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neutral approach, 156 belief in, 285 dollar volume in 2000, 78
439, 452, 459
and portfolio risk, 170“171 issues global market for
Earnings growth, 399
return of, in 2002, 172 lucky-event, 270 developed countries, 722
Earnings growth rates, 396, 397
risk eliminated by, 171 magnitude, 269 emerging markets, 722“725
Earnings management, 434“435
in single-factor market, 199 selection bias, 269“270 home country bias, 726
Earnings multiplier, 439“440
time, 211“212 mutual fund performance, percentage of U. S. wealth, 721
Earnings per share, 384
Dividend discount models, 281“286 preferred stock, 40
Earnings retention ratio, 421
416“428, 417 and passive management, 597 stock market listings, 40
Earnings yield, 440“441, 465
combined with P/E ratios, 438 predictors of broad Equity trusts, 103
E-baskets, 113“114
constant growth, 417“420 movements, 273 Equity valuation, 413“442
EBIT; see Earnings before
life cycles model, 423“427 reversals, 272“273 with accounting data, 451
interest and taxes
multistage growth model, semistrong-form tests, 273“278 aggregate stock market,
ECN; see Electronic
423“428 strong-form tests, 278 439“441
communication network
stock prices and investment and technical analysis, 675 balance sheet methods, 413
Economic calendar, 395“396
opportunities, 420“423 weak-form tests dividend discount models,
Economic depreciation, 420n, 435
two stage, 424“427 returns over long horizons, 416“428
Economic development,
Dividend payout ratio, 420“421 271“272 and earnings management, 434
prerequisites, 725
Dividend restrictions, 320 returns over short horizons, free cash flow approaches,
Economic earnings, 435, 456
Dividends 270“271 438“439
Economic forecasts, 384“385; see
cumulative, 41 Efficient portfolio, 226 intrinsic value vs. market
also Forecasting
preferred stock, 300“301 Efficient pricing, 4 price, 415“416
Economic income, 470
volatility of, 659 Eisenstadt, Samuel, 676“677 and market-to-book-value
Economic measure of
Dividend yields, 41 Electrolux, 302 ratio, 464
depreciation, 471
Dodd, David, 478 Electronic communication network, new/old economy, 433
Economic time series, 261
Dollar 20, 68“69, 81 P/E ratio
Economic value added, 466“467
average monthly increase, and market fragmentation, 70 combined with dividend
Economies of scale, 13
728“729 registered, 69 discount models, 438
Economist, 241
depreciation of, 730 Elliott wave theory, 662 and growth opportunities,
Economy; see also Macroeconomy
nominal vs. real, 628“629 Elton, E. J., 171, 283“284 428“432
financial assets in, 4“5
purchasing power, 383“384 Emerging markets pitfalls in analysis, 434“436
financial markets in, 7“8
Dollar-weighted return, 134 average returns, 738 and stock risk, 432“433
new vs. old, 433
Domestic macroeconomy, 384“385 economic performance, 392 price-to-book ratio, 438
possible scenarios for, 172
Double taxation, 630 equity securities in, 722“725 price-to-cash flow ratio, 438
Effective annual rate, 134“135
Doubling option, 319 investment risks, 735 price-to-sales ratio, 438
Effective annual yield, 307
Dow, Charles, 661 political risk, 732“733 Equivalent taxable yield, 34“35
Efficient diversification
Dow Jones Composite Average, 44 EMH; see Efficient market Ernst and Young, 473
and demand for stocks, 216
Dow Jones Industrial Average, 112, hypothesis E*Trade, 80
with many risky assets, 187“192
496, 555, 585, 661, 665 Employee Retirement Income Eurex, 584
mean-variance criterion, 178“182
changes since 1928, 44 Security Act, 610 Euro, 15“16
with two risky assets, 171“182
fall in 1987, 89 Employment, 385 Eurobond, 33, 301
Efficient frontier, 189, 235“237,
functions, 42“45 Endowment effect, 653“654 Eurodollars, 28“29
739“742, 743, 744
Dow Jones Public Utility Average, 44 Endowment funds, 606 Euronext, 78, 79
market portfolio, 221
Dow Jones Transportation constraints and objectives, Euro Pacific Fund, 586
of risky assets, 188“191
Average, 44 610, 611 European, Australian, Far East
for various stocks, 191
Down-and-in options, 519 lack of safety nets, 621 Index, 745“748
Efficient market hypothesis, 10,
Down-and-out options, 519 liquidity, 621 European Monetary Union, 382“383
261“286, 262
Bodie’Kane’Marcus: Back Matter Index © The McGraw’Hill
Essentials of Investments, Companies, 2003
Fifth Edition




I-5
Index

European options, 495, 540, Federal Reserve Bank of Financial statement analysis”Cont.
