- •Intended Audience
- •1.1 Financing the Firm
- •1.2Public and Private Sources of Capital
- •1.3The Environment forRaising Capital in the United States
- •Investment Banks
- •1.4Raising Capital in International Markets
- •1.5MajorFinancial Markets outside the United States
- •1.6Trends in Raising Capital
- •Innovative Instruments
- •2.1Bank Loans
- •2.2Leases
- •2.3Commercial Paper
- •2.4Corporate Bonds
- •2.5More Exotic Securities
- •2.6Raising Debt Capital in the Euromarkets
- •2.7Primary and Secondary Markets forDebt
- •2.8Bond Prices, Yields to Maturity, and Bond Market Conventions
- •2.9Summary and Conclusions
- •3.1Types of Equity Securities
- •Volume of Financing with Different Equity Instruments
- •3.2Who Owns u.S. Equities?
- •3.3The Globalization of Equity Markets
- •3.4Secondary Markets forEquity
- •International Secondary Markets for Equity
- •3.5Equity Market Informational Efficiency and Capital Allocation
- •3.7The Decision to Issue Shares Publicly
- •3.8Stock Returns Associated with ipOs of Common Equity
- •Ipo Underpricing of u.S. Stocks
- •4.1Portfolio Weights
- •4.2Portfolio Returns
- •4.3Expected Portfolio Returns
- •4.4Variances and Standard Deviations
- •4.5Covariances and Correlations
- •4.6Variances of Portfolios and Covariances between Portfolios
- •Variances for Two-Stock Portfolios
- •4.7The Mean-Standard Deviation Diagram
- •4.8Interpreting the Covariance as a Marginal Variance
- •Increasing a Stock Position Financed by Reducing orSelling Short the Position in
- •Increasing a Stock Position Financed by Reducing orShorting a Position in a
- •4.9Finding the Minimum Variance Portfolio
- •Identifying the Minimum Variance Portfolio of Two Stocks
- •Identifying the Minimum Variance Portfolio of Many Stocks
- •Investment Applications of Mean-Variance Analysis and the capm
- •5.2The Essentials of Mean-Variance Analysis
- •5.3The Efficient Frontierand Two-Fund Separation
- •5.4The Tangency Portfolio and Optimal Investment
- •Identification of the Tangency Portfolio
- •5.5Finding the Efficient Frontierof Risky Assets
- •5.6How Useful Is Mean-Variance Analysis forFinding
- •5.8The Capital Asset Pricing Model
- •Implications for Optimal Investment
- •5.9Estimating Betas, Risk-Free Returns, Risk Premiums,
- •Improving the Beta Estimated from Regression
- •Identifying the Market Portfolio
- •5.10Empirical Tests of the Capital Asset Pricing Model
- •Is the Value-Weighted Market Index Mean-Variance Efficient?
- •Interpreting the capm’s Empirical Shortcomings
- •5.11 Summary and Conclusions
- •6.1The Market Model:The First FactorModel
- •6.2The Principle of Diversification
- •Insurance Analogies to Factor Risk and Firm-Specific Risk
- •6.3MultifactorModels
- •Interpreting Common Factors
- •6.5FactorBetas
- •6.6Using FactorModels to Compute Covariances and Variances
- •6.7FactorModels and Tracking Portfolios
- •6.8Pure FactorPortfolios
- •6.9Tracking and Arbitrage
- •6.10No Arbitrage and Pricing: The Arbitrage Pricing Theory
- •Verifying the Existence of Arbitrage
- •Violations of the aptEquation fora Small Set of Stocks Do Not Imply Arbitrage.
- •Violations of the aptEquation by Large Numbers of Stocks Imply Arbitrage.
