You are previewing The Basics of Finance: An Introduction to Financial Markets, Business Finance, and Portfolio Management.
O'Reilly logo
The Basics of Finance: An Introduction to Financial Markets, Business Finance, and Portfolio Management

Book Description

An introductory guide to the world of finance

The Basics of Finance is an accessible book for those who want to gain a better understanding of this field, but lack a strong business background. It covers essential concepts, tools, methods, and strategies in finance without delving too far into theory.

Written by the experienced author team of Frank Fabozzi and Pamela Peterson Drake, this reliable resource discusses everything from financial instruments and markets to portfolio management techniques, understanding and analyzing financial statements, and different types of corporate financial strategy, planning, and policy.

  • Explores, in a basic way, topics such as cash flow analysis, asset valuation, capital budgeting, and derivatives

  • Provides a solid foundation in the field of finance, which you can quickly build upon

  • Explains concepts in various areas of finance without getting too complicated

The Basics of Finance offers essential guidance on financial markets and institutions, corporate finance, portfolio management, risk management, and much more. If you're looking to learn more about finance, this is the best place to start.

Table of Contents

  1. Copyright
  2. Preface
  3. 1. What Is Finance?
    1. 1.1. CAPITAL MARKETS AND CAPITAL MARKET THEORY
    2. 1.2. FINANCIAL MANAGEMENT
    3. 1.3. INVESTMENT MANAGEMENT
    4. 1.4. ORGANIZATION OF THIS BOOK
    5. 1.5. THE BOTTOM LINE
    6. 1.6. QUESTIONS
  4. 1. The Financial System
    1. 2. Financial Instruments, Markets, and Intermediaries
      1. 2.1. THE FINANCIAL SYSTEM
        1. 2.1.1. Financial Assets
        2. 2.1.2. Why Do We Need Financial Assets?
        3. 2.1.3. What Is the Difference between Debt and Equity?
      2. 2.2. THE ROLE OF FINANCIAL MARKETS
      3. 2.3. THE ROLE OF FINANCIAL INTERMEDIARIES
        1. 2.3.1. Maturity Intermediation
        2. 2.3.2. Risk Reduction via Diversification
        3. 2.3.3. Reducing the Costs of Contracting and Information Processing
        4. 2.3.4. Regulating Financial Activities
      4. 2.4. TYPES OF FINANCIAL MARKETS
        1. 2.4.1. The Money Market
        2. 2.4.2. The Capital Market
        3. 2.4.3. The Derivative Market
        4. 2.4.4. The Primary Market
        5. 2.4.5. The Secondary Market
        6. 2.4.6. Market Efficiency
      5. 2.5. THE BOTTOM LINE
      6. 2.6. QUESTIONS
    2. 3. The Financial System's Cast of Characters
      1. 3.1. DOMESTIC NONFINANCIAL SECTORS
        1. 3.1.1. The Government Sector
          1. 3.1.1.1. The Federal Government
          2. 3.1.1.2. Government-Owned Corporations
          3. 3.1.1.3. Government-Sponsored Enterprises
          4. 3.1.1.4. State and Local Governments
      2. 3.2. NONFINANCIAL BUSINESSES
      3. 3.3. DOMESTIC FINANCIAL SECTORS
        1. 3.3.1. Depository Institutions
          1. 3.3.1.1. Bank Services
          2. 3.3.1.2. Bank Funding
          3. 3.3.1.3. Bank Regulation
        2. 3.3.2. Nondepository Financial Institutions
        3. 3.3.3. Insurance Companies
        4. 3.3.4. Investment Companies
          1. 3.3.4.1. Regulated Investment Companies
            1. 3.3.4.1.1. Mutual Funds
            2. 3.3.4.1.2. Closed-End Funds
            3. 3.3.4.1.3. Unit Investment Trusts
            4. 3.3.4.1.4. Costs to Investors
          2. 3.3.4.2. Exchange-Traded Funds
          3. 3.3.4.3. Hedge Funds
          4. 3.3.4.4. Separately Managed Accounts
          5. 3.3.4.5. Pension Funds
        5. 3.3.5. Investment Banks
          1. 3.3.5.1. Private Placement of Securities
          2. 3.3.5.2. Trading Securities
          3. 3.3.5.3. Advising in Mergers, Acquisitions, and Financial Restructuring Advising
          4. 3.3.5.4. Merchant Banking
          5. 3.3.5.5. Securities, Finance, and Prime Brokerage Services
          6. 3.3.5.6. Asset Management
      4. 3.4. FOREIGN INVESTORS
      5. 3.5. THE BOTTOM LINE
      6. 3.6. QUESTIONS
  5. 2. Financial Management
    1. 4. Financial Statements
      1. 4.1. ACCOUNTING PRINCIPLES: WHAT ARE THEY?
