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Essentials of Investments Information Center: Table of Contents

Sample Chapter Essentials of Investments, 5/e
Table of Contents
About the Authors Zvi Bodie, Boston University
Preface Alex Kane, University of California, San Diego
Alan J. Marcus, Boston College
What's New
Feature Summary
ISBN: 0072510773
Copyright year: 2004
About the Team
Table of Contents
Mobile Resources

Part ONE
Elements of Investments

1 Investments: Background and Issues
2 Financial Instruments
3 How Securities Are Traded
First Time Users
4 Mutual Funds and Other Investment Companies
Student Edition
Instructor Edition
Part TWO
Portfolio Theory

5 Risk and Return: Past and Prologue
6 Efficient Diversification
7 Capital Asset Pricing and Arbitrage Pricing Theory
8 The Efficient Market Hypothesis

Debt Securities

9 Bond Prices and Yields
10 Managing Bond Portfolios

Security Analysis

11 Macroeconomic and Industry Analysis
12 Equity Valuation
13 Financial Statement Analysis

Derivative Markets

14 Options Markets

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Essentials of Investments Information Center: Table of Contents

15 Option Valuation
16 Futures Markets

Part SIX
Active Investment Management

17 Investors and the Investment Process
18 Taxes, Inflation, and Investment Strategy
19 Behavioral Finance and Technical Analysis
20 Performance Evaluation and Active Portfolio
21 International Investing

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Bodie’Kane’Marcus: Front Matter A Note from the Authors © The McGraw’Hill
Essentials of Investments, Companies, 2003
Fifth Edition

A Note from the Authors . . .

The last decade has been one of rapid, profound, and than specific security-selection decisions in
ongoing change in the investments industry. This is determining overall investment performance. Asset
due in part to an abundance of newly designed allocation is the primary determinant of the risk-return
securities, in part to the creation of new trading profile of the investment portfolio, and so it deserves
strategies that would have been impossible without primary attention in a study of investment policy.
concurrent advances in computer and communications Our book also focuses on investment analysis,
technology, and in part to continuing advances in the which allows us to present the practical applications of
theory of investments. Of necessity, our text has investment theory, and to convey insights of practical
evolved along with the financial markets. In this value. In this edition of the text, we have continued to
edition, we address many of the changes in the expand a systematic collection of Excel spreadsheets
investment environment. that give you tools to explore concepts more deeply
At the same time, many basic principles remain than was previously possible. These spreadsheets are
important. We continue to organize our book around available through the World Wide Web, and provide a
one basic theme”that security markets are nearly taste of the sophisticated analytic tools available to
efficient, meaning that most securities are usually professional investors.
priced appropriately given their risk and return In our efforts to link theory to practice, we also
attributes. There are few free lunches found in markets have attempted to make our approach consistent with
as competitive as the financial market. This simple that of the Institute of Chartered Financial Analysts
observation is, nevertheless, remarkably powerful in its (ICFA). The ICFA administers an education and
implications for the design of investment strategies, certification program to candidates for the title of
and our discussions of strategy are always guided by Chartered Financial Analyst (CFA). The CFA
the implications of the efficient markets hypothesis. curriculum represents the consensus of a committee of
While the degree of market efficiency is, and will distinguished scholars and practitioners regarding the
always be, a matter of debate, we hope our discussions core of knowledge required by the investment
throughout the book convey a good dose of healthy professional.
criticism concerning much conventional wisdom. This text will introduce you to the major issues
This text also continues to emphasize asset currently of concern to all investors. It can give you the
allocation more than most other books. We prefer this skills to conduct a sophisticated assessment of current
emphasis for two important reasons. First, it issues and debates covered by both the popular media
corresponds to the procedure that most individuals as well as more specialized finance journals. Whether
actually follow when building an investment portfolio. you plan to become an investment professional, or
Typically, you start with all of your money in a bank simply a sophisticated individual investor, you will
account, only then considering how much to invest in find these skills essential.
something riskier that might offer a higher expected
Zvi Bodie
return. The logical step at this point is to consider other
Alex Kane
risky asset classes, such as stock, bonds, or real estate.
Alan J. Marcus
This is an asset allocation decision. Second, in most
cases the asset allocation choice is far more important

Bodie’Kane’Marcus: I. Elements of Investments Introduction © The McGraw’Hill
Essentials of Investments, Companies, 2003
Fifth Edition



ven a cursory glance at The Wall Street tion between the National Association of Se-

E Journal reveals a bewildering collection of curities Dealers Automatic Quotation System
securities, markets, and financial institu- (Nasdaq), the New York Stock Exchange
tions. Although it may appear so, the financial (NYSE), and a number of non-U.S. exchanges
environment is not chaotic: There is a rhyme or is fierce and public.
reason behind the vast array of financial instru- Trading practices can mean big money
ments and the markets in which they trade. to investors. The explosive growth of online
These introductory chapters provide a trading has saved them many millions of dol-
bird™s-eye view of the investing environment. lars in trading costs. Even more dramatically,
We will give you a tour of the major types of new electronic communication networks will al-
markets in which securities trade, the trading low investors to trade directly without a broker.
process, and the major players in these arenas. These advances promise to change the face of
You will see that both markets and securities the investments industry, and Wall Street firms
have evolved to meet the changing and com- are scrambling to formulate strategies that re-
plex needs of different participants in the fi- spond to these changes.
nancial system. These chapters will give you a good foun-
Markets innovate and compete with each dation with which to understand the basic types
other for traders™ business just as vigorously as of securities and financial markets as well as

competitors in other industries. The competi- how trading in those markets is conducted.

1 Investments: Background and Issues
2 Global Financial Instruments
3 How Securities Are Traded
4 Mutual Funds and Other Investment Companies

Bodie’Kane’Marcus: I. Elements of Investments 1. Investments: © The McGraw’Hill
Essentials of Investments, Background and Issues Companies, 2003
Fifth Edition



> Define an investment.

> Distinguish between real assets and financial assets.

> Describe the major steps in the construction of an
investment portfolio.

> Identify major participants in financial markets.

> Identify types of financial markets and recent trends in
those markets.

Bodie’Kane’Marcus: I. Elements of Investments 1. Investments: © The McGraw’Hill
Essentials of Investments, Background and Issues Companies, 2003
Fifth Edition

research from the various banks is available online. The
Related Websites
Federal Reserve Economic Database, or FRED, is
http://www.ceoexpress.com available through the St. Louis Federal Reserve Bank. A
This site provides a list of links related to all aspects of search engine for all of the Bank™s research articles is
business, including extensive sites related to finance available at the San Francisco Federal Reserve Bank.
and investment.
http://www.corpgov.net jofsites.htm
Dedicated to corporate governance issues, this site has This site contains a directory of finance journals and
extensive coverage and numerous links to other sites associations related to education in the financial area.
related to corporate governance.
This investment site contains information on financial
This is an excellent general site that is dedicated to markets. Portfolios can be constructed and monitored
finance education. It contains information on debt at no charge. Limited historical return data is available
securities, equities, and derivative instruments. for actively traded securities.
http://www.financewise.com http://moneycentral.msn.com/home.asp
This is a thorough finance search engine for other Similar to Yahoo! Finance, this investment site contains
financial sites. comprehensive information on financial markets.
This site contains a map that allows you to access all of
the Federal Reserve Bank sites. Most of the economic

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