Risk Management and Portfolio Theory | |
| |
| |
| |
| An Overview of Risk Management | |
| |
| |
| |
| What Is Risk? | |
| |
| |
| |
| Risk and Economic Decisions | |
| |
| |
| |
| The Risk-Management Process | |
| |
| |
| |
| The Three Dimensions of Risk Transfer | |
| |
| |
| |
| Risk Transfer and Economic Efficiency | |
| |
| |
| |
| Institutions for Risk Management | |
| |
| |
| |
| Portfolio Theory: Quantitative Analysis for Optimal Risk Management | |
| |
| |
| |
| Probability Distributions of Returns | |
| |
| |
| |
| Standard Deviation as a Measure of Risk | |
| |
| |
| Appendix | |
| |
| |
| |
| Hedging, Insuring, and Diversifying | |
| |
| |
| |
| Using Forward and Futures Contracts to Hedge Risk | |
| |
| |
| |
| Hedging Foreign-Exchange Risk with Swap Contracts | |
| |
| |
| |
| Hedging Shortfall Risk by Matching Assets to Liabilities | |
| |
| |
| |
| Minimizing the Cost of Hedging | |
| |
| |
| |
| Insuring versus Hedging | |
| |
| |
| |
| Basic Features of Insurance Contracts | |
| |
| |
| |
| Financial Guarantees | |
| |
| |
| |
| Caps and Floors on Interest Rates | |
| |
| |
| |
| Options as Insurance | |
| |
| |
| |
| The Diversification Principle | |
| |
| |
| |
| Diversification and the Cost of Insurance | |
| |
| |
| Appendix | |
| |
| |
| |
| Choosing an Investment Portfolio | |
| |
| |
| |
| The Process of Personal Portfolio Selection | |
| |
| |
| |
| The Trade-Off between Expected Return and Risk | |
| |
| |
| |
| Efficient Diversification with Many Risky Assets | |
| |
| |
| Appendix | |
| |
| |
| |
| Asset Pricing | |
| |
| |
| |
| The Capital Asset Pricing Model | |
| |
| |
| |
| The Capital Asset Pricing Model in Brief | |
| |
| |
| |
| Determinants of the Risk Premium on the Market Portfolio | |
| |
| |
| |
| Beta and Risk Premiums on Individual Securities | |
| |
| |
| |
| Using the CAPM in Portfolio Selection | |
| |
| |
| |
| Valuation and Regulating Rates of Return | |
| |
| |
| |
| Modifications and Alternatives to the CAPM | |
| |
| |
| |
| Forward and Futures Prices | |
| |
| |
| |
| Distinctions between Forward and Futures Contracts | |
| |
| |
| |
| The Economic Function of Futures Markets | |
| |
| |
| |
| The Role of Speculators | |
| |
| |
| |
| Relation between Commodity Spot and Futures Prices | |
| |
| |
| |
| Extracting Information from Commodity Futures Prices | |
| |
| |
| |
| Forward-Spot Price Parity for Gold | |
| |
| |
| |
| Financial Futures | |
| |
| |
| |
| The "Implied" Riskless Rate | |
| |
| |
| |
| The Forward Price Is Not a Forecast of the Future Spot Price | |
| |
| |
| |
| Forward-Spot Price-Parity Relation with Cash Payouts | |
| |
| |
| |
| "Implied" Dividends | |
| |
| |
| |
| The Foreign-Exchange Parity Relation | |
| |
| |
| |
| The Role of Expectations in Determining Exchange Rates | |
| |
| |
| |
| Options and Contingent Claims | |
| |
| |
| |
| How Options Work | |
| |
| |
| |
| Investing with Options | |
| |
| |
| |
| The Put-Call Parity Relation | |
| |
| |
| |
| Volatility and Option Prices | |
| |
| |
| |
| Two-State (Binomial) Option Pricing | |
| |
| |
| |
| Dynamic Replication and the Binomial Model | |
| |
| |
| |
| The Black-Scholes Model | |
| |
| |
| |
| Implied Volatility | |
| |
| |
| |
| Contingent Claims Analysis of Corporate Debt and Equity | |
| |
| |
| |
| Credit Guarantees | |
| |
| |
| |
| Other Applications of Option-Pricing Methodology | |
| |
| |
| |
| Corporate Finance | |
| |
| |
| |
| Capital Structure | |
| |
| |
| |
| Internal versus External Financing | |
| |
| |
| |
| Equity Financing | |
| |
| |
| |
| Debt Financing | |
| |
| |
| |
| The Irrelevance of Capital Structure in a Frictionless Environment | |
| |
| |
| |
| Creating Value through Financing Decisions | |
| |
| |
| |
| Reducing Costs | |
| |
| |
| |
| Dealing with Conflicts of Interest | |
| |
| |
| |
| Creating New Opportunities for Stakeholders | |
| |
| |
| |
| Financing Decisions in Practice | |
| |
| |
| |
| How to Evaluate Levered Investments | |
| |
| |
| |
| Finance and Corporate Strategy | |
| |
| |
| |
| Mergers and Acquisitions | |
| |
| |
| |
| Spin-offs | |
| |
| |
| |
| Investing in Real Options | |
| |
| |
| Suggested Readings | |
| |
| |
| Glossary | |
| |
| |
| Index | |