        1. 4.1.1. Assumptions in Creating Financial Statements
      2. 4.2. THE BASIC FINANCIAL STATEMENTS
        1. 4.2.1. The Balance Sheet
          1. 4.2.1.1. Assets
          2. 4.2.1.2. Liabilities
          3. 4.2.1.3. Equity
          4. 4.2.1.4. A Note on Minority Interest
          5. 4.2.1.5. Structure of the Balance Sheet
        2. 4.2.2. The Income Statement
          1. 4.2.2.1. Earnings Per Share
          2. 4.2.2.2. More on Depreciation
        3. 4.2.3. The Statement of Cash Flows
        4. 4.2.4. The Statement of Stockholders' Equity
      3. 4.3. HOW ARE THE STATEMENTS RELATED?
      4. 4.4. WHY BOTHER ABOUT THE FOOTNOTES?
      5. 4.5. ACCOUNTING FLEXIBILITY
      6. 4.6. U.S. ACCOUNTING VS. OUTSIDE OF THE U.S.
      7. 4.7. THE BOTTOM LINE
      8. 4.8. SOLUTIONS TO TRY IT! PROBLEMS
      9. 4.9. QUESTIONS
    2. 5. Business Finance
      1. 5.1. FORMS OF BUSINESS ENTERPRISE
        1. 5.1.1. Sole Proprietorships and Partnerships
        2. 5.1.2. Corporations
        3. 5.1.3. The Limited Liability Company
        4. 5.1.4. Other Forms of Business
        5. 5.1.5. Prevalence
      2. 5.2. THE OBJECTIVE OF FINANCIAL MANAGEMENT
        1. 5.2.1. A Measure of Owners' Economic Well-Being
          1. 5.2.1.1. Financial Management and the Maximization of Owners' Wealth
        2. 5.2.2. The Agency Relationship
          1. 5.2.2.1. Problems with the Agency Relationship
          2. 5.2.2.2. Costs of the Agency Relationship
        3. 5.2.3. Motivating Managers: Executive Compensation
          1. 5.2.3.1. Shareholder Wealth Maximization and Accounting "Irregularities"
          2. 5.2.3.2. Shareholder Wealth Maximization and Social Responsibility
      3. 5.3. THE BOTTOM LINE
      4. 5.4. SOLUTIONS TO TRY IT! PROBLEMS
      5. 5.5. QUESTIONS
    3. 6. Financial Strategy and Financial Planning
      1. 6.1. STRATEGY AND VALUE
        1. 6.1.1. Comparative and Competitive Advantages
        2. 6.1.2. Strategy and Adding Value
        3. 6.1.3. Financial Planning and Budgeting
      2. 6.2. THE BUDGETING PROCESS
        1. 6.2.1. Sale Forecasting
        2. 6.2.2. Forecasting with Regression Analysis
        3. 6.2.3. Market Surveys
        4. 6.2.4. Management Forecasts
      3. 6.3. BUDGETING
        1. 6.3.1. The Cash Budget
        2. 6.3.2. Pro Forma Financial Statements
      4. 6.4. PERFORMANCE EVALUATION
        1. 6.4.1. Economic Value Added
        2. 6.4.2. Balanced Scorecard
      5. 6.5. STRATEGY AND VALUE CREATION
        1. 6.5.1. Sources of Value Creation
      6. 6.6. THE BOTTOM LINE
      7. 6.7. QUESTIONS
    4. 7. Dividend and Dividend Policies
