Interest Rate

Number of
Periods	1%	2%	3%	4%	5%	6%	7%	8%	9%

1	1.0000	1.0000	1.0000	1.0000	1.0000	1.0000	1.0000	1.0000	1.0000
2	2.0100	2.0200	2.0300	2.0400	2.0500	2.0600	2.0700	2.0800	2.0900
3	3.0301	3.0604	3.0909	3.1216	3.1525	3.1836	3.2149	3.2464	3.2781
4	4.0604	4.1216	4.1836	4.2465	4.3101	4.3746	4.4399	4.5061	4.5731
5	5.1010	5.2040	5.3091	5.4165	5.5256	5.6371	5.7507	5.8666	5.9847

6	6.1520	6.3081	6.4684	6.6330	6.8019	6.9753	7.1533	7.3359	7.5233
7	7.2135	7.4343	7.6625	7.8983	8.1420	8.3938	8.6540	8.9228	9.2004
8	8.2857	8.5830	8.8932	9.2142	9.5491	9.8975	10.260	10.637	11.028
9	9.3685	9.7546	10.159	10.583	11.027	11.491	11.978	12.488	13.021
10	10.462	10.950	11.464	12.006	12.578	13.181	13.816	14.487	15.193

11	11.567	12.169	12.808	13.486	14.207	14.972	15.784	16.645	17.560
12	12.683	13.412	14.192	15.026	15.917	16.870	17.888	18.977	20.141
13	13.809	14.680	15.618	16.627	17.713	18.882	20.141	21.495	22.953
14	14.947	15.974	17.086	18.292	19.599	21.015	22.550	24.215	26.019
15	16.097	17.293	18.599	20.024	21.579	23.276	25.129	27.152	29.361

16	17.258	18.639	20.157	21.825	23.657	25.673	27.888	30.324	33.003
17	18.430	20.012	21.762	23.698	25.840	28.213	30.840	33.750	36.974
18	19.615	21.412	23.414	25.645	28.132	30.906	33.999	37.450	41.301
19	20.811	22.841	25.117	27.671	30.539	33.760	37.379	41.446	46.018
20	22.019	24.297	26.870	29.778	33.066	36.786	40.955	45.762	51.160

21	23.239	25.783	28.676	31.969	35.719	39.993	44.865	50.423	56.765
22	24.472	27.299	30.537	34.248	38.505	43.392	49.006	55.457	62.873
23	25.716	28.845	32.453	36.618	41.430	46.996	53.436	60.893	69.532
24	26.973	30.422	34.426	39.083	44.502	50.816	58.177	66.765	76.790
25	28.243	32.030	36.459	41.646	47.727	54.865	63.249	73.106	84.701

30	34.785	40.568	47.575	56.085	66.439	79.058	94.461	113.28	136.31
40	48.886	60.402	75.401	95.026	120.80	154.76	199.64	259.06	337.88
50	64.463	84.579	112.80	152.67	209.35	290.34	406.53	573.77	815.08
60	81.670	114.05	163.05	237.99	353.58	533.13	813.52	1253.2	1944.8

Grinblatt1728Titman: Financial	Back Matter	Appendix A	© The McGraw1728Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Mathematical Tables

863

TABLEA.4(concluded)