- •6.11Estimating FactorRisk Premiums and FactorBetas
- •6.12Empirical Tests of the Arbitrage Pricing Theory
- •6.13 Summary and Conclusions
- •7.1Examples of Derivatives
- •7.2The Basics of Derivatives Pricing
- •7.3Binomial Pricing Models
- •7.4Multiperiod Binomial Valuation
- •7.5Valuation Techniques in the Financial Services Industry
- •7.6Market Frictions and Lessons from the Fate of Long-Term
- •7.7Summary and Conclusions
- •8.1ADescription of Options and Options Markets
- •8.2Option Expiration
- •8.3Put-Call Parity
- •Insured Portfolio
- •8.4Binomial Valuation of European Options
- •8.5Binomial Valuation of American Options
- •Valuing American Options on Dividend-Paying Stocks
- •8.6Black-Scholes Valuation
- •8.7Estimating Volatility
- •Volatility
- •8.8Black-Scholes Price Sensitivity to Stock Price, Volatility,
- •Interest Rates, and Expiration Time
- •8.9Valuing Options on More Complex Assets
- •Implied volatility
- •8.11 Summary and Conclusions
- •9.1 Cash Flows ofReal Assets
- •9.2Using Discount Rates to Obtain Present Values
- •Value Additivity and Present Values of Cash Flow Streams
- •Inflation
- •9.3Summary and Conclusions
- •10.1Cash Flows
- •10.2Net Present Value
- •Implications of Value Additivity When Evaluating Mutually Exclusive Projects.
- •10.3Economic Value Added (eva)
- •10.5Evaluating Real Investments with the Internal Rate of Return
- •Intuition for the irrMethod
- •10.7 Summary and Conclusions
- •10A.1Term Structure Varieties
- •10A.2Spot Rates, Annuity Rates, and ParRates
- •11.1Tracking Portfolios and Real Asset Valuation
- •Implementing the Tracking Portfolio Approach
- •11.2The Risk-Adjusted Discount Rate Method
- •11.3The Effect of Leverage on Comparisons
- •11.4Implementing the Risk-Adjusted Discount Rate Formula with
- •11.5Pitfalls in Using the Comparison Method
- •11.6Estimating Beta from Scenarios: The Certainty Equivalent Method
- •Identifying the Certainty Equivalent from Models of Risk and Return
- •11.7Obtaining Certainty Equivalents with Risk-Free Scenarios
- •Implementing the Risk-Free Scenario Method in a Multiperiod Setting
- •11.8Computing Certainty Equivalents from Prices in Financial Markets
- •11.9Summary and Conclusions
- •11A.1Estimation Errorand Denominator-Based Biases in Present Value
- •11A.2Geometric versus Arithmetic Means and the Compounding-Based Bias
- •12.2Valuing Strategic Options with the Real Options Methodology
- •Valuing a Mine with No Strategic Options
- •Valuing a Mine with an Abandonment Option
- •Valuing Vacant Land
- •Valuing the Option to Delay the Start of a Manufacturing Project
- •Valuing the Option to Expand Capacity
- •Valuing Flexibility in Production Technology: The Advantage of Being Different
- •12.3The Ratio Comparison Approach
- •12.4The Competitive Analysis Approach
- •12.5When to Use the Different Approaches
- •Valuing Asset Classes versus Specific Assets
- •12.6Summary and Conclusions
- •13.1Corporate Taxes and the Evaluation of Equity-Financed
- •Identifying the Unlevered Cost of Capital
- •13.2The Adjusted Present Value Method
- •Valuing a Business with the wacc Method When a Debt Tax Shield Exists
- •Investments
- •IsWrong
- •Valuing Cash Flow to Equity Holders
- •13.5Summary and Conclusions
- •14.1The Modigliani-MillerTheorem
- •IsFalse
- •14.2How an Individual InvestorCan “Undo” a Firm’s Capital
- •14.3How Risky Debt Affects the Modigliani-MillerTheorem
- •14.4How Corporate Taxes Affect the Capital Structure Choice
- •14.6Taxes and Preferred Stock
- •14.7Taxes and Municipal Bonds
- •14.8The Effect of Inflation on the Tax Gain from Leverage
- •14.10Are There Tax Advantages to Leasing?