      1. 7.1. DIVIDENDS
        1. 7.1.1. Dividend Reinvestment Plans
      2. 7.2. STOCK DISTRIBUTIONS
        1. 7.2.1. Types of Distributions
        2. 7.2.2. Reasons for Stock Distributions
      3. 7.3. DIVIDEND POLICIES
        1. 7.3.1. The Dividend Irrelevance Theory
        2. 7.3.2. The "Bird in the Hand" Theory
        3. 7.3.3. The Tax-Preference Explanation
        4. 7.3.4. The Signaling Explanation
        5. 7.3.5. The Agency Explanation
        6. 7.3.6. To Pay or Not to Pay Dividends
      4. 7.4. STOCK REPURCHASES
        1. 7.4.1. Methods of Repurchasing Stock
        2. 7.4.2. Reasons to Repurchase Stock
      5. 7.5. THE BOTTOM LINE
      6. 7.6. SOLUTIONS TO TRY IT! PROBLEMS
      7. 7.7. QUESTIONS
    5. 8. The Corporate Financing Decision
      1. 8.1. DEBT VS. EQUITY
        1. 8.1.1. Capital Structure and Financial Leverage
        2. 8.1.2. Interest Deductibility
      2. 8.2. FINANCIAL LEVERAGE AND RISK
        1. 8.2.1. Leverage and Financial Flexibility
        2. 8.2.2. Governance Value of Debt Financing
      3. 8.3. FINANCIAL DISTRESS
        1. 8.3.1. The Role of Limited Liability
        2. 8.3.2. Costs of Financial Distress
          1. 8.3.2.1. Bankruptcy and Bankruptcy Costs
          2. 8.3.2.2. Financial Distress and Capital Structure
      4. 8.4. THE COST OF CAPITAL
      5. 8.5. OPTIMAL CAPITAL STRUCTURE: THEORY AND PRACTICE
        1. 8.5.1. Modigliani-Miller Theory of Capital Structure
          1. 8.5.1.1. M&M Irrelevance Proposition
          2. 8.5.1.2. M&M with Tax Deductibility of Interest Paid on Debt
          3. 8.5.1.3. Capital Structure Theory and Costs to Financial Distress
          4. 8.5.1.4. Current Capital Structure Theory and Practice
      6. 8.6. THE BOTTOM LINE
      7. 8.7. SOLUTIONS TO TRY IT! PROBLEMS
      8. 8.8. QUESTIONS
    6. 9. Financial Risk Management
      1. 9.1. THE DEFINITION OF RISK
        1. 9.1.1. Sustainability Risk
      2. 9.2. ENTERPRISE RISK MANAGEMENT
        1. 9.2.1. Definitions of ERM
        2. 9.2.2. ERM Process
        3. 9.2.3. Themes of ERM
        4. 9.2.4. Specifying an Entity's Risk Policy
      3. 9.3. MANAGING RISKS
        1. 9.3.1. Retained Risk and Risk Finance
        2. 9.3.2. Risk Neutralization
        3. 9.3.3. Risk Transfer
          1. 9.3.3.1. Traditional Insurance
          2. 9.3.3.2. Derivatives
        4. 9.3.4. Alternative Risk Transfer
          1. 9.3.4.1. Structured Finance
      4. 9.4. THE BOTTOM LINE
      5. 9.5. QUESTIONS
  6. 3. Valuation and Analytical Tools
    1. 10. The Math of Finance
      1. 10.1. WHY THE TIME VALUE OF MONEY?