				Interest Rate
10%	12%	14%	15%	16%18%20%	24%	28%	32%	36%

1.00001.00001.00001.00001.00001.00001.00001.00001.00001.00001.0000

2.10002.12002.14002.15002.16002.18002.20002.24002.28002.32002.3600

3.31003.37443.43963.47253.50563.57243.64003.77763.91844.06244.2096

4.64104.77934.92114.99345.06655.21545.36805.68426.01566.36246.7251

6.10516.35286.61016.74246.87717.15427.44168.04848.69999.398310.146

7.71568.11528.53558.75378.97759.44209.929910.98012.13613.40614.799

9.487210.08910.73011.06711.41412.14212.91614.61516.53418.69621.126

11.43612.30013.23313.72714.24015.32716.49919.12322.16325.67829.732

13.57914.77616.08516.78617.51919.08620.79924.71229.36934.89541.435

15.93717.54919.33720.30421.32123.52125.95931.64338.59347.06257.352

18.53120.65523.04524.34925.73328.75532.15040.23850.39863.12278.998

21.38424.13327.27129.00230.85034.93139.58150.89565.51084.320108.44

24.52328.02932.08934.35236.78642.21948.49764.11084.853112.30148.47

27.97532.39337.58140.50543.67250.81859.19680.496109.61149.24202.93

31.77237.28043.84247.58051.66060.96572.035100.82141.30198.00276.98

35.95042.75350.98055.71760.92572.93987.442126.01181.87262.36377.69

40.54548.88459.11865.07571.67387.068105.93157.25233.79347.31514.66

45.59955.75068.39475.83684.141103.74128.12195.99300.25459.45700.94

51.15963.44078.96988.21298.603123.41154.74244.03385.32607.47954.28

57.27572.05291.025102.44115.38146.63186.69303.60494.21802.861298.8

64.00281.699104.77118.81134.84174.02225.03377.46633.591060.81767.4

71.40392.503120.44137.63157.41206.34271.03469.06812.001401.22404.7

79.543104.60138.30159.28183.60244.49326.24582.631040.41850.63271.3

88.497118.16158.66184.17213.98289.49392.48723.461332.72443.84450.0

98.347133.33181.87212.79249.21342.60471.98898.091706.83226.86053.0

164.49	241.33	356.79	434.75	530.31	790.951181.92640.95873.212941.28172.3
442.59	767.09	1342.0	1779.1	2360.8	4163.27343.922729.69377.**
1163.9	2400.0	4994.5	7217.7	10436.	21813.45497.****
3034.8	7471.6	18535.	29220.	46058.	******

*The factor is greater than 99,999.

Grinblatt1730Titman: Financial	Back Matter	Appendix A	© The McGraw1730Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

864	Appendix A

TABLEA.5Cumulative Normal Distribution

d

N(d)

d

N(d)

d

N(d)

d

N(d)

d

N(d)

d

N(d)

