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put-call party relationship, 154, 191“192, 221, 711
current yield, 36“37, 298 Bookbuilding, 62
546“549 optimal risky portfolio, 184“186
default-free, 150 Book-to-market effect, 276
put option valuation, 549“550 in passive strategy, 223
default premium, 322 Book value, 414, 463“464
simplifying assumptions, 453 Capital asset pricing model,
discount, 309 Borrowing, 13“14
Block houses, 14 221“241, 426, 651
duration, 342“349 Boston Stock Exchange, 65, 70
Block transactions, 75 to adjust for risk, 273
equipment obligations, 320 Bottom-up portfolio construction, 9
Blue Cross, 645 applications, 227“228
versus equities, 157 Bowman, Melanie F., 661
Blue-sky laws, 89 and arbitrage, 244
Eurobonds, 301 Bradaran, Mehrdad, 84
Blume, Marshall E., 271, 275 and arbitrage pricing theory, 247
as fixed-income securities, 6, 295 Brady, Nicholas, 17
Bogey benchmark, 694“695, 696, 745 assumptions, 221
floating-rate, 300 Brady bonds, 17
Bogle, John C., 116, 148, 149 attack on, 240“241
foreign, 301 Brand loyalty, 404
Boise Cascade Corporation, 18 and equilibrium prices, 220
historical record, 139“146 Brane v. Roth, 506
Bond duration; see Duration expected return-beta
indexed, 302“303 Breadth of the market, 671“672
Bond equivalent yield, 32, 307 relationship, 225
international, 33, 301 Break-even investment
Bond floor, 54 expected returns, 224“226
investment grade, 316“317 opportunities, 430
Bond funds, 105 functions, 215
mortgage, 320 Brennan, Michael, 225
Bond indenture, 296, 318“320 historical record, 241
municipal, 33“35 Brinson, Gary, 706n
Bond market and index models, 228“229
original issue discount, 314“316 Brock, William, 671
amount of trading in, 293 for international investments,
pay-in-kind, 302 Brokerage houses, 81
components, 25 742“743
premium, 308 Brokered markets, 14
corporate bonds, 35“37 limitations of, 228
price indexed, 150 Brokers
federal agency debt, 32“33 market portfolio of investors,
primary market issues, 60 churning accounts, 80
indexes, 49 222“223
put, 300 forward market, 571
innovation in, 301“303 modified versions, 225
registered, 298“299 in over-the-counter market, 67“68
international bonds, 33 multifactor generalization,
reverse floaters, 302 specialists, 74
liquidity risk, 70 247“250
Samurai, 301 Broker™s call loans, 84
mortgage-backed securities, mutual fund theorem, 223
secured, 36 Brokers™ calls, 29
37“39 passive strategy, 223
serial issue, 319“320 Budget deficit, 385
municipal bonds, 33“35 for performance rating, 685
speculative grade, 316“317 Buffet, Warren, 284
trading in, 70, 298“299 rate of return, 233“234, 415
state and federal agency Built-to-order fund, 113“114
Treasury notes and bonds, 31“32 and real world, 239“240
bonds, 301 Bulldog bonds, 301
Bond market indicators, 47 risk premium of market portfolio,
Treasury bonds and notes, Bullish spread, 509“510
Bond price risk, 306 223“224
296“298 Bundling, 18“19
Bodie’Kane’Marcus: Back Matter Index © The McGraw’Hill
Essentials of Investments, Companies, 2003
Fifth Edition