      2. 10.2. CALCULATING THE FUTURE VALUE
        1. 10.2.1. Growth Rates and Returns
        2. 10.2.2. Compounding More Than Once per Year
        3. 10.2.3. Continuous Compounding
        4. 10.2.4. Multiple Rates
      3. 10.3. CALCULATING A PRESENT VALUE
      4. 10.4. DETERMINING THE UNKNOWN INTEREST RATE
      5. 10.5. THE TIME VALUE OF A SERIES OF CASH FLOWS
        1. 10.5.1. Gettin' Fancy
        2. 10.5.2. Multiple Rates
      6. 10.6. ANNUITIES
        1. 10.6.1. Valuing a Perpetuity
        2. 10.6.2. Valuing an Annuity Due
        3. 10.6.3. Valuing a Deferred Annuity
      7. 10.7. LOAN AMORTIZATION
      8. 10.8. INTEREST RATES AND YIELDS
        1. 10.8.1. Annual Percentage Rate vs. Effective Annual Rate
        2. 10.8.2. Yields on Investments
      9. 10.9. THE BOTTOM LINE
      10. 10.10. SOLUTIONS TO TRY IT! PROBLEMS
      11. 10.11. QUESTIONS
    2. 11. Financial Ratio Analysis
      1. 11.1. CLASSIFYING FINANCIAL RATIOS
      2. 11.2. LIQUIDITY
        1. 11.2.1. Operating Cycle
        2. 11.2.2. Measures of Liquidity
      3. 11.3. PROFITABILITY RATIOS
      4. 11.4. ACTIVITY RATIOS
        1. 11.4.1. Inventory management
        2. 11.4.2. Accounts Receivable Management
        3. 11.4.3. Overall Asset Management
      5. 11.5. FINANCIAL LEVERAGE
        1. 11.5.1. Component Percentage Ratios
        2. 11.5.2. Coverage Ratios
      6. 11.6. RETURN ON INVESTMENT
      7. 11.7. THE DUPONT SYSTEM
      8. 11.8. COMMON-SIZE ANALYSIS
      9. 11.9. USING FINANCIAL RATIO ANALYSIS
      10. 11.10. THE BOTTOM LINE
      11. 11.11. SOLUTIONS TO TRY IT! PROBLEMS
      12. 11.12. QUESTIONS
    3. 12. Cash Flow Analysis
      1. 12.1. DIFFICULTIES WITH MEASURING CASH FLOW
        1. 12.1.1. Cash Flows and the Statement of Cash Flows
      2. 12.2. FREE CASH FLOW
        1. 12.2.1. Calculating Free Cash Flow
      3. 12.3. USEFULNESS OF CASH FLOWS ANALYSIS
      4. 12.4. RATIO ANALYSIS
        1. 12.4.1. Using Cash Flow Information
      5. 12.5. THE BOTTOM LINE
      6. 12.6. SOLUTIONS TO TRY IT! PROBLEMS
      7. 12.7. QUESTIONS
    4. 13. Capital Budgeting
      1. 13.1. INVESTMENT DECISIONS AND OWNERS' WEALTH
      2. 13.2. THE CAPITAL BUDGETING PROCESS
        1. 13.2.1. Stages in the Capital Budgeting Process
        2. 13.2.2. Classifying Investment Projects
          1. 13.2.2.1. Classifying by Economic Life
          2. 13.2.2.2. Classifying by Risk
          3. 13.2.2.3. Classifying by Dependence on Other Projects
      3. 13.3. DETERMINING CASH FLOWS FROM INVESTMENTS
        1. 13.3.1. Investment Cash Flows
          1. 13.3.1.1. Asset Acquisition
          2. 13.3.1.2. Asset Disposition
        2. 13.3.2. Operating Cash Flows
          1. 13.3.2.1. Change in Revenues
          2. 13.3.2.2. Change in Expenses
          3. 13.3.2.3. Change in Taxes
        3. 13.3.3. Change in Working Capital
          1. 13.3.3.1. Putting It All Together
          2. 13.3.3.2. Net Cash Flows
        4. 13.3.4. A Comprehensive Example
          1. 13.3.4.1. Simplifications
      4. 13.4. CAPITAL BUDGETING TECHNIQUES
        1. 13.4.1. Evaluation Techniques
        2. 13.4.2. Payback Period
        3. 13.4.3. Discounted Payback Period
        4. 13.4.4. Net Present Value
          1. 13.4.4.1. Net Present Value Decision Rule