3.00.0013 1.58.0571 0.76.22360.06.52390.86.80511.66.9515

2.95.0016 1.56.0594 0.74.22970.08.53190.88.81061.68.9535

2.90.0019 1.54.0618 0.72.23580.10.53980.90.81591.70.9554

2.85.0022 1.52.0643 0.70.24200.12.54780.92.82121.72.9573

2.80.0026 1.50.0668 0.68.24830.14.55570.94.82641.74.9591

2.75.0030 1.48.0694 0.66.25460.16.56360.96.83151.76.9608

2.70.0035 1.46.0721 0.64.26110.18.57140.98.83651.78.9625

2.65.0040 1.44.0749 0.62.26760.20.57931.00.84141.80.9641

2.60.0047 1.42.0778 0.60.27430.22.58711.02.84611.82.9656

2.55.0054 1.40.0808 0.58.28100.24.59481.04.85081.84.9671

2.50.0062 1.38.0838 0.56.28770.26.60261.06.85541.86.9686

2.45.0071 1.36.0869 0.54.29460.28.61031.08.85991.88.9699

2.40.0082 1.34.0901 0.52.30150.30.61791.10.86431.90.9713

2.35.0094 1.32.0934 0.50.30850.32.62551.12.86861.92.9726

2.30.0107 1.30.0968 0.48.31560.34.63311.14.87291.94.9738

2.25.0122 1.28.1003 0.46.32280.36.64061.16.87701.96.9750

2.20.0139 1.26.1038 0.44.33000.38.64801.18.88101.98.9761

2.150.158 1.24.1075 0.42.33730.40.65541.20.88492.00.9772

2.100.179 1.22.1112 0.40.34460.42.66281.22.88882.05.9798

2.05.0202 1.20.1151 0.38.35200.44.67001.24.89252.10.9821

2.00.0228 1.18.1190 0.36.35940.46.67731.26.89622.15.9842

1.98.0239 1.16.1230 0.34.36690.48.68441.28.89972.20.9861

1.960.250 1.14.1271 0.32.37450.50.69151.30.90322.25.9878

1.94.0262 1.12.1314 0.30.38210.52.69851.32.90662.30.9893

1.92.0274 1.10.1357 0.28.38970.54.70541.34.90992.35.9906

1.90.0287 1.08.1401 0.26.39740.56.71231.36.91312.40.9918

1.88.0301 1.06.1446 0.24.40520.58.71911.38.91622.45.9929

1.86.0314 1.04.1492 0.22.41290.60.72581.40.91922.50.9938

1.84.0329 1.02.1539 0.20.42070.62.73241.42.92222.55.9946

1.82.0344 1.00.1587 0.18.42860.64.73891.44.92512.60.9953

1.80.0359 0.98.1635 0.16.43650.66.74541.46.92792.65.9960

1.78.0375 0.96.1685 0.14.44430.68.75181.48.93062.70.9965

1.76.0392 0.94.1736 0.12.45230.70.75801.50.93322.75.9970

1.74.0409 0.92.1788 0.10.46020.72.76421.52.93572.80.9974

1.72.0427 0.90.1841 0.08.46810.74.77041.54.93822.85.9978

1.70.0446 0.88.1894 0.06.47610.76.77641.56.94062.90.9981

1.68.0465 0.86.1949 0.04.48410.78.78231.58.94292.95.9984

1.66.0485 0.84.2005 0.02.49200.80.78821.60.94523.00.9986

1.64.0505 0.82.20610.00.50000.82.79391.62.94743.05.9989

1.62.0526 0.80.21190.02.50800.84.79961.64.9495

1.600.548 0.78.21770.04.5160

This table shows the probability [N(d)] of observing a value less than or equal to d. For example, as illustrated if dis .24, then N(d) is .4052.

Grinblatt1732Titman: Financial	Back Matter	Index	© The McGraw1732Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Name Index

Page numbers followed by n indicate

notes; e, exhibits.