Financial leverage, 400
546“547, 549 New York, 280 and interest-burden ratio, 459 and return on assets, 457“458
Eurosterling bonds, 301 Federal Reserve Bank of and ROE, 456“458 return on equity, 456“458
Euroyen bonds, 301 St. Louis, 165 Financial markets Financial statements
Excess rates of return, 234 Federal Reserve System, 28, 29, anomalies balance sheet, 452“454
Excess return, 138, 193, 194, 195, 89, 589 calendar effect, 656 income statement, 452
229, 233“234, 245 Board of Governors, 82 mean reversion, 657 statement of cash flows,
instability of, 157“158 and interest rates, 390 overreaction, 656“657 454“456
Exchange rate, 382“383, 587 tools of, 390 in pricing, 651 Financial stocks, 389
Exchange rate risk, 587, 721, 727 Federal Savings and Loan Insurance bond market, 30“39 Financial Times, 46
hedging, 728“731 Corporation, 606 bond market indicators, 47 Financial Times Share Exchange,
historical record, 727“729 Fee structure competitiveness, 1, 9“10 496, 735
in international investment, and mutual fund returns, 109“111 decimal system, 72 Firm commitment, 60, 589
726“731 mutual funds, 107“109 in economy Firms
in international portfolio, 738 Fidelity Investment Grade Bond consumption timing, 7 agency problems, 8
Exchange-traded funds, 112“114 Fund, 149“150 ownership-management borrowing by, 13“14
Executive compensation, 8, 39 Fidelity Investments, 80, 104, 105, separation, 7“8 commercial paper, 28
Exercise price, 48“49, 492 107, 734 risk allocation, 7 earnings management, 434
Expansionary monetary policy, 389 Fidelity Magellan Fund, 118“122, efficient markets, 10 owners-manager separation, 7“8
Expectations hypothesis, 270, 284, 286, 706“708 for equity securities, 39“41 takeover threat, 8
323“325, 324 Fidelity Management Research national comparisons, 77“79 Firm-specific risk, 170, 171,
Expected bond yield, 320“322 Corporation, 101 national market system, 69“70 192“193, 194, 196,
Expected rate of return Fidelity Select funds, 396 online trading, 2 199, 230
versus rate of return, 128 FIFO; see First-in, first-out system over-the-counter market, 76“77 First-in, first-out system, 470
two risky assets, 172“173 Filter rule, 271 players in First Quadrant Corporation, 586
Expected return, 9“10, 136, Finance industry, 396“397 financial intermediaries, Fiscal policy, 388“389
229, 415 Financial Accounting Standards 11“13 Fisher, Irving, 147
and CAPM, 215, 224“226 Board Statement No. 95, 454 investment bankers, 13“14 Fisher equation, 147
determination of, 216“220 Financial Analysts Federation, 600 major kinds, 11 Fitch Investor Services, 316
international investments, Financial assets, 4“5 primary market, 60 Fixed-asset turnover, 461“462
739“742 versus real assets, 4 recent trends Fixed-charge coverage ratio, 318
and risk, 151“152 taxonomy of, 506 computer networks, 19“20 Fixed costs, 399“400
with two risky assets, 172 Financial engineering, 18“19 financial engineering, 18 Fixed-income capital market, 6,
Expected return-beta relationship, Financial futures globalization, 15“16 30“31
225“227 creating synthetic stock securitization, 16“18 mispricing in, 361
and APT, 247 positions, 585 regulation of, 89“92 Fixed-income funds, 105
index model, 229“230 foreign exchange, 587“588 risk-return trade-off, 9“10 Fixed-income investment strategy,