- •14.11Summary and Conclusions
- •15.1How Much of u.S. Corporate Earnings Is Distributed to Shareholders?Aggregate Share Repurchases and Dividends
- •15.2Distribution Policy in Frictionless Markets
- •15.3The Effect of Taxes and Transaction Costs on Distribution Policy
- •15.4How Dividend Policy Affects Expected Stock Returns
- •15.5How Dividend Taxes Affect Financing and Investment Choices
- •15.6Personal Taxes, Payout Policy, and Capital Structure
- •15.7Summary and Conclusions
- •16.1Bankruptcy
- •16.3How Chapter11 Bankruptcy Mitigates Debt Holder–Equity HolderIncentive Problems
- •16.4How Can Firms Minimize Debt Holder–Equity Holder
- •Incentive Problems?
- •17.1The StakeholderTheory of Capital Structure
- •17.2The Benefits of Financial Distress with Committed Stakeholders
- •17.3Capital Structure and Competitive Strategy
- •17.4Dynamic Capital Structure Considerations
- •17.6 Summary and Conclusions
- •18.1The Separation of Ownership and Control
- •18.2Management Shareholdings and Market Value
- •18.3How Management Control Distorts Investment Decisions
- •18.4Capital Structure and Managerial Control
- •Investment Strategy?
- •18.5Executive Compensation
- •Is Executive Pay Closely Tied to Performance?
- •Is Executive Compensation Tied to Relative Performance?
- •19.1Management Incentives When Managers Have BetterInformation
- •19.2Earnings Manipulation
- •Incentives to Increase or Decrease Accounting Earnings
- •19.4The Information Content of Dividend and Share Repurchase
- •19.5The Information Content of the Debt-Equity Choice
- •19.6Empirical Evidence
- •19.7Summary and Conclusions
- •20.1AHistory of Mergers and Acquisitions
- •20.2Types of Mergers and Acquisitions
- •20.3 Recent Trends in TakeoverActivity
- •20.4Sources of TakeoverGains
- •Is an Acquisition Required to Realize Tax Gains, Operating Synergies,
- •Incentive Gains, or Diversification?
- •20.5The Disadvantages of Mergers and Acquisitions
- •20.7Empirical Evidence on the Gains from Leveraged Buyouts (lbOs)
- •20.8 Valuing Acquisitions
- •Valuing Synergies
- •20.9Financing Acquisitions
- •Information Effects from the Financing of a Merger or an Acquisition
- •20.10Bidding Strategies in Hostile Takeovers
- •20.11Management Defenses
- •20.12Summary and Conclusions
- •21.1Risk Management and the Modigliani-MillerTheorem
- •Implications of the Modigliani-Miller Theorem for Hedging
- •21.2Why Do Firms Hedge?
- •21.4How Should Companies Organize TheirHedging Activities?
- •21.8Foreign Exchange Risk Management
- •Indonesia
- •21.9Which Firms Hedge? The Empirical Evidence
- •21.10Summary and Conclusions
- •22.1Measuring Risk Exposure
- •Volatility as a Measure of Risk Exposure
- •Value at Risk as a Measure of Risk Exposure
- •22.2Hedging Short-Term Commitments with Maturity-Matched
- •Value at