          2. 13.4.4.2. The Investment Profile
          3. 13.4.4.3. Solving for the Cross-Over Rate
        5. 13.4.5. Profitability Index
        6. 13.4.6. Internal Rate of Return
        7. 13.4.7. Modified Internal Rate of Return
        8. 13.4.8. Issues to Consider
        9. 13.4.9. Comparing Techniques
      5. 13.5. THE BOTTOM LINE
      6. 13.6. SOLUTIONS TO TRY IT! PROBLEMS
      7. 13.7. QUESTIONS
    5. 14. Derivatives for Controlling Risk
      1. 14.1. FUTURES AND FORWARD CONTRACTS
        1. 14.1.1. Futures Contracts
          1. 14.1.1.1. Liquidating a Position
          2. 14.1.1.2. The Role of the Clearinghouse
          3. 14.1.1.3. Margin Requirements
          4. 14.1.1.4. Leveraging
        2. 14.1.2. Forward Contracts
          1. 14.1.2.1. The Basics of Pricing Futures and Forward Contracts
          2. 14.1.2.2. A Closer Look at the Theoretical Futures Price
        3. 14.1.3. Using Futures and Forward Contracts
      2. 14.2. OPTIONS
        1. 14.2.1. Basic Features of Options
        2. 14.2.2. Differences Between Options and Futures Contracts
        3. 14.2.3. Risk and Return of Options
          1. 14.2.3.1. Buying Call Options
          2. 14.2.3.2. Writing (Selling) Call Options
          3. 14.2.3.3. Buying Put Options
          4. 14.2.3.4. Writing (Selling) Put Options
        4. 14.2.4. Basic Components of the Option Price
          1. 14.2.4.1. Factors That Influence an Option's Price
          2. 14.2.4.2. Option Pricing Models
        5. 14.2.5. Using Options
      3. 14.3. SWAPS
        1. 14.3.1. Interest Rate Swap
        2. 14.3.2. Currency Swaps
        3. 14.3.3. Commodity Swaps
        4. 14.3.4. Credit Default Swaps
      4. 14.4. THE BOTTOM LINE
      5. 14.5. APPENDIX: BLACK-SCHOLES OPTION PRICING MODEL
      6. 14.6. SOLUTIONS TO TRY IT! PROBLEMS
      7. 14.7. QUESTIONS
  7. 4. Investment Management
    1. 15. Investment Management
      1. 15.1. SETTING INVESTMENT OBJECTIVES
        1. 15.1.1. Classification of Investment Objectives
        2. 15.1.2. Benchmark
      2. 15.2. ESTABLISHING AN INVESTMENT POLICY
        1. 15.2.1. Asset Allocation
        2. 15.2.2. Asset Classes
          1. 15.2.2.1. Common Stock Style Categories
          2. 15.2.2.2. Bond Investment Categories
          3. 15.2.2.3. Alternative Asset Classes
        3. 15.2.3. Investment Factors
          1. 15.2.3.1. Client-Imposed Constraints
          2. 15.2.3.2. Regulatory Constraints
          3. 15.2.3.3. Tax Considerations
        4. 15.2.4. Selecting a Portfolio Strategy
      3. 15.3. CONSTRUCTING AND MONITORING A PORTFOLIO
      4. 15.4. MEASURING AND EVALUATING PERFORMANCE
        1. 15.4.1. Measuring Performance
          1. 15.4.1.1. Alternative Return Measures
          2. 15.4.1.2. Arithmetic Average Rate of Return
          3. 15.4.1.3. Time-Weighted Rate of Return
          4. 15.4.1.4. Dollar-Weighted Rate of Return
        2. 15.4.2. Evaluating Performance
          1. 15.4.2.1. Single-Index Performance Evaluation Measures
          2. 15.4.2.2. Performance Attribution Models
      5. 15.5. THE BOTTOM LINE
      6. 15.6. SOLUTIONS TO TRY IT! PROBLEMS
      7. 15.7. QUESTIONS
    2. 16. The Theory of Portfolio Selection
      1. 16.1. SOME BASIC CONCEPTS
