Finance : Capital Markets, Financial Management, and Investment Management

This is another brilliant book by Fabozzi & Drake. One of the distinguising features is the way the authors present the field of finance in three macro areas: financial markets, corporate finance, and investment management. It's like having three books in one. They've done a great job in producing this financial piece of art by effectively blending technical lexicon with straightfroward explanations relying on a comprehensive and didactic approach. I strongly recommend it for both the seasoned professional seeking to enrich his or her financial knowledge as well as for the beginner looking to create a framework for the study of finance. I have two observations for the publisher. First, the page quality is not the same as, say, Fabozzi's Introduction to Securitization (which I also bought in the same purchase order) or other books of the Fabozzi series. Second, the John Wiley logo got printed by mistake in the middle of a page, thus, making a paragraph incomplete. I hope, with due respect, that I did not purchase a trial version of the book as I pre-ordered it one month before release. Finance: Capital Markets, Financial Management, and Investment Management 3 Contents 7 Preface 15 About the Authors 17 Part One: Background 19 Chapter 1: What Is Finance? 21 CAPITAL MARKETS AND CAPITAL MARKET THEORY 22 FINANCIAL MANAGEMENT 23 INVESTMENT MANAGEMENT 25 SUMMARY 26 Chapter 2: Mathematics of Finance 29 THE IMPORTANCE OF THE TIME VALUE OF MONEY 29 DETERMINING THE FUTURE VALUE 31 DETERMINING THE PRESENT VALUE 38 DETERMINING THE UNKNOWN INTEREST RATE 40 DETERMINING THE NUMBER OF COMPOUNDING PERIODS 41 THE TIME VALUE OF A SERIES OF CASH FLOWS 42 VALUING CASH FLOWS WITH DIFFERENT TIME PATTERNS 52 LOAN AMORTIZATION 58 THE CALCULATION OF INTEREST RATES AND YIELDS 64 PRINCIPLES OF VALUATION 69 SUMMARY 73 Chapter 3: Basics of Financial Analysis 75 FINANCIAL RATIO ANALYSIS 76 CASH FLOW ANALYSIS 105 USEFULNESS OF CASH FLOWS IN FINANCIAL ANALYSIS 117 SUMMARY 123 REFERENCES 124 Part Two: Capital Markets and Capital Market Theory 127 Chapter 4: The Financial System 129 FINANCIAL ASSETS/FINANCIAL INSTRUMENTS 129 FINANCIAL MARKETS 131 FINANCIAL INTERMEDIARIES 132 REGULATORS OF FINANCIAL ACTITIVIES 136 CLASSIFICATION OF FINANCIAL MARKETS 140 MARKET PARTICIPANTS 149 SUMMARY 168 REFERENCES 172 Chapter 5: Interest Rate Determination and the Structure of Interest Rates 173 THEORIES ABOUT INTEREST RATE DETERMINATION 173 THE FEDERAL RESERVE SYSTEM AND THE DETERMINATION OF INTEREST RATES 175 THE STRUCTURE OF INTEREST RATES 181 TERM STRUCTURE OF INTEREST RATES 186 SUMMARY 196 REFERENCES 197 Chapter 6: Basics of Derivatives 199 FUTURES AND FORWARD CONTRACTS 199 OPTIONS 212 SWAPS 224 CAP AND FLOOR AGREEMENTS 227 SUMMARY 229 APPENDIX: BLACK-SCHOLES OPTION PRICING MODEL 230 REFERENCES 237 Chapter 7: Asset Valuation: Basic Bond and Stock Valuation Models 239 VALUING BONDS 239 VALUATION OF COMMON STOCK USING DIVIDEND DISCOUNT MODELS 253 SUMMARY 264 APPENDIX: VALUING CONVERTIBLE BONDS 265 REFERENCES 270 Chapter 8: Asset Valuation: The Theory of Asset Pricing 273 CHARACTERISTICS OF AN ASSET PRICING MODEL 273 CAPITAL ASSET PRICING MODEL 274 ARBITRAGE PRICING THEORY MODEL 288 SUMMARY 297 REFERENCES 299 Part Three: Financial Management 301 Chapter 9: Financial Management 303 FORMS OF BUSINESS ENTERPRISE 304 THE OBJECTIVE OF FINANCIAL MANAGEMENT 309 THE AGENCY RELATIONSHIP 314 DIVIDEND AND DIVIDEND POLICIES 320 SPECIAL CONSIDERATIONS IN INTERNATIONAL