Abernathy, William, 425n

Aggarwal, Rajesh K., 647

Aggarwal, Reena, 12n, 82

Aharony, Joseph, 664

Akerlof, George A., 674

Akers, John, 633

Alchian, Armen, 700n

Allen, Franklin, 85n, 671n

Allen, W. B., 52

Allen, William, 798

Altman, Edward, 50, 51, 560n

Andrade, Gregor, 697, 712, 719

Andreesen, Marc, 76

Ang, James, 540, 560n

Angel, James, 864

Araskog, Rand, 656

Aron, Debra, 650

Arrow, Kenneth, 242n

Asquith, Paul, 51, 509n, 610n, 664, 681e,

711

Backus, David, 796

Bacon, J., 633

Bagwell, Laurie Simon, 534

Barclay, Michael, 588n, 636

Barksdale, James, 76

Baron, David, 84

Barry, Christopher, 15n

Bayless, Michael, 683

Beatty, Randolph, 86

Benveniste, Lawrence, 86n, 87

Berger, Philip, 710

Berle, A., Jr., 629

Bernard, Victor, 683n

Bernardo, Antonio, 671n

Bhagat, Sanjai, 16n, 703

Bizjack, John, 646n

Black, Fischer, 155, 163, 215, 216, 542nBlock, S. B., 768

Blume, Marshall, 51, 544

Bodnar, Gordon M., 740, 740n, 768n

Bolton, Patrick, 609n

Boschen, John, 645, 646

Boycko, Maxim, 634n

Boyd, John, 544

Bradley, Michael, 588n, 616n, 708, 709,

710

Brander, James A., 607n

Brav, Alon, 83

Breeden, Douglas, 751n

Brennan, Michael, 430, 545n, 585n, 651,

662n, 671n

Brickley, James, 646n, 707

Brigham, Eugene, 668

Brockovich, Erin, 586n

Brokaw, Roberts W., III, 623

Bronars, Stephen G., 605n, 617e

Brown, Philip, 164n

Buffett, Warren, 252

Bulow, Jeremy, 577n

Burroughs, Bryan, 702n

Cantor, David G., 355n

Cha-kyung, Koo, 422

Chan, K. C., 185, 208

Chaplinsky, Susan, 683

Chemmanur, Thomas, 85n

Chen, Nai-fu, 185, 207, 208, 208n

Chevalier, Judy, 608n, 611, 611n

Choe, Hyuk, 78n

Chowdhry, Bhagwan, 767

Christie, William, 75n

Chua, Jess, 560n

Chung, Kwang S., 728n

Citron, Robert, 818

Clark, Jim, 76

Clinch, Greg, 646n

Coles, Jeffrey, 646n

Comment, Robert, 696n, 710, 710n, 728

Connor, Gregory, 205n, 207

Copeland, Thomas E., 496

Cornell, Bradford, 51, 601n

Crawford, Robert, 700n

Cusatis, Patrick, 651

Cutler, David M., 601

Daniel, Kent, 209n, 683

Dann, Larry Y., 667, 681e

Dasgupta, Sudipto, 605n, 608n

DeAngelo, Harry, 516n, 567n

DeAngelo, Linda, 567n

Debreu, Gerard, 242n

Deere, D. R., 605n, 617e

Dell, Michael, 620, 634, 675

DeMarzo, Peter, 751n

Demsetz, Harold, 634, 635

Denis, David J., 670, 710

Denis, Diane K., 670, 710

Desai, Anand, 708, 709, 710

Dhillon, U., 567n

Diamond, Douglas, 645n, 682n

Dietrich, J. Richard, 680e

Dimson, Elroy, 157n

Dodd, Peter, 709

Doherty, Neal, 753n

Dolde, Walter, 768, 768n

Donaldson, Gordon, 552, 612, 629, 678

Dorrance, John, Jr., 630

Downes, David, 635

Drake, Philip, 85

Druckenmiller, Stanley, 252

Duffie, Darrell, 363n, 751n

Dunlap, Albert, 702, 702n

Dybvig, Philip H., 205n

865

Grinblatt1734Titman: Financial	Back Matter	Index	© The McGraw1734Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

