Fundamentals of Investments 6th Edition Jordan Solutions Manual

Fundamentals of Investments 6th Edition Jordan Solutions Manual

Product details:

• ISBN-10 ‏ : ‎ 0073530719
• ISBN-13 ‏ : ‎ 978-0073530710
• Author: Bradford D. Jordan

Fundamentals of Investments was written to: focus on students as investment managers, giving them information they can act on instead of concentrating on theories and research without the proper context; offer strong, consistent pedagogy, including a balanced, unified treatment of the main types of financial investments as mirrored in the investment world; and, organize topics in a way that makes them easy to apply – whether to a portfolio simulation or to real life – and support these topics with hands-on activities. The approach of this text reflects two central ideas. First, there is a consistent focus on the student as an individual investor or investments manager. Second, a consistent, unified treatment of the four basic types of financial instruments – stocks, bonds, options, and futures – focusing on their chara

Table contents:

Introduction to Investments 1
1 The Investment Setting 4
Forms of Investment 6
The Setting of Investment Objectives 7
Risk and Safety of Principal 7
Current Income versus Capital Appreciation 8
Liquidity Considerations 8
Short-Term versus Long-Term Orientation 9
Tax Factors 9
Ease of Management 10
Retirement and Estate Planning
Considerations 11
Measures of Risk and Return 12
Risk 13
Actual Consideration of Required Returns 13
Real Rate of Return 14
Anticipated Inflation Factor 15
Risk Premium 15
What You Will Learn 19
Appendix 1A Career Opportunities
in Investments 24
2 Security Markets:
Present and Future 27
The Market Environment 28
Market Functions 29
Market Efficiency and Liquidity 29
Competition and Allocation of Capital 30
Secondary Markets 30
Primary Markets 30
Organization of the Primary Markets:
The Investment Banker 30
Underwriting Function 31
Distribution 31
Investment Banking Competition 34
Organization of the Secondary Markets 37
Organized Exchanges 38
Consolidated Tape 39
Listing Requirements for Firms 39
Membership for Market Participants 41
Other Organized Exchanges 43
The American Stock Exchange 43
The Chicago Board Options Exchange 45
Futures Markets 45
Over-the-Counter Markets 46
Nasdaq 46
Debt Securities Traded Over-the-Counter 47
The Third and Fourth Markets:
Part of Over-the-Counter Trading 48
Electronic Communication Networks 48
Institutional Trading 50
The National Market System and the Future 51
Regulation of the Security Markets 51
Securities Act of 1933 52
Securities Exchange Act of 1934 52
The Securities Acts Amendments of 1975 53
Other Legislation 53
Insider Trading 53
Program Trading and Market Price Limits 53
3 Participating in the Market 61
Measures of Price Performance:
Market Indexes 62
Indexes and Averages 62
Dow Jones Averages 62
Standard and Poor?s Indexes 64
Value Line Average 66
Other Market Indexes 67
Buying and Selling in the Market 69
Cash or Margin Account 72
Long or Short??That Is the Question 73
Types of Orders 74
Cost of Trading 76
Taxes and the 2001 Tax Act 77
Capital Gains 78
4 Sources of
Investment Information 88
Aggregate Economic Data 89
Federal Reserve Bulletin 89
2
chapter
Federal Reserve Banks 90
Survey of Current Business 93
Websites and Economic Data 93
Other Sources of Economic Data 94
Investment Advisory Services 94
Moody?s 96
Standard & Poor?s 96
Value Line 99
Morningstar 101
Other Investment Services 103
ISEC Filings, Periodicals, and Journals 105
Securities and Exchange
Commission Filings 105
Periodicals and Newspapers 106
Journals 112
Computer Databases 113