        1. 16.1.1. Utility Function and Indifference Curves
        2. 16.1.2. Efficient Portfolios and the Optimal Portfolio
        3. 16.1.3. Risky Assets vs. Risk-Free Assets
      2. 16.2. ESTIMATING A PORTFOLIO'S EXPECTED RETURN
        1. 16.2.1. For a Single-Period Portfolio Return
        2. 16.2.2. For a Portfolio of Risky Assets
      3. 16.3. MEASURING PORTFOLIO RISK
        1. 16.3.1. Variance and Standard Deviation as a Measure of Risk
        2. 16.3.2. Measuring the Portfolio Risk of a Two-Asset Portfolio
        3. 16.3.3. Covariance
        4. 16.3.4. Measuring the Risk of a Portfolio Comprised of More than Two Assets
      4. 16.4. PORTFOLIO DIVERSIFICATION
        1. 16.4.1. Portfolio Risk and Correlation
      5. 16.5. CHOOSING A PORTFOLIO OF RISKY ASSETS
        1. 16.5.1. Constructing Efficient Portfolios
        2. 16.5.2. Feasible and Efficient Portfolios
        3. 16.5.3. Choosing the Optimal Portfolio in the Efficient Set
      6. 16.6. ISSUES IN THE THEORY OF PORTFOLIO SELECTION
        1. 16.6.1. Alternative Risk Measures for Portfolio Selection
          1. 16.6.1.1. Dispersion Measures
          2. 16.6.1.2. Safety-First Risk Measures
          3. 16.6.1.3. Robust Portfolio Optimization
      7. 16.7. BEHAVIORAL FINANCE AND PORTFOLIO THEORY
      8. 16.8. THE BOTTOM LINE
      9. 16.9. SOLUTIONS TO TRY IT! PROBLEMS
      10. 16.10. QUESTIONS
    3. 17. Asset Pricing Theory
      1. 17.1. CHARACTERISTICS OF AN ASSET PRICING MODEL
      2. 17.2. THE CAPITAL ASSET PRICING MODEL
        1. 17.2.1. Assumptions of the CAPM
        2. 17.2.2. The Capital Market Line
        3. 17.2.3. What Is Portfolio M?
        4. 17.2.4. The Risk Premium in the Capital Market Line
        5. 17.2.5. Systematic and Unsystematic Risk
        6. 17.2.6. The Security Market Line
        7. 17.2.7. Tests of the CAPM
        8. 17.2.8. Criticisms of the CAPM
      3. 17.3. THE ARBITRAGE PRICING THEORY MODEL
        1. 17.3.1. The Arbitrage Principle
        2. 17.3.2. APT Model Formulation
        3. 17.3.3. Multifactor Risk Models in Practice
      4. 17.4. SOME PRINCIPLES TO TAKE AWAY
      5. 17.5. THE BOTTOM LINE
      6. 17.6. SOLUTIONS TO TRY IT! PROBLEMS
      7. 17.7. QUESTIONS
    4. 18. The Structure of Interest Rates
      1. 18.1. THE BASE INTEREST RATE
        1. 18.1.1. The Risk Premium
        2. 18.1.2. Risk Premium Due to Default Risk
        3. 18.1.3. Inclusion of Attractive and Unattractive Provisions
        4. 18.1.4. Taxability of Interest
        5. 18.1.5. Expected Liquidity of a Bond Issue
      2. 18.2. THE TERM STRUCTURE OF INTEREST RATES
        1. 18.2.1. Forward Rates
        2. 18.2.2. Determinants of the Shape of the Term Structure
      3. 18.3. TERM STRUCTURE OF INTEREST RATES THEORIES
        1. 18.3.1. Expectations Theories
          1. 18.3.1.1. Pure Expectations Theory
          2. 18.3.1.2. Biased Expectations Theory
        2. 18.3.2. Market Segmentation Theory
      4. 18.4. SWAP RATE YIELD CURVE
      5. 18.5. THE BOTTOM LINE
      6. 18.6. SOLUTIONS TO TRY IT! PROBLEMS
      7. 18.7. QUESTIONS
    5. 19. Valuing Common Stock
      1. 19.1. DISCOUNTED CASH FLOW MODELS
        1. 19.1.1. Dividend Discount Models
          1. 19.1.1.1. Dividend Measures
        2. 19.1.2. Basic Dividend Discount Models