866	Name Index

Eades, Kenneth, 544n

Eckbo, B. Espen, 18n, 680e, 681e, 722

Ederington, Louis, 49

Elliot, Gordon, 717, 718

Elton, Edward J., 191, 544

Elton, Edwin, 543

Erb, Claude, 186n

Evanson, Paul, 668

Ezzell, John, 483, 484

Fabozzi, Frank, 48e

Fama, Eugene, 75, 135, 161n, 164n, 166e,

208, 208n, 209

Faulhaber, Gerald, 85n

Fazzari, Steven, 684

Feenberg, Daniel, 540

Finnerty, John, 586n

Fisher, Irving, 521

Flannery, Mark J., 682n

Flath, David, 589

Ford, Henry, II, 669

Foster, George, 683n

Franchi, Dan, 684, 684n

Frank, Murray, 544

Frank, Robert H., 652

Franks, Julian R., 560n, 708, 720

French, Kenneth, 164n, 166e, 208, 208n,

209

Frier, Ken, 751n

Froot, Ken, 748n

Frost, Peter, 16n

Frye, Jack, 500

Galai, Dan, 569n

Gallagher, T. J., 768

Garfinkel, John, 85n

Gates, Bill, 551, 552, 555, 634, 675, 757Gaver, Jennifer J., 646n

Gaver, Kenneth M., 646n

Gebhardt, Gunther, 740

Geczy, Christopher, 83, 768, 768n

Geneen, Harold, 696

Gertner, Robert, 576n, 610n

Geske, Robert, 269n

Ghosh, Chinmoy, 656n, 668

Giammarino, Ronald M., 722

Gibson, Rajna, 794n

Gilovich, Thomas, 652

Gilson, Stuart, 637

Givoly, Dan, 522

Golub, Harvey, 633

Gompers, Paul, 83

Graham, John, 300, 509, 518, 522, 524

Green, Kevin, 51

Green, Richard, 585n

Greeniaus, John, 701

Grimm, W. T., 693e

Grinblatt, Mark, 85n, 164n, 205n, 220n,

250n, 363n, 496, 544n, 671n, 735,

794, 864

Grossman, Sanford J., 639n, 700n, 705n,

724n

Gruber, Martin, 191, 543, 544

Grullon, Gustovo, 533e

Guedes, Jose, 588n

Hall, Brian J., 645, 647

Hamada, Robert, 484, 485

Hammer, Armand, 627, 628, 630

Han, Bing, 363n

Handa, Puneet, 157

Hanka, Gordon, 603

Hanley, Kathleen, 87

Hansen, Robert, 18n

Harris, Robert S., 708, 720

Hart, Oliver D., 639n, 641n, 700n, 705n,

724n

Hartley, Fred, 630

Harvey, Campbell, 186n, 300, 509, 864Hasbrouck, Joel, 711

Haugen, Robert, 576n

Haushalter, David, 769

Hawawini, Gabriel, 165e

Hayes, Robert, 425n

Hayn, Carla, 522

Hayt, Gregory S., 740n, 768n

Healy, Paul, 664, 672n, 712

Heinkel, Robert, 635, 722

Helyar, John, 702n

Hermalin, Benjamin, 635n

Hess, Patrick, 544n

Hirshleifer, David, 683, 864

Hoag, Susan E., 728n

Hodder, James, 21n

Holderness, Clifford, 636

Holmstrom, Bengt, 697

Hong, Harrison, 164n

Hoshi, T., 22n, 583n, 685

Hotchkiss, Edith, 560n

Howe, Jonathan, 767

Hsieh, David, 185, 208

Huang, Yen-Sheng, 720

Hubbard, Jeff, 546

Hubbard, R. Glenn, 684

Hughes, Howard, 500, 500n, 509, 675

Hughes, Patricia, 671n

Huson, Mark, 633

Hussein, Saddam, 183

Hwang, Chuan-Yang, 85n

Iacocca, Lee, 257

Icahn, Carl, 631, 702

Ikenberry, David, 683

Ingersoll, Jonathan E., 436n

Jagadeesh, Narasimhan, 85n

Jagannathan, Ravi, 208, 544

James, Christopher, 682

Jarrell, Gregg A., 588n, 616n, 696n, 707,

710, 710n, 729

Jarrow, R., 165e

Jegadeesh, Narasimhan, 166e, 220n, 794

Jenkinson, Tim, 82n

Jensen, Michael, 80, 155, 163, 569n, 630,

640n, 641n, 645, 646, 707

Johnson, Bruce, 630n

Johnson, H., 565n, 567n

Johnson, Ross, 691

Jones, Jennifer, 661

Kalay, Avner, 37, 543

Kaplan, Steven, 467, 663n, 697, 713

Kashyap, Anil, 22n, 583n, 685

Kearney, A. John, 748

Keim, Donald, 51, 165e, 545

Keloharju, Matti, 86

Kennedy, Robert D., 706

Kensinger, John, 586n

Kerkorian, Kirk, 531, 531n, 532, 541, 620

Kester, W. Carl, 19, 52

Khanna, Naveen, 611

Kim, E. Han, 544n, 588n, 616n, 708, 709,

710

Klapper, Leora, 796

Kleidon, Allan, 164n

Klein, Ben, 700n

Koh, Francis, 86

Kole, Stacey, 635n

Korajczyk, Robert, 207

Korwar, Ashok N., 681e

Kothari, S. P., 157, 164n

Kuh, Edwin, 684

Kuwahara, Hiroto, 469n

Lakonishok, Josef, 168, 168n, 683

Lamont, Owen, 588n

Lang, Larry, 588, 610n, 669, 669n, 670e,

703, 710

Lanstein, Ronald, 157

La Porta, Rafael, 634n

Lease, Ronald, 541

Lee, Charles, 164n

Lee, Inmoo, 16e

Leeson, Nick, 757

Lego, Paul, 633

Lehmann, Bruce N., 207

Lehn, Kenneth, 43n, 582, 634, 635, 703,

712

Leland, Hayne, 675n, 679e

Lemmon, Michael, 524

Lenz, Randolph, 557

Lessard, Don, 748n

Levine, Ross, 634n

Levis, M., 164n

Lewellen, Wilbur, 541

Lewent, Judy C., 748

Lewis, Michael, 229, 229n

Lewis, Tracy R., 607n

Liberty, Susan, 661

Lichtenberg, Frank R., 713, 714

Grinblatt1736Titman: Financial	Back Matter	Index	© The McGraw1736Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Name Index