I-3
Index

Capital asset pricing model”Cont. David Bowie bonds, 302
Clements, Jonathan, 155, 173, 282, Convertible bonds, 36, 299“300
security market line, 226“227, DAX (German stock exchange), 46
655, 747 Convertible securities, 514“516
231“232 Days™ receivables, 462
Closed-end funds, 101“103 Convertible stock, 41
Capital budgeting decision, 228 Dealer market, 14“15, 81
in behavioral finance, 657“658 Convexity, 305, 358“261, 359
Capital gains, 111, 312, 417 over-the-counter market, 76“77
international investments, Cooperation, 652
Capitalization weighting, 745“746 Debenture bonds, 320
734“735 Copernicus, N., 240, 241
Capital market line, 156, 221, Debentures, 36
Closely held corporation, 39 Corporate bonds, 6, 35“37, 298“300
222“223, 235“237, 711 DeBondt, Werner F. M., 272, 280, 281
Clough, Charles, 389 and bond safety covenants,
historical evidence, 156“158 Debt, risky, 517“519
Coca-Cola Company, 403“404, 431 318“320
and passive strategies, 155“158 Debt financing; see Bond entries;
Cohen, Abby Joseph, 389 call provisions, 299
and security market line, Money market
Colgate-Palmolive, 403“404 convertible, 299“300
226“227 Debt market, 26
Collars, 90, 511“512 default premium, 322
Capital markets, 6, 26 Debt securities, 295; see also Bonds
Collateral, 320 default risk, 316“322
fixed-income, 30“31 Debt-to-equity ratio, 318
Collateralized loans, 517 floating-rate, 300
segments, 26 Decimal pricing, 72
Collateral trust bond, 320 investment grade, 316“317
Capital market theory, 215 Decomposition of ROE, 458“460
College costs, 543 pricing of, 306
CAPM; see Capital asset Dedication strategy, 357“358
Commercial paper, 28 put bonds, 300
pricing model Default, 517n
Commingled funds, 103 speculative grade, 316“317
Carhart, Mark M., 284, 285 on commercial paper, 28
Commission brokers, 71 Corporations, 39
Cash, 26 Default-free bonds, 150
Commission broker seats, 65 Corrections, 661
Cash/bond selection, 748 Default premium, 322
Commission schedule, 80 Correlation, 171“175
Cash cows, 402, 403 Default risk, 6, 153
Commodities; see Futures contracts; perfect negative, 181“182
Cash delivery, 576 bond indentures, 318“320
Futures market perfect positive, 180
Cash dividends, 656 and bond pricing, 316“322
Commodity Futures Trading Correlation coefficient, 175, 176, 177,
Cash equivalents, 26 corporate bonds, 36
Commission, 89, 576 196, 739, 740, 741
Cash flow matching, 357“358 determinants of bond safety, 318
Common-size balance sheet, 454 Cost-of carry relationship, 582
Cash flows junk bonds, 317“318
Common stock, 39 Cost of goods sold, 452
from financing activities, and yield to maturity, 320“325
average annual return, 9 Country selection, 746“747
454“456 Defensive industries, 391
characteristics, 40 Country-specific risk, 721, 731“734
and interest rates, 385 Deferred callable bonds, 299
as ownership shares, 39 Coupon bond, 296
from investing activities, Defined benefit plans, 604
primary market issues, 60 Coupon payments, 31
454“456 Defined contribution plans, 604
Commonwealth Edison, 373 Coupon rate, 296, 299, 300, 302,
in Macaulay™s duration, Dell Computer, 170, 193, 195“196,
Comparability problems 306, 312
342“344 225, 433, 562
in financial statement analysis, and interest rate risk, 341
from operations, 454“456 Deloitte Touche Tohmatsu, 473
470“477 Covariance, 171“175, 176, 239
promised vs. expected, 318“320 Delta Air Lines, 223
and GAAP, 470 Coverage ratio, 318, 462“463
Cash flow-to-debt ratio, 318 Delta hedging, 554, 555
Comparison universe, 684 Covered call, 506“508
Cash settlement, 496 Delta of an option, 550, 553, 554
Competition, source of efficiency, Covered interest arbitrage
Catastrophe bonds, 302 Demand curve
263“265 relationship, 729
Central order-flow system, 81 horizontal aggregation, 220
Competitive bid, 27 Covering the short position, 86
Certificates of deposit, 6, 27“28 and interest rate, 386“387
Competitors, rivalry between, 404 Cox, John C., 539n
in Eurodollars, 29 Demand for stocks
Complete portfolio, 149, 186 Credit balances in brokerage
yields on, 30 and equilibrium prices, 216“220
asset allocation, 151 accounts, 670
Channel surfing, 473 index funds, 219“220
and separation property, 192 Credit Suisse First Boston, 745
Charles Schwab, 80, 107 Demand shock, 387“388
Compound yield, 310“312 Credit unions, 11
Chartered Financial Analysts, Department of Commerce, 465, 471
Computer networks, 19“20 “Critique of Capital Asset Pricing
599, 600 Depreciation
Conference Board, 393 Tests” (Roll), 241
Charting, 660“667 accounting vs. economic, 435
Confidence index, 669 Cross-hedging, 579, 590
candlestick chart, 663“65 economic vs. accounting
Congestion area, 663 Crowding-out effect, 385
congestion area, 663 measures, 471
Conrad, Jennifer, 270 Cubes, 112
Dow theory, 661“662 international accounting
Consolidated Edison, 226, 435“436 Cumulative dividends, 41
Elliott wave theory, 662 conventions, 475
Consolidated Quotations Service, Cumulative normal distribution,
Kondratieff wave theory, 662 Depreciation expense, 452, 454
69“70 544“545
point and figure chart, 663 Derivative assets, 48
Consolidated Tape, 69“70 Currency selection, 746
warning on, 665“667 Derivative markets, 25, 47“53
Consolidation stage, 403 Currency-translated options, 519“520
Chartists, 266, 660 futures contracts, 51“53
Constant growth dividend discount Current assets, 453
Chevron, 43 options, 48“51
model, 417“420, 418 Current earnings, 464
Chicago Board of Trade, 51, 566, 567, Derivative securities, 6; see also
Consumer Price Index, 146“147 Current liabilities, 453
577, 584 Futures contracts; Options
Consumer sentiment, 385 Current ratio, 318, 462“463
Chicago Board Options Exchange, characteristics, 491
Consumption basket, 146“147 Current yield, 36“37, 298, 308“309
491, 496, 501, 512, 552 explanation of, 50
Consumption timing, 7 CUSIP number, 315
Chicago Mercantile Exchange, 496, losses on, 489
Contingent claims, 48, 489 Cutoff tax bracket, 35
571, 584, 586, 588 property used, 489
Contingent deferred sales Cyclical industries, 391
Chicago Refrigerator Inc., 481“482 for risk management, 506
charges, 108 Cyclicals, 404
Choi, Frederick D. S., 476 De Soto, Hernando, 725
Contingent immunization, 364
D
Chopra, Navin, 272 Detachable warrant, 516
Contingent liability, 473
Chrysler Corporation, 404 Deutsche Terminboerse, 584
Contrarian investment strategy, 272
Daimler-Benz, 475
Churning, 80 Developed countries
Convergence bets, 104
DaimlerChrysler, 475
Circuit breakers, 89“91 equity market, 722
Convergence parity, 579
Damato, Karen, 689
Cisco Systems, 433 GDP, 722, 723
Conversion premium, 300
Dartboard games, 692
Clayman, Michelle, 465 Diamonds, 112
Conversion ratio, 54, 299“300
Das, S., 283“284
Clearinghouse, 571“573, 572 Diluted earnings per share, 517n
ConvertBond.com, 513
Data mining, 279
Bodie’Kane’Marcus: Back Matter Index © The McGraw’Hill
Essentials of Investments, Companies, 2003
Fifth Edition