FINANCIAL MANAGEMENT 332 SUMMARY 340 REFERENCES 343 Chapter 10: Financial Strategy and Financial Planning 345 STRATEGY AND VALUE 346 FINANCIAL PLANNING AND BUDGETING 349 IMPORTANCE OF FINANCIAL PLANNING 350 BUDGETING PROCESS 350 SALES FORECASTING 352 SEASONAL CONSIDERATIONS 355 BUDGETING 356 PRO FORMA FINANCIAL STATEMENTS 364 LONG-TERM FINANCIAL PLANNING 370 FINANCIAL MODELING 373 PERFORMANCE EVALUATION 380 STRATEGY AND VALUE CREATION 387 SUMMARY 390 REFERENCES 391 Chapter 11: The Corporate Financing Decision 393 DEBT VS. EQUITY 393 THE CONCEPT OF LEVERAGE 396 CAPITAL STRUCTURE AND FINANCIAL LEVERAGE 399 FINANCIAL LEVERAGE AND RISK 402 CAPITAL STRUCTURE AND TAXES 406 CAPITAL STRUCTURE AND FINANCIAL DISTRESS 411 THE COST OF CAPITAL 415 THE AGENCY RELATIONSHIP AND CAPITAL STRUCTURE 417 OPTIMAL CAPITAL STRUCTURE: THEORY AND PRACTICE 418 A CAPITAL STRUCTURE PRESCRIPTION 421 SUMMARY 422 APPENDIX: CAPITAL STRUCTURE: LESSONS FROM MODIGLIANI AND MILLER 423 REFERENCES 433 Chapter 12: Financial Engineering, Asset Securitization, and Project Financing 435 CREATION OF STRUCTURED NOTES 437 ASSET SECURITIZATION 445 PROJECT FINANCING 456 SUMMARY 464 REFERENCES 466 Chapter 13: Capital Budgeting: Process and Cash Flow Estimation 467 INVESTMENT DECISIONS AND OWNERS’ WEALTH MAXIMIZATION 468 CAPITAL BUDGETING PROCESS 470 CLASSIFYING INVESTMENT PROJECTS 472 ESTIMATING CASH FLOWS OF CAPITAL BUDGETING PROJECTS 476 SUMMARY 495 REFERENCES 495 Chapter 14: Capital Budgeting Techniques 497 EVALUATION TECHNIQUES 497 NET PRESENT VALUE 499 PROFITABILITY INDEX 503 INTERNAL RATE OF RETURN 505 MODIFIED INTERNAL RATE OF RETURN 509 PAYBACK PERIOD 513 DISCOUNTED PAYBACK PERIOD 514 ISSUES IN CAPITAL BUDGETING 515 COMPARING TECHNIQUES 518 CAPITAL BUDGETING TECHNIQUES IN PRACTICE 521 CAPITAL BUDGETING AND THE JUSTIFICATION OF NEW TECHNOLOGY 522 INCORPORATING RISK INTO CAPITAL BUDGETING ANALYSIS 524 SUMMARY 541 REFERENCES 542 Chapter 15: Managing Current Assets 543 MANAGEMENT OF CASH AND MARKETABLE SECURITIES 544 CASH MANAGEMENT 545 MARKETABLE SECURITIES 551 MANAGEMENT OF ACCOUNTS RECEIVABLE 552 INVENTORY MANAGEMENT 563 SUMMARY 571 REFERENCES 572 Chapter 16: Financial Risk Management 573 RISK DEFINED 573 ENTERPRISE RISK MANAGEMENT 576 MANAGING RISKS 581 RISK TRANSFER 583 SUMMARY 590 REFERENCES 592 Part Four: Investment Management 593 Chapter 17: The Basic Principles of Investment Management 595 THE INVESTMENT MANAGEMENT PROCESS 595 THE THEORY OF PORTFOLIO SELECTION 600 TRACKING ERROR 622 MEASURING AND EVALUATING PERFORMANCE 625 SUMMARY 640 REFERENCES 642 Chapter 18: Equity Portfolio Management 643 STOCK MARKET INDICATORS 643 TOP-DOWN VS. BOTTOM-UP APPROACHES 647 FUNDAMENTAL VS. TECHNICAL ANALYSIS 647 POPULAR STOCK MARKET STRATEGIES 649 PASSIVE STRATEGIES 661 EQUITY-STYLE MANAGEMENT 661 TYPES OF STOCK MARKET STRUCTURES21 664 THE U.S. STOCK MARKETS: EXCHANGES AND OTC MARKETS 667 TRADING MECHANICS 674 SUMMARY 682 REFERENCES 683 Chapter 19: Bond Portfolio Management 687 SECTORS OF THE BOND MARKET 687 FEATURES OF BONDS 697 YIELD MEASURES 704 RISKS ASSOCIATED WITH INVESTING IN BONDS 711 MEASURING INTEREST RATE RISK 720 BOND INDEXES 728 ACTIVE BOND PORTFOLIO STRATEGIES 729 PASSIVE BOND PORTFOLIO STRATEGIES 734 SUMMARY 737 REFERENCES 738 Chapter 20: Use of Stock Index Futures and Treasury Futures Contracts in Portfolio Management 739 USING STOCK INDEX FUTURES IN EQUITY PORTFOLIO MANAGEMENT 740 USING TREASURY BOND AND NOTE FUTURES CONTRACTS IN BOND PORTFOLIO MANAGEMENT 754 USING STOCK INDEX FUTURES AND TREASURY BOND FUTURES TO