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Traditional Individual Retirement Weiss, James, 389 Zero sum game, 570

Unmanaged portfolios, 100

Accounts, 635 Well-diversified portfolio, 245 Ziemba, W. T., 280n

Unmanaged trusts, 101

Tragedy of the commons, 652 and APT, 247 Zuckerman, Gregory, 513

Unsecured bonds, 36, 320

Train, John, 478n and arbitrage pricing theory, Zurich Group Inc., 602

USX-Marathon, 75

Trainer, Francis, 346â€“365 244â€“247

Utility rate-making, 228

Transaction costs, 676â€“677 Wellington Fund, 106

Bodieâˆ’Kaneâˆ’Marcus: Back Matter Endpapers Â© The McGrawâˆ’Hill

Essentials of Investments, Companies, 2003

Fifth Edition

Commonly Used Notation

b Retention or plowback ratio rf The risk-free rate of interest

C Call option value rM The rate of return on the market

portfolio

CF Cash flow

ROE Return on equity, incremental

D Duration

economic earnings per dollar

E Exchange rate reinvested in the firm

E(x) Expected value of random variable x Sp Reward-to-volatility ratio of a

portfolio, also called Sharpeâ€™s

F Futures price

measure; the excess expected return

e 2.718, the base for the natural

divided by the standard deviation

logarithm, used for continuous

t Time

compounding

Tp Treynorâ€™s measure for a portfolio,

ei t The firm-specific return, also called

excess expected return divided by

the residual return, of security i in

beta

period t

V Intrinsic value of a firm, the present

f Forward rate of interest

value of future dividends per share

g Growth rate of dividends

X Exercise price of an option

H Hedge ratio for an option,

y Yield to maturity

sometimes called the optionâ€™s delta

Rate of return beyond the value that

i Inflation rate

would be forecast from the marketâ€™s

k Market capitalization rate, the

return and the systematic risk of the

required rate of return on a firmâ€™s

security

stock

Systematic or market risk of a

ln Natural logarithm function

security

M The market portfolio

Correlation coefficient between

ij

N(d) Cumulative normal function, the returns on securities i and j

probability that a standard normal

Standard deviation

random variable will have value less

2

Variance

than d

Cov(ri , rj) Covariance between returns on

p Probability

securities i and j

P Put value

PV Present value

P/E Price-to-earnings multiple

r Rate of return on a security; for

fixed-income securities, r may

denote the rate of interest for a

particular period

Bodieâˆ’Kaneâˆ’Marcus: Back Matter Endpapers Â© The McGrawâˆ’Hill

Essentials of Investments, Companies, 2003

Fifth Edition

Useful Websites

General business and finance information

www.dowjones.com

www.economist.com The Economist

www.wsj.com The Wall Street Journal

www.ft.com The Financial Times

www.businessweek.com

www.euromoney.com

www.forbes.com

www.fortune.com

Sources of data on individual companies and industries

www.mhhe.com/edumarketinsight Available to users of this text, a source of extensive financial

statement data as well as stock price histories

www.bloomberg.com

http://finance.yahoo.com Stock price and company information

http://money.cnn.com

www.hoovers.com

www.reportgallery.com Annual reports

www.sec.gov Annual reports and other financial statements from the

EDGAR database

Macroeconomic data

www.bea.doc.gov Bureau of Economic Analysis, Department of Commerce

www.federalreserve.gov Board of Governors of the Federal Reserve System

www.fms.treas.gov Links to publications of the Treasury Department

http://stats.bls.gov Bureau of Labor Statistics

Sites with links to other resources

www.financewise.com

www.investorlinks.com

www.finpipe.com

www.corpfinet.com

www.ceoexpress.com

www.cob.ohio-state.edu/fin/journal/jofsites.htm (site maintained by Ohio State University

College of Business)

Bodieâˆ’Kaneâˆ’Marcus: Back Matter Endpapers Â© The McGrawâˆ’Hill

Essentials of Investments, Companies, 2003

Fifth Edition

Useful Formulas

Measures of Risk

2

E(r)]2

Variance of returns: p(s)[r (s)

s

2

2

Standard deviation:

Covariance between

Cov(ri , rj ) p(s)[ri (s) E(ri)] [rj (s) E(rj )]

returns: s

Cov(ri , rM)

Beta of security i: i

Var(rM)

Portfolio Theory

Expected rate of return on a portfolio n

with weights wi in each security: E(rp) wi E(ri)

i 1

n n

2

Variance of portfolio rate or return: wj wi Cov(ri , rj)

p

j 1i 1

Market Equilibrium

The security market line: E(ri) rf i[E(rM) rf]

Fixed-Income Analysis

Present value of $1:

r)T

Discrete period compounding: PV 1/(1

rT

Continuous compounding: PV e

yT)T

(1

Forward rate of interest for period T: fT 1

yT 1)T 1

(1

1 R

Real interest rate: r 1

1 i

where R is the nominal interest rate

and i is the inflation rate

CFt

T

Duration of a security: D t /Price

(1 y)t

t 1

Bodieâˆ’Kaneâˆ’Marcus: Back Matter Endpapers Â© The McGrawâˆ’Hill

Essentials of Investments, Companies, 2003

Fifth Edition

Equity Analysis

D1

Constant growth dividend discount model: V0

k g

Sustainable growth rate of dividends: g ROE b

1b

Price/earnings multiple: P/E

k ROE b

Debt

ROE (1 Tax rate) Â£ROA (ROA Interest rate) Â§

Equity

Derivative Assets

Put-call parity: P C S0 PV(X)

SN(d1) Xe rT N(d2)

Black-Scholes formula: C

2

ln (S/X) (r /2)T

d1

2T

2T

d2 d1

d)T

Spot-futures parity: F0 S0(1 r

T

1 rUS

Interest rate parity: F0 E0 q

rforeignr

1

Performance Evaluation â€“ â€“

rp rf

Sharpeâ€™s measure: Sp

p

â€“ â€“

rp rf

Treynorâ€™s measure: Tp

p

â€“ [ â€“f â€“ â€“ )]

Jensenâ€™s measure, or alpha: rp r p(rM rf

p

rT)]1/T

Geometric average return: rG [(1 r1)(1 r2) . . . (1 1

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