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Finance: Capital Markets, Financial Management, and Investment Management

Book Description

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.

Table of Contents

  1. The Frank J. Fabozzi Series
  2. Title Page
  3. Copyright Page
  4. Dedication
  5. Preface
  6. About the Authors
  7. PART One - Background
    1. CHAPTER 1 - What is Finance?
      1. CAPITAL MARKETS AND CAPITAL MARKET THEORY
      2. FINANCIAL MANAGEMENT
      3. INVESTMENT MANAGEMENT
      4. SUMMARY
    2. CHAPTER 2 - Mathematics of Finance
      1. THE IMPORTANCE OF THE TIME VALUE OF MONEY
      2. DETERMINING THE FUTURE VALUE
      3. DETERMINING THE PRESENT VALUE
      4. DETERMINING THE UNKNOWN INTEREST RATE
      5. DETERMINING THE NUMBER OF COMPOUNDING PERIODS
      6. THE TIME VALUE OF A SERIES OF CASH FLOWS
      7. VALUING CASH FLOWS WITH DIFFERENT TIME PATTERNS
      8. LOAN AMORTIZATION
      9. THE CALCULATION OF INTEREST RATES AND YIELDS
      10. PRINCIPLES OF VALUATION
      11. SUMMARY
    3. CHAPTER 3 - Basics of Financial Analysis
      1. FINANCIAL RATIO ANALYSIS
      2. CASH FLOW ANALYSIS
      3. USEFULNESS OF CASH FLOWS IN FINANCIAL ANALYSIS
      4. SUMMARY
      5. REFERENCES
  8. PART Two - Capital Markets and Capital Market Theory
    1. CHAPTER 4 - The Financial System
      1. FINANCIAL ASSETS/FINANCIAL INSTRUMENTS
      2. FINANCIAL MARKETS
      3. FINANCIAL INTERMEDIARIES
      4. REGULATORS OF FINANCIAL ACTITIVIES
      5. CLASSIFICATION OF FINANCIAL MARKETS
      6. MARKET PARTICIPANTS
      7. SUMMARY
      8. REFERENCES
    2. CHAPTER 5 - Interest Rate Determination and the Structure of Interest Rates
      1. THEORIES ABOUT INTEREST RATE DETERMINATION
      2. THE FEDERAL RESERVE SYSTEM AND THE DETERMINATION OF INTEREST RATES
      3. THE STRUCTURE OF INTEREST RATES
      4. TERM STRUCTURE OF INTEREST RATES
      5. SUMMARY
      6. REFERENCES
    3. CHAPTER 6 - Basics of Derivatives
      1. FUTURES AND FORWARD CONTRACTS
      2. OPTIONS
      3. SWAPS
      4. CAP AND FLOOR AGREEMENTS
      5. SUMMARY
      6. APPENDIX: BLACK-SCHOLES OPTION PRICING MODEL
      7. REFERENCES
    4. CHAPTER 7 - Asset Valuation: Basic Bond and Stock Valuation Models
      1. VALUING BONDS
      2. VALUATION OF COMMON STOCK USING DIVIDEND DISCOUNT MODELS
      3. SUMMARY
      4. APPENDIX: VALUING CONVERTIBLE BONDS
      5. REFERENCES
    5. CHAPTER 8 - Asset Valuation: The Theory of Asset Pricing
      1. CHARACTERISTICS OF AN ASSET PRICING MODEL
      2. CAPITAL ASSET PRICING MODEL
      3. ARBITRAGE PRICING THEORY MODEL
      4. SUMMARY
      5. REFERENCES
  9. PART Three - Financial Management
    1. CHAPTER 9 - Financial Management
      1. FORMS OF BUSINESS ENTERPRISE
      2. THE OBJECTIVE OF FINANCIAL MANAGEMENT
      3. THE AGENCY RELATIONSHIP
      4. DIVIDEND AND DIVIDEND POLICIES
      5. SPECIAL CONSIDERATIONS IN INTERNATIONAL FINANCIAL MANAGEMENT
      6. SUMMARY
      7. REFERENCES
    2. CHAPTER 10 - Financial Strategy and Financial Planning
      1. STRATEGY AND VALUE
      2. FINANCIAL PLANNING AND BUDGETING
      3. IMPORTANCE OF FINANCIAL PLANNING
      4. BUDGETING PROCESS
      5. SALES FORECASTING
      6. SEASONAL CONSIDERATIONS
      7. BUDGETING
      8. PRO FORMA FINANCIAL STATEMENTS
      9. LONG-TERM FINANCIAL PLANNING
      10. FINANCIAL MODELING
      11. PERFORMANCE EVALUATION
      12. STRATEGY AND VALUE CREATION
      13. SUMMARY
      14. REFERENCES
    3. CHAPTER 11 - The Corporate Financing Decision
      1. DEBT VS. EQUITY
      2. THE CONCEPT OF LEVERAGE
      3. CAPITAL STRUCTURE AND FINANCIAL LEVERAGE
      4. FINANCIAL LEVERAGE AND RISK
      5. CAPITAL STRUCTURE AND TAXES