867

Liebman, Jeffrey B., 645, 647

Lim, Terence, 164n

Linn, Scott C., 681e

Lintner, John, 131n

Lippman, Steven A., 355n

Litzenberger, Robert H., 545n, 669, 669n,

670e

Ljungqvist, Alexander, 82n

Lochhead, Scott, 16e

Long, John B., Jr., 546

Long, Michael, 567n, 588n, 616n

Lopez-de-Silanes, Florencio, 634n

Lorenzo, Frank, 606, 606n, 702, 725

Lorsch, Jay, 629

Loughran, Tim, 78n, 79, 82, 83, 683

Lowenstein, Louis, 661n, 712

Lys, Thomas, 721

MacAuley, Frederick, 848n, 849, 850,

851

MacBeth, James, 161n, 291

MacKie-Mason, Jeffrey K., 522

Majluf, Nicholas S., 613, 676n, 679e

Maksimovic, Vojislav, 165e, 601n, 607nMalitz, Ileen, 588n, 616n

Malitz, Irene, 567n

Margrabe, William, 803n

Markowitz, Harry, 97, 98, 131

Marsh, Terry, 164n, 469n

Marston, Richard C., 740n, 768n

Martin, John, 586n

Marx, Groucho, 85

Masulis, Ronald, 18n, 78n, 516n, 544n,

569n, 671n, 680e, 681, 681e

Matsusaka, John, 696n, 710n

Mauer, David, 588n

Mayer, Colin, 708, 720

Mayers, David, 167n

McConnell, John, 560n, 635n, 680e

McDaniel, M., 581, 582

Means, G., 629

Meckling, William, 569n, 630

Mehran, Hamid, 639, 647

Mello, Antonio, 791, 792

Merton, Robert, 216

Merville, Larry J., 291

Meyer, John Robert, 684

Michaely, Roni, 85n, 533e, 546, 664, 683Mikkelson, Wayne H., 585, 680e, 681e

Miles, James, 483, 484, 651

Milken, Michael, 49, 50

Miller, Merton, 488n, 498, 500, 501, 502,

503, 504, 505, 505n, 506, 509, 525,

526, 527, 529, 529e, 530, 532, 535,

540, 541, 545n, 553, 554, 560, 664n,

679e, 692, 741, 742, 742n, 853

Minton, Bernadette, 768, 768n

Mitchell, Mark, 697, 703, 712, 719

Moderhak, Robert, 753

Modest, David M., 207

Modigliani, Franco, 488n, 498, 500, 501,

502, 503, 504, 505, 505n, 506, 509,

525, 526, 527, 532, 535, 553, 554,

560, 692, 741, 742, 742n, 853

Moore, John, 641n

Morck, Randall, 634, 635, 710

Moskowitz, Tobias, 164n

Mullins, David W., Jr., 51, 664, 681e

Murdoch, David, 727

Murphy, Kevin, 80, 630, 645, 646, 647,

648

Muscarella, Chris, 15n, 84

Myers, Stewart C., 564n, 584, 613, 676n,

679e

Nammacher, Scott, 50

Nance, Deana R., 768, 768n

Nanda, Vikram, 78n

Narayanan, M. P., 662n

Nash, Rob, 582n

Netter, Jeff, 582n, 707

Neuberger, Anthony, 809

Ofek, Eli, 588, 710

Ofer, Aharon, 522

Olsen, Chris, 683n

Opler, Tim, 588n, 610, 610n, 713, 714