- •22.3Hedging Short-Term Commitments with Maturity-Matched
- •22.4Hedging and Convenience Yields
- •22.5Hedging Long-Dated Commitments with Short-Maturing FuturesorForward Contracts
- •Intuition for Hedging with a Maturity Mismatch in the Presence of a Constant Convenience Yield
- •22.6Hedging with Swaps
- •22.7Hedging with Options
- •22.8Factor-Based Hedging
- •Instruments
- •22.10Minimum Variance Portfolios and Mean-Variance Analysis
- •22.11Summary and Conclusions
- •23Risk Management
- •23.2Duration
- •23.4Immunization
- •Immunization Using dv01
- •Immunization and Large Changes in Interest Rates
- •23.5Convexity
- •23.6Interest Rate Hedging When the Term Structure Is Not Flat
- •23.7Summary and Conclusions
- •Interest Rate
- •Interest Rate
Interest Rate
Number of |
|
|
|
|
|
|
|
|
|
Periods |
1% |
2% |
3% |
4% |
5% |
6% |
7% |
8% |
9% |
-
1
0.9901
0.9804
0.9709
0.9615
0.9524
0.9434
0.9346
0.9259
0.9174
2
1.9704
1.9416
1.9135
1.8861
1.8594
1.8334
1.8080
1.7833
1.7591
3
2.9410
2.8839
2.8286
2.7751
2.7232
2.6730
2.6243
2.5771
2.5313
4
3.9020
3.8077
3.7171
3.6299
3.5460
3.4651
3.3872
3.3121
3.2397
5
4.8534
4.7135
4.5797
4.4518
4.3295
4.2124
4.1002
3.9927
3.8897
-
6
5.7955
5.6014
5.4172
5.2421
5.0757
4.9173
4.7665
4.6229
4.4859
7
6.7282
6.4720
6.2303
6.0021
5.7864
5.5824
5.3893
5.2064
5.0330
8
7.6517
7.3255
7.0197
6.7327
6.4632
6.2098
5.9713
5.7466
5.5348
9
8.5660
8.1622
7.7861
7.4353
7.1078
6.8017
6.5152
6.2469
5.9952
10
9.4713
8.9826
8.5302
8.1109
7.7217
7.3601
7.0236
6.7101
6.4177
1110.36769.78689.25268.76058.30647.88697.49877.13906.8052
1211.255110.57539.95409.38518.86338.38387.94277.53617.1607
1312.133711.348410.63509.98569.39368.85278.35777.90387.4869
1413.003712.106211.296110.56319.89869.29508.74558.24427.7862
1513.865112.849311.937911.118410.37979.71229.10798.55958.0607
1614.717913.577712.561111.652310.837810.10599.44668.85148.3126
1715.562314.291913.166112.165711.274110.47739.76329.12168.5436
1816.398314.992013.753512.659311.689610.827610.05919.37198.7556
1917.226015.678514.323813.133912.085311.158110.33569.60368.9501
2018.045616.351414.877513.590312.462211.469910.59409.81819.1285
2118.857017.011215.415014.029212.821211.764110.835510.01689.2922
2219.660417.658015.936914.451113.163012.041611.061210.20079.4424
2320.455818.292216.443614.856813.488612.303411.272210.37419.5802
2421.243418.913916.935515.247013.798612.550411.469310.52889.7066
2522.023219.523517.413115.622114.093912.783411.653610.67489.8226
3025.807722.396519.600417.292015.372513.764812.409011.257810.2737
4032.834727.355523.114819.792817.159115.046313.331711.924610.7574
5039.196131.423625.729821.482218.255915.761913.800712.233510.9617
Grinblatt |
Back Matter |
Appendix A |
©
The McGraw |
Markets and Corporate |
|
|
Companies, 2002 |
Strategy, Second Edition |
|
|
|
-
Mathematical Tables
861
TABLEA.3(concluded)