          1. 19.1.2.1. The Finite-Life General Dividend Discount Model
          2. 19.1.2.2. Assuming a Constant Discount Rate
          3. 19.1.2.3. Required Inputs
          4. 19.1.2.4. Assessing Relative Value
          5. 19.1.2.5. Constant Growth Dividend Discount Model
          6. 19.1.2.6. Multiphase Dividend Discount Models
        3. 19.1.3. Expected Returns and Dividend Discount Models
      2. 19.2. RELATIVE VALUATION METHODS
        1. 19.2.1. The Basic Principles of Relative Valuation
        2. 19.2.2. Choose Comparable Companies
        3. 19.2.3. Determine an Appropriate Multiple
        4. 19.2.4. Calculate the Multiple for the Comparable Companies
        5. 19.2.5. Estimate to Base of the Multiple for the Subject Company
        6. 19.2.6. Apply the Multiple to the Subject Company's Base
      3. 19.3. THE BOTTOM LINE
      4. 19.4. SOLUTIONS TO TRY IT! PROBLEMS
      5. 19.5. QUESTIONS
    6. 20. Valuing Bonds
      1. 20.1. VALUING A BOND
        1. 20.1.1. Relationship Between Coupon Rate, Yield, and Price
        2. 20.1.2. Relationship Between a Bond's Price and Time
        3. 20.1.3. Reasons for the Change in the Price of a Bond
          1. 20.1.3.1. Different Discount Rates Apply to Each Cash Flow
          2. 20.1.3.2. Price Quotes
      2. 20.2. CONVENTIONAL YIELD MEASURES
        1. 20.2.1.
          1. 20.2.1.1. Current Yield
          2. 20.2.1.2. Yield to Maturity
          3. 20.2.1.3. Yield to Call
        2. 20.2.2. Potential Sources of a Bond's Dollar Return
        3. 20.2.3. The Yield to Maturity and Reinvestment Risk
      3. 20.3. VALUING BONDS THAT HAVE EMBEDDED OPTIONS
        1. 20.3.1. Valuing Convertible Bonds
          1. 20.3.1.1. Traditional Value of Convertible Bonds
      4. 20.4. THE BOTTOM LINE
      5. 20.5. SOLUTIONS TO TRY IT! PROBLEMS
      6. 20.6. QUESTIONS
  8. Glossary
  9. About the Authors
  10. A. Solutions to End of Chapter Questions
    1. A.1. CHAPTER 1
  11. B. Solutions to End of Chapter Questions
    1. B.1. CHAPTER 2
  12. C. Solutions to End of Chapter Questions
    1. C.1. CHAPTER 3
  13. D. Solutions to End of Chapter Questions
    1. D.1. CHAPTER 4
  14. E. Solutions to End of Chapter Questions
    1. E.1. CHAPTER 5
  15. F. Solutions to End of Chapter Questions
    1. F.1. CHAPTER 6
  16. G. Solutions to End of Chapter Questions
    1. G.1. CHAPTER 7
  17. H. Solutions to End of Chapter Questions
    1. H.1. CHAPTER 8
  18. I. Solutions to End of Chapter Questions
    1. I.1. CHAPTER 9
  19. J. Solutions to End of Chapter Questions
    1. J.1. CHAPTER 10
  20. K. Solutions to End of Chapter Questions
    1. K.1. CHAPTER 11
  21. L. Solutions to End of Chapter Questions
    1. L.1. CHAPTER 12
  22. M. Solutions to End of Chapter Questions
    1. M.1. CHAPTER 13
  23. N. Solutions to End of Chapter Questions
    1. N.1. CHAPTER 14
  24. O. Solutions to End of Chapter Questions
    1. O.1. CHAPTER 15
  25. P. Solutions to End of Chapter Questions
    1. P.1. CHAPTER 16
  26. Q. Solutions to End of Chapter Questions
    1. Q.1. CHAPTER 17
  27. R. Solutions to End of Chapter Questions
    1. R.1. CHAPTER 18
  28. S. Solutions to End of Chapter Questions
    1. S.1. CHAPTER 19
  29. T. Solutions to End of Chapter Questions
    1. T.1. CHAPTER 20