Palepu, Krishna, 664, 672n, 712

Parrino, Robert, 633

Parsons, John, 791, 792

Partch, Megan M., 680e, 681e

Patel, Sandeep, 51

Perotti, Enrico, 605n

Perrin, Charles R., 700

Petersen, Bruce, 684

Peterson, David, 540

Peterson, Pamela, 540

Pettit, Richardson, 541

Pettway, Richard H., 681e

Phillips, Gordon M., 611

Pickens, T. Boone, 695

Pinegar, Michael J., 681e

Pinkerton, John, 18n

Pontiff, Jeffrey, 636

Poterba, James, 546

Poulsen, Annette, 43n, 582, 582n, 610n,

707, 712, 729

Price, Lisa, 735, 736

Pringle, John, 768

Prowse, Stephen, 589

Pyle, David, 675n, 679e

Quigg, Laura, 434

Radcliff, Robert C., 681e

Raether, Paul, 701

Rajan, Raghuram, 584n, 616n

Ramaswamy, Krishna, 545n

Ravenscraft, David J., 711, 712

Redington, F. M., 834n, 836

Regan, Dennis T., 652

Reid, Kenneth, 157

Ritter, Jay, 16e, 78e, 78n, 79, 82, 83, 86,

635, 683

Rivola, Pietra, 82

Roberts, Brian, 49

Robinson, Jack E., 602n

Robinson, James, 633

Rock, Kevin, 85, 86, 664n, 679e

Roe, Mark, 10, 632

Roll, Richard, 159, 160, 184n, 185, 207,

208, 208n, 818n

Rose, Michael D., 639

Rosenberg, Barr, 157

Ross, Stephen A., 176, 184n, 185, 207,

208, 208n, 436n, 637, 672n, 679e,

794n, 864

Ruback, Richard, 384n, 707, 712

Rubin, Howie, 229

Rubinstein, Mark, 291

Rummel, Robert W., 500n

Rydqvist, Kristian, 82, 83

Safieddine, Assem, 709

Samwick, Andrew A., 647

Sarig, Oded, 522

Sarin, Atulya, 670, 710

Schallheim, James, 524

Scharfstein, David, 22n, 576n, 583n,

608n, 609n, 610n, 611n, 685,

748n

Scherer, F. M., 711, 712

Schipper, Katherine, 650, 681e

Schlarbaum, Garry, 541, 680e

Scholes, Myron, 155, 157n, 163, 215,

216, 298, 540, 541, 545n

Schrand, Catherine, 768, 768n

Schultz, Paul, 71, 75n

Schwartz, Eduardo, 250n, 430, 585n,

794n

Schwert, G. William, 728

Sculley, John, 633

Sefcik, Stephen, 567n

Senbet, Lemma, 576n

Sengupta, Kunal, 605n

Servaes, Henri, 635n, 710

Shanken, Jay, 164n

Shapiro, Alan, 601n

Sharpe, Steven, 603

Sharpe, William, 131, 131n

Shaw, Wayne, 85n

Sherman, Ann E., 82n

Shevlin, Terry, 683n

Shleifer, Andrei, 168, 251n, 634, 634n,

635, 637, 702, 703, 710

Shoven, John, 534, 577n

Siegel, Donald, 713, 714

Sloan, Richard G., 164n

Smith, Abbie, 650, 681e, 714

Grinblatt1738Titman: Financial	Back Matter	Index	© The McGraw1738Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

