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Universal life policy, 605
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, 346“365 244“247
Utility rate-making, 228
Transaction costs, 676“677 Wellington Fund, 106
Bodie’Kane’Marcus: Back Matter Endpapers © The McGraw’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 Sharpe™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 Treynor™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 option™s delta
Rate of return beyond the value that
i Inflation rate
would be forecast from the market™s
k Market capitalization rate, the
return and the systematic risk of the
required rate of return on a firm™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
Bodie’Kane’Marcus: Back Matter Endpapers © The McGraw’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)
Bodie’Kane’Marcus: Back Matter Endpapers © The McGraw’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
Bodie’Kane’Marcus: Back Matter Endpapers © The McGraw’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) £ROA (ROA Interest rate) §
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 “ “
rp rf
Sharpe™s measure: Sp
p
“ “
rp rf
Treynor™s measure: Tp
p
“ [ “f “ “ )]
Jensen™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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