The Use of Personal Computers 114
The Internet and Investment Information 114
Additional Websites 115
part two
Analysis and Valuation
of Equity Securities 120
5 Economic Activity 122
Economic Activity and the Business Cycle 124
Federal Government Economic Policy 124
Fiscal Policy 126
Monetary Policy 129
Government Policy, Real Growth,
and Inflation 129
Business Cycles and Cyclical Indicators 132
Economic Indicators 134
Money Supply and Stock Prices 137
Business Cycles and Industry Relationships 138
6 Industry Analysis 146
Industry Life Cycles 147
Development?Stage I 147
Growth?Stage II 148
Expansion?Stage III 149
Maturity?Stage IV 150
Decline?Stage V 151
Growth in Nongrowth Industries 153
Industry Structure 153
Economic Structure 154
Competitive Structure 155
Industry Trend Analysis 157
Industry Groups and Rotational Investing 161
Appendix 6A Sustainable Growth Model 167
7 Valuation of the
Individual Firm 170
Basic Valuation Concepts 171
Review of Risk and Required Rate of Return
Concepts 171
Dividend Valuation Models 172
General Dividend Model 173
Constant Growth Model 173
A Nonconstant Growth Model 175
Earnings Valuation Models 177
The Combined Earnings
and Dividend Model 177
The Price-Earnings Ratio 180
The P/E Ratio for Individual Stocks 182
The Pure, Short-Term Earnings Model 183
Relating an Individual Stock?s P/E Ratio
to the Market 184
Other Valuation Models Using Average Price Ratios
and 10-Year Averages 185
Forecasting Earnings per Share 186
Least Squares Trendline 187
The Income Statement Method 189
Growth Stocks and Growth Companies 190
Assets as a Source of Stock Value 191
Natural Resources 191
8 Financial Statement Analysis 203
The Major Financial Statements 204
Income Statement 204
Balance Sheet 206
Statement of Cash Flows 208
Key Financial Ratios for the Security Analyst 211
Ratio Analysis 211
Bankruptcy Studies 212
Classification System 213
Uses of Ratios 220
3
chapter
chapter
4
chapter
chapter
Comparing Long-Term Trends 223
Deficiencies of Financial Statements 226
Inflation Effects 226
Inventory Valuation 227
Extraordinary Gains and Losses 229
Pension Fund Liabilities 229
Foreign Exchange Transactions 229
Other Distortions 230
part three
Issues in Efficient Markets 242
9 A Basic View of Technical Analysis
and Market Efficiency 244
Technical Analysis 245
The Use of Charting 246
Essential Elements of the Dow Theory 246
Support and Resistance Levels 247
Volume 248
Types of Charts 249
Key Indicator Series 252
Contrary Opinion Rules 253
Smart Money Rules 256
Overall Market Rules 258
Efficient Market Hypothesis 259
Weak Form of the Efficient Market Hypothesis 261
Tests of Independence 261
Trading Rule Tests 261
Implications for Technical Analysis 262
Semistrong Form of the
Efficient Market Hypothesis 262
Implications for Fundamental Analysis 262
Strong Form of the Efficient Market Hypothesis 265
10 Investments in
Special Situations 271
Mergers and Acquisitions 272
Premiums for Acquired Company 272
Acquiring Company Performance 275
Form of Payment 275
Leveraged Buyouts 275
New Stock Issues 276
Performance of Investment Bankers 277
Factors to Consider in a New Issue 277
Exchange Listings 278
Stock Repurchase 280
Reasons for Repurchase 280
Actual Market Effect 280
The Small-Firm and Low-P/E-Ratio Effect 282
The Latest Theory?The Book Value to Market Value
Effect 285
Other Stock-Related Special Situations 285
Truly Superior Returns or Mismeasurement? 288
part four
Fixed-Income and
Leveraged Securities 294
11 Bond and Fixed-Income
Fundamentals 296
The Bond Contract 297
Secured and Unsecured Bonds 298
The Composition of the Bond Market 299
U.S. Government Securities 300
Federally Sponsored Credit Agency Issues 303
