Investments.1.Study notes of Bodie, Kane & MarcusBy Zhipeng YanInvestmentZvi Bodie, Alex Kane and Alan J. MarcusChapter One: The Investment Environment. 2Chapter Two: Financial Instruments.
INVESTMENTS BODIE, KANE, MARCUS. How Firms Issue Securities. Primary Market. Firms issue new securities through underwriter to public; Investors.
4Chapter Three: How Securities Are Traded. 8Chapter Six: Risk and risk aversion.
12Chapter Seven: Capital Allocation between the Risky asset and the risk-free Asset. 17Chapter Eight: Optimal Risky Portfolios.
20Chapter Nine: The Capital Asset Pricing Model. 24Chapter Ten: Index Models.
28Chapter Eleven: Arbitrage Pricing Theory and multifactor models of risk and return. 32Chapter Twelve: Market Efficiency and Behavioral Finance. 35Chapter Fourteen: Bond prices and yields.
43Chapter Fifteen: The Term Structure of Interest Rates. 48Chapter Sixteen: Managing Bond Portfolios. 53Chapter Eighteen: Equity Valuation Models. 57Chapter Twenty: Option Markets: Introduction.
59Chapter Twenty-one: Option Valuation. 64Chapter Twenty-two: Futures Markets.
74-1-.Study notes of Bodie, Kane & MarcusBy Zhipeng YanChapter One: The Investment EnvironmentI.Real assets versus financial assets1. The material wealth of a society is determined ultimately by the productivecapacity of its economy, which is a function of the real assets of the economy:the land, buildings, knowledge, and machines that are used to produce goods andthe workers whose skills are necessary to use those resources.2.
Financial assets, like stocks or bonds, contribute to the productive capacity of theeconomy indirectly, because they allow for separation of the ownership andmanagement of the firm and facilitate the transfer of funds to enterprise withattractive investment opportunities. Financial assets are claims to the incomegenerated by real assets.3. Financial assets:a. Real assets produce goods and services, whereas financial assets define theallocation of income or wealth among investors.b.
They are distinguished operationally by the balance sheets of individuals andfirms in the economy. Whereas real assets appear only on the asset side of thebalance sheet, financial assets always appear on both sides of the balancesheet. Your financial claim on a firm is an asset, but the firm’s issuance of thatclaim is the firm’s liability. When we aggregate over all balance sheets, financialassets will cancel out, leaving only the sum of real assets as the net wealth of theaggregate economy.c. Financial assets are created and destroyed in the ordinary course of doingbusiness. When a loan is paid off, both the creditor’s claim and the debtor’sobligation cease to exist. In contrast, real assets are destroyed only by accident orby wearing out over time.II.Financial markets and the economy1.
Smoothing consumption: “Store” (e.g. By stocks or bonds) your wealth infinancial assets in high earnings periods, sell these assets to provide funds foryour consumption in low earnings periods (say, after retirement).2. Allocation of risk: virtually all real assets involve some risk (so do financialassets). If a person is uncertain about the future of GM, he can choose to buyGM’s stock if he is more risk-tolerant, or he can buy GM’s bonds, if he is moreconservative.3.
Separation of ownership and management: Let professional managers managethe firm. Owners can easily sell the stocks of the firm if they don’t like theincumbent management team or “police” the managers through board of directors(“stick”) or use compensation plans tie the income of managers to the success ofthe firm (“carrot”). In some cases, other firms may acquire the firm if theyobserve the firm is underperforming (market discipline).III.Clients of the financial system1. Household sector:a. Tax concerns: people in different tax brackets need different financial assets withdifferent tax characteristics.-2-.Study notes of Bodie, Kane & MarcusBy Zhipeng Yanb. Risk concerns: Differences in risk tolerance create demand for assets with avariety of risk-return combination.2.
Business sector: business is more concerned about how to finance theirinvestments, through debt or equity either privately or publicly.Business issuing securities to the public have several objectives. First, they wantto get the best price possible for their securities. Second, they want to market theissues to the public at the lowest possible cost.
This has two implications. First,business may hire “specialists” to market their securities. Second, most business willprefer to issue fairly simple securities that require the least extensive incrementalanalysis and, correspondingly, are the least expensive to arrange.Such a demand for simplicity or uniformity by business-sector issuers islikely to be at odds with the household sector’s demand for a wide variety ofrisk-specific securities.
This mismatch of objectives gives rise to an industry ofmiddlemen who act as intermediaries between the two sectors, specializing intransforming simple securities into complex issues that suit particular market niches.3. Government sector: Governments cannot sell equity shares. They are restrictedto borrowing to raise funds when tax revenues are not sufficient to coverexpenditures. A special role of the government is in regulating the financialenvironment.IV.The environment responds to clientele demands: The smallness ofhouseholds creates a market niche for financial intermediaries, mutual funds,and investment companies. Economies of scale and specialization are factorssupporting the investment banking industry.V.Markets and market structure1.