-
Interest Rate
10%
12%
14%
15%
16%18%
20%
24%
28%
32%
0.9091 |
0.8929 |
0.8772 |
0.8696 |
0.8621 |
0.8475 |
0.8333 |
0.8065 |
0.7813 |
0.7576 |
1.7355 |
1.6901 |
1.6467 |
1.6257 |
1.6052 |
1.5656 |
1.5278 |
1.4568 |
1.3916 |
1.3315 |
2.4869 |
2.4018 |
2.3216 |
2.2832 |
2.2459 |
2.1743 |
2.1065 |
1.9813 |
1.8684 |
1.7663 |
3.1699 |
3.0373 |
2.9137 |
2.8550 |
2.7982 |
2.6901 |
2.5887 |
2.4043 |
2.2410 |
2.0957 |
3.7908 |
3.6048 |
3.4331 |
3.3522 |
3.2743 |
3.1272 |
2.9906 |
2.7454 |
2.5320 |
2.3452 |
4.3553 |
4.1114 |
3.8887 |
3.7845 |
3.6847 |
3.4976 |
3.3225 |
3.0205 |
2.7594 |
2.5342 |
4.8684 |
4.5638 |
4.2883 |
4.1604 |
4.0386 |
3.8115 |
3.6046 |
3.2423 |
2.9370 |
2.6775 |
5.3349 |
4.9676 |
4.6389 |
4.4873 |
4.3436 |
4.0776 |
3.8372 |
3.4212 |
3.0758 |
2.7860 |
5.7590 |
5.3282 |
4.9464 |
4.7716 |
4.6065 |
4.3030 |
4.0310 |
3.5655 |
3.1842 |
2.8681 |
6.1446 |
5.6502 |
5.2161 |
5.0188 |
4.8332 |
4.4941 |
4.1925 |
3.6819 |
3.2689 |
2.9304 |
6.4951 |
5.9377 |
5.4527 |
5.2337 |
5.0286 |
4.6560 |
4.3271 |
3.7757 |
3.3351 |
2.9776 |
6.8137 |
6.1944 |
5.6603 |
5.4206 |
5.1971 |
4.7932 |
4.4392 |
3.8514 |
3.3868 |
3.0133 |
7.1034 |
6.4235 |
5.8424 |
5.5831 |
5.3423 |
4.9095 |
4.5327 |
3.9124 |
3.4272 |
3.0404 |
7.3667 |
6.6282 |
6.0021 |
5.7245 |
5.4675 |
5.0081 |
4.6106 |
3.9616 |
3.4587 |
3.0609 |
7.6061 |
6.8109 |
6.1422 |
5.8474 |
5.5755 |
5.0916 |
4.6755 |
4.0013 |
3.4834 |
3.0764 |
7.8237 |
6.9740 |
6.2651 |
5.9542 |
5.6685 |
5.1624 |
4.7296 |
4.0333 |
3.5026 |
3.0882 |
8.0216 |
7.1196 |
6.3729 |
6.0472 |
5.7487 |
5.2223 |
4.7746 |
4.0591 |
3.5177 |
3.0971 |
8.2014 |
7.2497 |
6.4674 |
6.1280 |
5.8178 |
5.2732 |
4.8122 |
4.0799 |
3.5294 |
3.1039 |
8.3649 |
7.3658 |
6.5504 |
6.1982 |
5.8775 |
5.3162 |
4.8435 |
4.0967 |
3.5386 |
3.1090 |
8.5136 |
7.4694 |
6.6231 |
6.2593 |
5.9288 |
5.3527 |
4.8696 |
4.1103 |
3.5458 |
3.1129 |
8.6487 |
7.5620 |
6.6870 |
6.3125 |
5.9731 |
5.3837 |
4.8913 |
4.1212 |
3.5514 |
3.1158 |
8.7715 |
7.6446 |
6.7429 |
6.3587 |
6.0113 |
5.4099 |
4.9094 |
4.1300 |
3.5558 |
3.1180 |
8.8832 |
7.7184 |
6.7921 |
6.3933 |
6.0442 |
5.4321 |
4.9245 |
4.1371 |
3.5592 |
3.1197 |
8.9847 |
7.7843 |
6.8351 |
6.4338 |
6.0726 |
5.4509 |
4.9371 |
4.1428 |
3.5619 |
3.1210 |
9.0770 |
7.8431 |
6.8729 |
6.4641 |
6.0971 |
5.4669 |
4.9476 |
4.1474 |
3.5640 |
3.1220 |
9.4269 |
8.0552 |
7.0027 |
6.5660 |
6.1772 |
5.5168 |
4.9789 |
4.1601 |
3.5693 |
3.1242 |
9.7791 |
8.2438 |
7.1050 |
6.6418 |
6.2335 |
5.5482 |
4.9966 |
4.1659 |
3.5712 |
3.1250 |
9.9148 |
8.3045 |
7.1327 |
6.6605 |
6.2463 |
5.5541 |
4.9995 |
4.1666 |
3.5714 |
3.1250 |
-
Grinblatt
1727 Titman: FinancialBack Matter
Appendix A
© The McGraw
1727 HillMarkets and Corporate
Companies, 2002
Strategy, Second Edition
862 |
Appendix A |
TABLEA.4 |
Future Value of an Annuity of $1 perPeriod fortPeriods [(1 r)t 1]/r |