State and Local Government Securities 304
Corporate Securities 306
Bond Market Investors 308
Distribution Procedures 309
Private Placement 309
Bond Ratings 309
Actual Rating System 311
Junk Bonds 312
Bond Quotes 313
Bond Markets, Capital Market Theory,
and Efficiency 318
The Global Bond Market 318
Dollar-Denominated Bonds 319
Foreign-Pay Bonds 319
Other Forms of Fixed-Income Securities 320
Preferred Stock as an Alternative to Debt 321
Features of Preferred Stock 322
12 Principles of Bond Valuation
and Investment 331
Fundamentals of the Bond Valuation Process 332
Rates of Return 334
chapter
chapter
chapter
5
chapter
Current Yield 334
Yield to Maturity 335
Yield to Call 336
Anticipated Realized Yield 339
Reinvestment Assumption 340
The Movement of Interest Rates 340
Term Structure of Interest Rates 341
Investment Strategy:
Interest-Rate Considerations 344
Bond-Pricing Rules 346
Example of Interest-Rate Change 346
Deep Discount versus Par Bonds 347
Yield Spread Considerations 347
Bond Swaps 349
Appendix 12A Interpolating to Find
Yield to Maturity 357
13 Duration and
Reinvestment Concepts 358
Review of Basic Bond Valuation Concepts 359
Duration 360
Duration and Price Sensitivity 363
Duration and Market Rates 366
Duration and Coupon Rates 367
Bringing Together the Influences on Duration 368
Duration and Zero-Coupon Bonds 369
The Uses of Duration 370
Bond Reinvestment Assumptions and Terminal
Wealth Analysis 371
Reinvestment Assumptions 371
Terminal Wealth Analysis 372
Zero-Coupon Bonds and Terminal Wealth 374
Appendix 13A Modified Duration
and Convexity 381
14 Convertible Securities
and Warrants 383
Convertible Securities 384
Conversion Price and Conversion Ratio 384
Value of the Conversion Bond 385
Bond Price and Premiums 386
After the Merger with Symbol Technologies 390
Comparing the Convertible Bond
with Common Stock Purchase 391
Disadvantages of Convertibles 393
When to Convert into Common Stock 393
Advantages and Disadvantages to the
Issuing Corporation 394
Accounting Considerations with Convertibles 396
Innovations in Convertible Securities 397
Speculating through Warrants 398
Valuation of Warrants 399
Further Explanation of Intrinsic Value 401
Use of Warrants by Corporations 402
Accounting Considerations with Warrants 402
part five
Derivative Products 410
15 Put and Call Options 412
Options Markets 413
Listed Options Exchanges 413
The Options Clearing Corporation 416
Option Premiums 416
Intrinsic Value 418
Speculative Premium 418
Basic Option Strategies 421
Buying Call Options 423
Writing Call Options 425
Buying Put Options 427
Using Options in Combinations 428
Spreads 428
Straddles 428
Other Option Considerations 429
Appendix 15A The Black-Scholes Option
Pricing Model 434
Appendix 15B The Use of Option Spreads
and Straddles 441
16 Commodities and
Financial Futures 445
Types of Commodities and Exchanges 447
Types of Commodities Contracts 449
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Actual Commodities Contract 449
Margin Requirements 450
Market Conditions 450
Gains and Losses 450
Price Movement Limitations 452
Reading Market Quotes 452
The Cash Market and the Futures Market 454
The Futures Market for Financial Instruments 454
Currency Futures 455
Interest-Rate Futures 456
Hedging with Interest-Rate Futures 458
An Actual Example 459
Options as Well as Futures 460
Interest-Rate Swaps 460
17 Stock Index Futures
and Options 469
The Concept of Derivative Products 470
Trading Stock Index Futures 471
Trading Cycle 472
Margin Requirement 473
Cash Settlement 473
Basis 474
Overall Features 475
Use of Stock Index Futures 475
Speculation 475
Hedging 477
Arbitraging 480
Trading Stock Index Options 481
