Introduction to Investments ^{2nd Ed.}

This text focuses on the comparison of efficient and inefficient markets from the viewpoint of an experienced portfolio manager. This approach covers not only the fundamentals of portfolio management — financial, securities markets, and investment management techniques, including financial engineering — but also how these techniques are applied by professional investors. It is unsurpassed in its ability to bridge between theory and application by using articles from the financial media as well as real-world mini-cases to illustrate concepts. A strong problem-solving approach is supported through many solved sample problems and practice boxes throughout the text, and through strong end-of-chapter problems and cases which use real world information and data to give students the opportunity to apply what they've learned to solving real problems.

• Part I: The Investment Environment
1. Introduction
1. Factors Affecting Assets Price
2. The Difference between Corporate Finance and Investments
3. The Difference between Physical and Financial Assets
4. The Benefits of Studying Investments
5. The Investment Process
6. Where Do We Go From Here? A Brief Over of the Book
• Appendix 1A: A Review of Time Value Concepts
2. Bonds, Stocks, and Other Financial Securities
1. Bonds
2. Stocks
3. Derivative Securities
4. Risks of Bonds and Stocks
5. International Securities
6. Mutual Funds
• Appendix 2A: Taxes
3. Security Markets
1. The Role of Security Markets
2. The Primary Security Market
3. The Secondary Security Market
4. Trading Mechanics
5. World Security Markets
4. Regulation and Ethics
1. History of Securities Regulation
2. Securities Law and Financial Innovation
3. Corporate Governance
4. Ethics and Fraud
• Part II: Return and Risk
5. Calculating Rates of Return
1. Using Rates of Return
2. Rate-of-Return Calculations
3. After-Tax Rates of Return
4. Inflation-Adjusted Rates of Return
5. Foreign Exchange and Rates of Return
6. Average Rate of Return
7. Adjusted Rate of Return
8. Indexes
9. Tracking Rates of Return over Time
10. Appendix 5A: Dollar-Weighted Average Rate of Return
6. Foundation of Risk Analysis
1. The Case of Certainty
2. The Nature of Risk
3. Alternative Investment Criteria
4. Risk Aversion
5. Calculating Variance
6. The Mean-Variance Criterion
7. Other Attitudes Towards Risk
7. Portfolio Mean and Variance
1. The Portfolio
2. An Asset's Risk When Held with Other Assets in a Portfolio
3. The Expected Rate of Return on a Portfolio
4. Covariances
5. Correlation Coefficient
6. The Portfolio Variance
7. Another Look at Mutual Funds
8. The Variance of a Portfolio Composed of n Assets
• Appendix 7A: The Variance of a Portfolio Composed of n Assets
8. The Gain From Portfolio Diversification
1. The Effect of Correlation on a Portfolio's Risk Reduction
2. Efficient and Inefficient Investment Strategies
3. The Gain from Diversification in Unrelated Firms in Practice
• Appendix 8A: Calculating the Efficient Frontier
• Part III: Equilibrium Prices: Expanding the Portfolio Universe
9. Return and Risk: The Linear Relationships and CAPM
1. Indifference Curves
2. Efficient Investment Opportunities with Risk-Free Borrowing and Lending and a Single Risky Asset
3. The Capital Market Line (CML)
4. The Separation Property
5. The Security Market Line (SML) and the Capital Asset Pricing Model (CAPM)
6. Systematic and Unsystematic Risk
7. A Proof of the CAPM
8. Using the CAPM for Stock Selection
9. Using Alpha and Beta in Practice
10. Shortcomings of the CAPM
10. Index Models and The Arbitrage Pricing Theory
1. The Single Index Model
2. The Arbitrage Pricing Theory
3. The APT and the CAPM
4. Multifactor APT Model
11. International Investment
1. Risks and Returns in International Investments
2. International Parity Relationships