I-4 Index

Dimson, Elroy, 157, 158 Efficient market hypothesis”Cont. Endowment funds”Cont.
Downside risk, 122
Direct-marketed funds, 107 Dow theory, 661“662, 675 and dartboard games, 692 regulation, 621“622
Directory of Mutual Funds, 118 Drexel Burnham Lambert, 318 debate over, 269“270 return on, 621
Direct search markets, 14 Dreyfus, 104 implications and taxes, 621
Disaster bonds, 302 Duff and Phelps, 316 active vs. passive time horizon, 621
Disclosure requirements, 477 Dun and Bradstreet, 465 management, 267“268 unique situations, 622
Discount bonds, 309, 319 Du Pont system, 458 for fundamental analysis, Enron collapse, 172, 318“320, 435,
Discount brokers, 80 Duration of bonds, 339, 342“346 266“267 473, 474“475, 477, 645
Discounted cash flow formula, 419 and convexity, 358“361 for resource allocation, Equally weighted indexes, 46
Discount rate, 303, 307, 390 determinants, 346“349 268“269 Equilibrium nominal rate of interest,
Discounts, closed-end funds, 657“658 Macaulay™s formula, 342“344 role of portfolio 147“148
Discretionary account, 80 modified, 345“346 management, 268 Equilibrium price
Discretionary closed-end funds, perpetuity, 348 for technical analysis, and arbitrage, 215, 244
102“103 of a portfolio, 351“353 265“266 and CAPM, 220
Display Book, 71, 75, 76 reasons for importance of, 344 interpreting evidence on, and demand for stocks, 216“220
Disposition effect, 654 variations in, 348“349 278“281 Equilibrium real interest rate, 386
Diversifiable risk, 171 Dutch auction, 65 and random walks, 262“265 Equilibrium risk premium, 224
Diversification, 10, 169 Dynamic hedge, 540, 554, 556 refutation of, 658“659 Equipment obligation bonds, 320
elimination of risk, 268 semistrong form, 265 Equity, 6
E
with futures or forward contracts, semistrong-form tests, 273“278 levered, 517“519
566“567 strong form, 265 Equity funds, 104“105, 284
Earnings
in international investments, strong-form tests, 278 Equity markets, 25
accounting vs. economic,
738“744 technical analysis, 660, 675 Equity risk premium, 157
434“435, 456
with many risky assets, 187“192 weak form, 265 Equity securities
current vs. future, 464“465
mean-variance criterion, 178“182 weak-form tests, 270“273 versus bonds, 157
Earnings announcements, 276“278
naive strategy, 170 Efficient markets common stock, 39“40
Earnings before interest and taxes,

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