      6. CAPITAL STRUCTURE AND FINANCIAL DISTRESS
      7. THE COST OF CAPITAL
      8. THE AGENCY RELATIONSHIP AND CAPITAL STRUCTURE
      9. OPTIMAL CAPITAL STRUCTURE: THEORY AND PRACTICE
      10. A CAPITAL STRUCTURE PRESCRIPTION
      11. SUMMARY
      12. APPENDIX: CAPITAL STRUCTURE: LESSONS FROM MODIGLIANI AND MILLER
      13. REFERENCES
    4. CHAPTER 12 - Financial Engineering, Asset Securitization, and Project Financing
      1. CREATION OF STRUCTURED NOTES
      2. ASSET SECURITIZATION
      3. PROJECT FINANCING
      4. SUMMARY
      5. REFERENCES
    5. CHAPTER 13 - Capital Budgeting: Process and Cash Flow Estimation
      1. INVESTMENT DECISIONS AND OWNERS’ WEALTH MAXIMIZATION
      2. CAPITAL BUDGETING PROCESS
      3. CLASSIFYING INVESTMENT PROJECTS
      4. ESTIMATING CASH FLOWS OF CAPITAL BUDGETING PROJECTS
      5. SUMMARY
      6. REFERENCES
    6. CHAPTER 14 - Capital Budgeting Techniques
      1. EVALUATION TECHNIQUES
      2. NET PRESENT VALUE
      3. PROFITABILITY INDEX
      4. INTERNAL RATE OF RETURN
      5. MODIFIED INTERNAL RATE OF RETURN
      6. PAYBACK PERIOD
      7. DISCOUNTED PAYBACK PERIOD
      8. ISSUES IN CAPITAL BUDGETING
      9. COMPARING TECHNIQUES
      10. CAPITAL BUDGETING TECHNIQUES IN PRACTICE
      11. CAPITAL BUDGETING AND THE JUSTIFICATION OF NEW TECHNOLOGY
      12. INCORPORATING RISK INTO CAPITAL BUDGETING ANALYSIS
      13. SUMMARY
      14. REFERENCES
    7. CHAPTER 15 - Managing Current Assets
      1. MANAGEMENT OF CASH AND MARKETABLE SECURITIES
      2. CASH MANAGEMENT
      3. MARKETABLE SECURITIES
      4. MANAGEMENT OF ACCOUNTS RECEIVABLE
      5. INVENTORY MANAGEMENT
      6. SUMMARY
      7. REFERENCES
    8. CHAPTER 16 - Financial Risk Management
      1. RISK DEFINED
      2. ENTERPRISE RISK MANAGEMENT
      3. MANAGING RISKS
      4. RISK TRANSFER
      5. SUMMARY
      6. REFERENCES
  10. PART Four - Investment Management
    1. CHAPTER 17 - The Basic Principles of Investment Management
      1. THE INVESTMENT MANAGEMENT PROCESS
      2. THE THEORY OF PORTFOLIO SELECTION
      3. TRACKING ERROR
      4. MEASURING AND EVALUATING PERFORMANCE
      5. SUMMARY
      6. REFERENCES
    2. CHAPTER 18 - Equity Portfolio Management
      1. STOCK MARKET INDICATORS
      2. TOP-DOWN VS. BOTTOM-UP APPROACHES
      3. FUNDAMENTAL VS. TECHNICAL ANALYSIS
      4. POPULAR STOCK MARKET STRATEGIES
      5. PASSIVE STRATEGIES
      6. EQUITY-STYLE MANAGEMENT
      7. TYPES OF STOCK MARKET STRUCTURES
      8. THE U.S. STOCK MARKETS: EXCHANGES AND OTC MARKETS
      9. TRADING MECHANICS
      10. SUMMARY
      11. REFERENCES
    3. CHAPTER 19 - Bond Portfolio Management
      1. SECTORS OF THE BOND MARKET
      2. FEATURES OF BONDS
      3. YIELD MEASURES
      4. RISKS ASSOCIATED WITH INVESTING IN BONDS
      5. MEASURING INTEREST RATE RISK
      6. BOND INDEXES
      7. ACTIVE BOND PORTFOLIO STRATEGIES
      8. PASSIVE BOND PORTFOLIO STRATEGIES
      9. SUMMARY
      10. REFERENCES
    4. CHAPTER 20 - Use of Stock Index Futures and Treasury Futures Contracts in Portfolio Management
      1. USING STOCK INDEX FUTURES IN EQUITY PORTFOLIO MANAGEMENT
      2. USING TREASURY BOND AND NOTE FUTURES CONTRACTS IN BOND PORTFOLIO MANAGEMENT
      3. USING STOCK INDEX FUTURES AND TREASURY BOND FUTURES TO IMPLEMENT AN ASSET ALLOCATION DECISION
      4. SUMMARY
      5. REFERENCES
    5. CHAPTER 21 - Use of Options in Portfolio Management
      1. USING STOCK OPTIONS AND INDEX OPTIONS IN EQUITY PORTFOLIO MANAGEMENT
      2. USING INTEREST RATE OPTIONS IN BOND PORTFOLIO MANAGEMENT
      3. SUMMARY
      4. APPENDIX: PRICING MODELS ON OPTIONS ON PHYSICALS AND FUTURES OPTIONS
      5. REFERENCES
  11. Index