Expense recognition, 454 index arbitrage, 587 secondary market, 60 364“366
Expenses, 452 interest rate futures, 589“590 stock market indexes Fixed-income securities, 5“6
Ex post efficient frontier, 741“742 program trading, 587 Dow Jones Averages, 42“45 advantages, 295
ExxonMobil, 170, 467, 614, 616 stock index futures, 584“585, 586 equally weighted indexes, 46 bond characteristics, 296“303
triple-witching hour, 587 foreign and international, preferred stock, 300“301
F Financial instruments, 24“53 46“47 yield vs. price, 306
bond market, 30“39 market value indexes, 46 Fixed-rate mortgages, 37, 606
Face value, 296
corporate bonds, 35“37 Standard and Poor™s indexes, Flat tax, 630
Factor models, 193
federal agency debt, 32“33 45“46 Floating-rate bonds, 6, 300
Factor portfolio, 248
international bonds, 33 structure and types, 25 Floating-rate preferred stock,
Fads hypothesis, 272
mortgage-backed securities, structure of 300“301
Fair and orderly market, 74
37“39 auction markets, 15 Floating securities, 60
Fama, Eugene F., 158, 240, 241, 271,
municipal bonds, 33“35 brokered markets, 14 Floor brokers, 71
273, 276, 279, 427n
Treasury notes and bonds, dealer markets, 14“15 Florida Power and Light, 422
Farm Credit agencies, 301
31“32 direct search markets, 14 Flow of funds indicators, 667
Fast growers, 403
derivative markets, 47“53 primary market, 14 credit balances in brokerage
Federal agency debt, 32“33
futures contracts, 51“53 secondary market, 15 accounts, 670
Federal Deposit Insurance
options, 48“51 Financial ratios, 424; see also Ratio short interest, 669“670
Corporation, 28, 89, 606
equity securities, 39“41 analysis Folios, 113“114
Federal funds, 29
money market, 26“30 for major industry groups, 466 Ford Motor Company, 672
Federal government policies
bankers™ acceptances, 28 Financial statement analysis, Forecasting
budget deficit, 385
brokers™ calls, 29 451“478 domestic economy, 384“385
fiscal policy, 388“389
certificates of deposit, 27“28 comparability problems earnings growth, 397
futures markets, 576
commercial paper, 28 accounting practices, imperfect, 704“705
for inflation, 385
Eurodollars, 28“29 472“474 interest rates, 386“387
for interest rates, 387
federal funds, 29 depreciation, 471 merits of stock prices, 441
monetary policy, 389“390
London Interbank inflation, 471“472 P/E ratio, 428, 440
regulation of markets, 89“92
Offer Rate, 29 interest expense, 471“472 unreliable predictions, 388“389
supply-side policies, 388, 390
repos and reverses, 29 international accounting Forecasting errors, 280
Federal Home Loan Bank Board,
Treasury bills, 27 conventions, 474“477 Foreign bonds, 301
32“33, 301
yields, 30 inventory valuation, 470“471 Foreign currency options, 497
Federal Home Loan Mortgage
Websites for, 25 quality of earnings, 472“474 Foreign exchange forward
Corporation, 17, 32“33, 39
Financial intermediaries, 11“13 economic value added, 466“467 market, 571
Federal National Mortgage
investment companies, 100“104 Graham technique, 477“478 Foreign exchange futures, 587“588
Association, 17, 32“33, 39
mutual funds, 104“107 illustration of, 468“469 Foreign index funds, 737
Bodie’Kane’Marcus: Back Matter Index © The McGraw’Hill
Essentials of Investments, Companies, 2003
Fifth Edition




I-6 Index