• Part IV: Efficient Markets and Portfolio Performance
12. Efficient Markets: Theory and Evidence
1. Efficient Market Defined
2. What Constitutes the Appropriate Information Set?
3. Investment Strategy in an Efficient Market
4. Investment Strategy in an Inefficient Market
5. Empirical Evidence Related to the EMT
6. Market Anomalies
13. Technical Analysis
1. In Defense of Technical Analysis
2. Charting
3. Theoretical Basis of Technical Analysis
4. Technical Indicators
14. Investment Companies and Mutual Funds
1. Types of Funds
2. Benefits and Costs of Investing in Mutual Funds
15. Performance Measurement
1. How to Measure Risk
2. Performance Indexes
3. Empirical Evidence of the Performance of Mutual Funds
4. Timing of the Market
5. A Word of Caution about Performance Indexes in Practice
6. Performance Attribution
7. Indexing and International Diversification
• Part V: Security Analysis
16. Interest Rates and Bond Valuation
1. Interest Rate Changes
2. The Yield Curve
3. Explaining the Shape of the Yield Curve
4. Other Measures on Bond Yields
5. Pricing Bonds in Practice
6. Spreads over Treasuries
7. The Impact of Embedded Options
• Appendix 16A: Simple Equations for Bond Pricing
• Appendix 16B: Incorporating Accrued Interest and Partial Periods
• Appendix 16C: Methods of Compounding Interest Rates
17. Bonds: Analysis and Management
1. Bond Pricing Principles
2. Duration and Convexity
3. Immunization
4. Passive versus Active Bond Managenment Strategies
• Appendix 17A: Computational Equation for Duration
18. Common Stocks — Valuation
1. Uses of Stock Valuation Models
2. The Discounted Cash Flow Principle
3. The Constant Dividend Growth Model
4. Sources of Growth
5. Constant Dividend Growth Model Valuations when All the Earnings are Paid as Cash Dividends
6. Finding the Cost of Equity Capital with the Constant Dividend Growth Model
7. Picking Stocks Using the P/E Ratio
• Appendix 18A: Free Cash Flow Model (FCFM) for Normal-Growth Firms
• Appendix 18B: Picking Stocks with EVA
19. Common Stocks Selection
1. The Anatomy of a Stock Market Winner
2. How Analysts View the Stock Valuation Process
3. Managing a Stock Portfolio
4. Estimating Dividend Discount Model Inputs
5. Implementing Dividend Discount Models
• Appendix 19A: Estimating the Growth Rate of Dividends
20. Market and Industry Analysis
1. Macroeconomics Evaluation
2. The Economy and the Financial Markets
3. Valuing the Overall Stock Market
4. Industry Analysis
21. Financial Statement Analysis
1. Financial Statements
2. Earnings Per Share (EPS)
3. Ratio Analysis
• Part VI: Options, Futures and Financial Engineering
22. Forward and Futures Contracts
1. Forward Contracts
2. Futures Contracts
3. Buying and Selling Futures Contracts
4. Investment Strategies with Futures Contracts
5. Pricing Futures Contracts
23. Options: Basic Concepts and Strategies
1. The Development of Modern Option Trading
2. Buying and Selling Options
3. Overview of Option Markets
4. Option Values at Expiration
5. Investment Strategies Using Options
• Appendix 23A: Taxes
• Appendix 23B: Margin Requirements
• Appendix 23C: Other Option Strategies
24. Valuing Options
1. Option Boundaries
2. Black-Scholes Option Pricing Model (BSOPM)
3. Applications of the BSOPM
• Appendix 24A: Binomal Option Pricing Model
• Appendix 24B: An Example Using the Black-Scholes Option Pricing Model
• Appendix 24C: Continuously Compounded Interest Rates
• Appendix 24D: Calculating Continuously Compounded Standard Deviations
25. Financial Engineering
1. What Is Financial Engineering?
2. Why Pursue Financial Engineering Strategies?
3. Swaps
4. Recent Financial Engineering Innovations
5. The Value at Risk (VaR)
• Appendix A: Information Markets
• Appendix B: Code of Ethics and Standards of Professional Conduct

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