Actual Trade in the S&P 100 Index 481
Hedging with Stock Index Options 483
Options on Stock Index Futures 484
part six
Broadening the
Investment Perspective 492
18 International
Securities Markets 494
The World Equity Market 495
Diversification Benefits 501
Return Potential in International Markets 504
Current Quotations of Foreign Market
Performance 506
Other Market Differences 507
Currency Fluctuations and Rates of Return 509
Other Obstacles to International Investments 511
Political Risks 511
Tax Problems 512
Lack of Market Efficiency 512
Administrative Problems 512
Information Difficulties 512
Methods of Participating in Foreign Investments 513
Direct Investments 513
Indirect Investments 516
19 Mutual Funds 525
Advantages and Disadvantages
of Mutual Funds 527
Closed-End versus Open-End Funds 528
Exchange Traded Funds 530
Investing in Open-End Funds 530
Load versus No-Load Funds 531
No-Load Funds 531
Differing Objectives and the
Diversity of Mutual Funds 537
Matching Investment Objectives
with Fund Types 541
The Prospectus 542
Distribution and Taxation 543
Tax Differences between Mutual Funds
and Individual Stock Portfolios 543
Shareholder Services 544
Investment Funds, Long-Term Planning, and
Dollar-Cost Averaging 544
Evaluating Fund Performance 546
Lipper Mutual Fund Performance Averages 547
Computing Total Return on Your Investment 547
Appendix 19A Unit Investment
Trusts (UITs) 555
20 Investments in Real Assets 557
Advantages and Disadvantages of Real Assets 558
Real Estate as an Investment 559
Real Estate in the Last Decade and the
Future Outlook 559
Valuation of Real Estate 561
The Cost Approach 561
Comparative Sales Value 561
7
chapter
chapter
xxii Contents
The Income Approach 562
Combination of the Three Approaches 562
A More Comprehensive Analysis 562
Financing of Real Estate 567
Types of Mortgages 568
Forms of Real Estate Ownership 569
Individual or Regular Partnership 569
Syndicate or Limited Partnership 570
Real Estate Investment Trust 571
Gold and Silver 572
Gold 572
Silver 575
Precious Gems 575
Other Collectibles 577
part seven
Introduction to
Portfolio Management 584
21 A Basic Look at Portfolio
Management and Capital Market
Theory 586
Formal Measurement of Risk 587
Expected Value 588
Standard Deviation 588
Portfolio Effect 590
Standard Deviation for a Two-Asset Portfolio 591
Developing an Efficient Portfolio 593
Risk-Return Indifference Curves 595
Optimum Portfolio 597
Capital Asset Pricing Model 597
Capital Market Line 600
Return on an Individual Security 601
Systematic and Unsystematic Risk 603
Security Market Line 604
Assumptions of the Capital Asset Pricing Model 606
Appendix 21A The Correlation Coefficient 613
Appendix 21B Least Squares
Regression Analysis 614
Appendix 21C Derivation of the
Security Market Line (SML) 615
Appendix 21D Arbitrage Pricing Theory 616
22 Measuring Risks and Returns
of Portfolio Managers 620
Stated Objectives and Risk 621
Measurement of Return in Relation to Risk 622
Sharpe Approach 623
Treynor Approach 623
Jensen Approach 624
Adequacy of Performance 624
Diversification 628
Other Assets as Well as Stocks 630
A Specific Example?Asset Allocation 632
The Makeup of Institutional Investors 634
Investment Companies
(Including Mutual Funds) 636
Other Institutional Investors 636
appendices
Appendix A Compound Sum of $1 646
Appendix B Compound Sum
of an Annuity of $1 648
Appendix C Present Value of $1 650
Appendix D Present Value of
an Annuity of $1 652
Appendix E Time Value of Money
and Investment Applications 654
Appendix F Using Calculators for
Financial Analysis 663
glossary 672
index 690

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