Foreign stock market indexes, Futures market”Cont. Graham, Benjamin, 477“478 Home Depot, 43
46“47, 48 mechanics of trading”Cont. Graham, John R., 158, 687 Home ownership, 601, 644
Fortune, 280 kinds of contracts, 570“571 Granito, Barbara Donnelly, 555 Homer, Sydney, 341, 362, 366
44 Wall Street Fund, 286 long vs. short positions, 567 Greenspan, Alan, 50 Horizon analysis, 312, 363
Forward contracts, 50, 566“567 maintenance margin, 574 Grinblatt, Mark, 654 Horizon date, 351“352
compared to options, 565 margin account, 573“575 Gross Domestic Product, 384, 392 Horizontal aggregation, 220
types of existing contracts, marking to market, 573“575 emerging markets, 725 Horizontal spread, 508
570“571 open interest, 571“573 versus market capitalization Households
Forward market, 565, 570“571 reversing trade, 573 weights, 745 balance sheet, 4“5
in foreign exchange, 587“588 price determinants, 580“583 and market capitalization, and financial intermediaries,
Forward rate, 325“326 regulation of, 89, 576 725“726 11“13
Foster, George, 277 strategies Grossman, Sanford J., 264n, 699n savings by, 626
401K plans, 111, 637, 639 basis risk and hedging, Growth funds, 105 HPR; see Holding-period return
effect of Enron collapse, 172 579“580 Growth opportunities, 428“432 Hurdle rate, 228
403B plans, 637, 639 hedging, 577“579 Growth stocks, 122 Hybrid securities, 18
Fourth market, 68“69 speculation, 577“579 Growth-value continuum, 122
I
Framing, 280 spread position, 579“580 Gruber, M. J., 171, 283“284
Francis, Theo, 172 and taxation, 576“577 Guaranteed investment contract, 350,
Ibbotson, Roger G., 116
Free cash flow of the firm, 438“439 volume of trading, 566 352“353
Ibbotson Associates, 155, 747
Free cash flows to equity, 439 Futures options, 496
IBM, 48, 51, 60, 72, 84“86, 472, 552,
H
Free cash flow valuation approaches, Futures prices, 51, 497, 567“570,
589“590
438“439 574“575
Han, Bing, 654 Immunization, 350“357
French, Kenneth R., 158, 240, 241, arbitrage opportunity, 587
Hartle, Thomas, 661 cash flow matching, 358
271n, 273, 276, 279, 427n movement in unison, 583
Harvey, Campbell R., 158, 687 contingent, 364
Frequency distributions, 539“540 price determinants
Haugen, Robert A., 273 and convexity, 361
Front-end load, 108 spot-futures parity, 580“583
Health care insurance, 645 Implied volatility, 543“544
FTSE, 735 spreads, 583
Health maintenance Income allocation, 4
FTSE index, 46 traded at discounts, 556
organizations, 645 Income funds, 105
Full-service brokers, 80“81 Future value of index earnings, 6440
Hedge funds, 103“104 Income replacement rate, 641
Fully diluted earnings per share, 517
Hedge ratio, 536, 550, 553“554, 590 Income statement, 452
G
Fundamental analysis, 266“267,
and Black-Scholes model, Indentures, 318“320
273, 381, 382
Gateway Investment Advisers, 501 550“552 Index arbitrage, 587
and business cycles, 391“396
General and administrative Hedging, 6, 491, 506 Index arbitrage orders, 90
demand and supply shocks,
expenses, 452 and basis risk, 579“580 Indexed bonds, 302“303
387“388
General Electric, 7, 40“41, 467 cross, 579, 590 Index funds, 46, 105, 267“268, 655
domestic macroeconomy,
Generalized two-state approach, delta, 554, 555 demand for stocks, 219“220

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