Direct search market: buyers and sellers must seek each other out directly.2. Brokered market: e.g.
Real estate market, primary market and block transactions.3. Dealer markets: dealers trade assets for their own accounts. Their profit marginis the “bid-asked” spread.4. Auction market: all transactors in a good converge at one place to bid on or offera good. If all participants converge, they can arrive at mutually agreeable pricesand thus save the bid-asked spread.VI.Ongoing trends1. Investors can participate in foreign investment opportunities in several ways:a.
Purchase foreign securities using American Depository Receipts (ADRs), which aredomestically traded securities that represent claims to shares of foreign stocks.b. Purchase foreign securities that are offered in dollars.c. Buy mutual funds that invest internationally.d.
Buy derivative securities with payoffs that depend on prices in foreign securitymarkets.-3-.Study notes of Bodie, Kane & MarcusBy Zhipeng Yan2. Securitization: the biggest asset-backed securities are for credit card debt, carloans, home equity loans, student loans and debt of firms. Pools of loans typicallyare aggregated into pass-through securities. The transformation of these pools intostandardized securities enables issuers to deal in a volume large enough that theycan bypass intermediaries.3. Financial engineering: the process of bundling and unbundling of an asset.Chapter Two: Financial InstrumentsI.II.Financial markets are segmented into money markets and capital markets.1.Money market instruments (they are called cash equivalents, or justcash for short) include short-term, marketable, liquid, low-risk debtsecurities.2.Capital markets include longer-term and riskier securities. Wesubdivide the capital market into four segments: longer-term bondmarkets, equity markets, and the derivative markets for optionsand futures.Money Market:1.T-bills: Investors buy the bills at a discount from the stated maturityvalue and get the face value at the bill’s maturity.
T-bills with initialmaturities of 91 days or 182 days are issued weekly. Offerings of 52week bills are made monthly. Sales of bills are conducted via auction,at which investors can submit competitive or noncompetitive bids. Tbills sell in minimum denominations of only $10,000. The incomeearned on T-bills is tax-free.2.CD: certicficates of deposit is a time deposit with a bank. CDs issuedin denominations greater than $100,000 are usually negotiable.
Shortterm CDs are highly marketable.3.CP: commerical paper, large companies often issue their own shortterm unsecured debt notes rather than borrow directly from banks.Very often, CP is backed by a bank line of credit, which gives theborrower access to cash that can be used to pay off the paper atmaturity. CP maturities range up to 270 days.
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Usually, it is issued inmultiples of $100,000. So, small investors can invest in CP onlyindirectly, via money market mutual funds.4.Bankers’ acceptances: starts as an order to a bank by a bank’scustomer to pay a sum of money at a future date, typically within sixmonths.
At this stage, it is similar to a postdated check. When the bankendorses the order for payment as “accepted”, it assumes responsibilityfor ultimate payment to the holder of the acceptance. Bas areconsidered very safe assets because traders can substitute the bank’scredit standing for their own.-4-.Study notes of Bodie, Kane & Marcus5.6.7.8.III.By Zhipeng YanEurodollars: are dollar-denomined deposits at foreign banks orforeign branches of American banks. These banks escape regulationby FED.Repos: Dealers in government securities use Repos as a form of shortterm, usually overnight, borrowing. The dealer thus takes out a oneday loan from the investor, and the securities serve as collateral.Federal funds: Banks maintain deposits of their own at FED.
Funds inthe bank’s reserve account are called federal fundsLIBOR: London Interbank Offered Rate is the rate at which largebanks in London are willing to lend money among themselves.
The market leading undergraduate investments textbook, Essentials of Investments, 9e by Bodie, Kane, and Marcus, emphasizes asset allocation while presenting the practical applications of investment theory. The authors have eliminated unnecessary mathematical detail and concentrate on the intuition and insights that will be useful to practitioners throughout their careers as new ideas and challenges emerge from the financial marketplace.
The Ninth Edition includes increased attention to changes in market structure and trading technology, while continuing to be organized around one basic theme - that security markets are nearly efficient.' Synopsis' may belong to another edition of this title. About the Author:Alan J.
Marcus is a Professor of Finance in the Wallace E. Carroll School of Management at Boston College. His main research interests are in derivatives and securities markets. He is co-author (with Zvi Bodie and Alex Kane) of the texts Investments and Essentials of Investments. Professor Marcus has served as a research fellow at the National Bureau of Economic Research.
Professor Marcus also spent two years at Freddie Mac, where he helped to develop mortgage pricing and credit risk models. He currently serves on the Research Foundation Advisory Board of the CFA Institute.' About this title' may belong to another edition of this title. Book Description McGraw-Hill/Irwin, 2012. Condition: New. Colored Edition.International Edition.Soft cover/Paperback.
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