IMPLEMENT AN ASSET ALLOCATION DECISION 762 SUMMARY 764 REFERENCES 764 Chapter 21: Use of Options in Portfolio Management 765 USING STOCK OPTIONS AND INDEX OPTIONS IN EQUITY PORTFOLIO MANAGEMENT 765 USING INTEREST RATE OPTIONS IN BOND PORTFOLIO MANAGEMENT 779 SUMMARY 789 APPENDIX: PRICING MODELS ON OPTIONS ON PHYSICALS AND FUTURES OPTIONS 789 REFERENCES 791 Index 793 FINANCE Financial managers and investment professionals need a solid foundation in finance principles and applications in order to make the best decisions in today's ever-changing financial world. Written by the experienced author team of Frank Fabozzi and Pamela Peterson Drake, Finance examines the essential elements of this discipline and makes them understandable to a wide array of individuals, from seasoned professionals looking to fine-tune their financial skills to newcomers seeking genuine guidance through the dynamic world of finance. Divided into four comprehensive parts, this reliable resource opens with an informative introduction to the basic tools of investing and financing decision-making—financial mathematics and financial analysis (Part I). From here, you'll become familiar with the fundamentals of capital market theory, including financial markets, financial intermediaries, and regulators of financial activities (Part II). You'll also gain a better understanding of interest rates, bond and stock valuation, asset pricing theory, and derivative instruments in this section. Part III moves on to detail decision-making within a business enterprise. Topics touched upon here include capital budgeting—that is, whether or not to invest in specific long-lived projects—and capital structure. Management of current assets and risk management are also addressed. By covering the basics of investment decision-making, Part IV skillfully wraps up this accessible overview of finance. Beginning with the determination of an investment objective, this part proceeds to demonstrate portfolio theory and performance evaluation, and also takes the time to outline techniques for managing equity and bond portfolios as well as discuss the best ways to use derivatives in the portfolio management process. Filled with in-depth insights and practical advice, Finance puts this field in perspective. And while a lot of ground is covered in this book, this information will help you appreciate and understand the complex financial issues that today's companies and investors constantly face.

created By The Experienced Author Team Of Frank Fabozzi And Pamela Peterson Drake, finance Examines The Essential Elements Of This Discipline And Makes Them Accessible To A Wide Array Of Readers-from Seasoned Veterans Looking For A Review To Newcomers Needing To Get Their Footing In Finance.

Divided Into Four Comprehensive Parts, This Reliable Resource Opens With A Detailed Discussion Of The Basic Tools Of Investing And Financing Decision-making—financial Mathematics And Financial Analysis. After This Informative Introduction, You'll Quickly Become Familiar With The Three Primary Areas Of Finance—capital Markets (part Ii), Financial Management (part Iii), And Investment/asset Management (part Iv)?-and Discover How These Different Areas Are Interconnected.

finance Is A Well-rounded Guide To This Dynamic Field. The Straightforward Insights Found Here Will Put You In A Better Position To Understand What The Principles Of Modern Finance Are And How They Can Be Used To Make The Right Decisions When Managing Risk And Return In Today's Complex Financial Environment.