868	Name Index

Smith, Clifford, 581, 588n, 646n, 680e,

744n, 753n, 768, 768n

Smith, Kimberly, 645, 646

Smithson, Charles W., 768, 768n

Soter, Dennis, 668

Spielberg, Steven, 637

Spier, Kathy E., 605n

Spindt, Paul, 87

Stafford, Erik, 697, 712, 719

Stanley, Kenneth, 541

Starks, Laura, 633

Stein, Jeremy, 164n, 467, 662n, 713, 748nStiglitz, Joseph, 573n

Stohs, Mark, 588n

Stoll, Hans, 261

Story, Edward, 74n

Stulz, Rene, 565n, 588, 610n, 640n, 641n,

703, 710, 744n

Subrahmanyam, Avanidhai, 683

Summers, Lawrence H., 601, 702

Swaminathan, Bhaskaran, 164n

Swary, Itzhak, 664

Tehranian, Hassan, 647

Telmer, Chris, 796

Teoh, Siew Hong, 661

Thaler, Richard, 664, 683

Thomas, Jacob, 683n

Tice, Sheri, 611

Tinic, Seha, 84

Titman, Sheridan, 166e, 205n, 209n, 432,

435, 496, 522, 544n, 576n, 588n,

589n, 598n, 601n, 608n, 610, 610n,

616n, 671n, 709, 735, 760n, 864

Tobin, James, 131, 711

Torous, Walter, 560n

Travlos, Nickolaos G., 708, 720

Tschoegl, Adrian, 21n

Tuckman, Bruce, 93

Tufano, Peter, 53n, 769

Urich, Thomas J., 191

Uttal, Bro, 79n

Vermaelen, Theo, 667, 683

Verrechia, Robert, 645n

Vetsuypens, Michael, 15n, 84, 85

Vincent, Linda, 721

Vishny, Robert, 168, 168n, 251n, 634,

634n, 635, 637, 703, 710

Vishwanathan, S., 751n

Viskanta, Tadas, 186n

Volcker, Paul, 740n

Waegelein, James F., 647

Walkling, Ralph, 703, 720

Wall, Larry D., 768

Walter, Terry, 86

Wang, Zhenyn, 208

Warga, Arthur, 509n

Warner, Jerold, 560, 581

Wasley, Charles, 157

Watts, Ross, 588n, 646n

Wei, K. C. John, 205n

Weinstein, Mark, 50, 85n

Weisbach, Michael, 635n

Weiss, Andrew, 573n

Weiss, Lawrence, 560

Welch, Ivo, 85n, 86, 509n, 661, 671n, 864

Wessels, Roberto, 522, 588n, 589n, 616n

Weston, J. Fred, 728n

Whitmore, Kay, 633

Wilhelm, William, 82n, 86n, 87

Williams, Joseph, 157n

Wilson, Richard, 48e

Wizman, Thierry, 509n

Wolff, Eric, 51

Womack, Kent, 664, 683

Wong, T. J., 661

Woolridge, J. Randall, 651, 656n, 668

Wrigley, William, Jr., 89

Wu, Gordon, 688

Yang, Jerry, 634

Yawitz, Jess, 49

Zervos, Sara, 634n

Zhao, Quanshui, 16e

Ziemba, William, 164n, 165e

Zimmerman, Jerold, 661

Zingales, Luigi, 611, 616n

Zweibel, Jeffrey, 613n

Grinblatt1739Titman: Financial	Back Matter	Index	© The McGraw1739Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Subject Index

Absolute priority rule, 559

Accelerated depreciation, 524

Accounting cash flow, 303–305

Accounting rate of return, 358

Accounts receivable, 310–311

Accrued interest, 59–62

Acquiring firm, 692

Acquisitions. SeeMergers and

acquisitions

Adjustable-rate preferred stock, 70

Adjusted cost of capital formula,

481–482

Adjusted present value (APV) method,

461, 467–468

certainty equivalent method, 472–473

debt capacity, 469

price/earnings ratio approach, 475

ratio comparison approach, 475

real options approach, 473–474

risk-adjusted discount rate method,

470

sources of shareholder value,

468–469

versatility and usability, 470–475

ADRs, 73

Adverse selection, 674–678

Agency costs, 645

Agency problem, 643–645

Agents, 643

American Depository Receipts (ADRs),

73

American options, 258

binomial valuation of, 274–278

forward price version of Black-

Scholes model, 290–291

put-call parity, 264–268

Amortization, 36, 44–47

EBITDA, 306

good will, 721–722

Annualized rates, 322

Annuities, 316–321

Annuity bonds, 44–45

Annuity rates, 363–368

Annuity term structure, 363

Anti-takeover defenses, 727–729

Any-or-all offer, 724

APT. SeeArbitrage pricing theory (APT)APVmethod. SeeAdjusted present value

(APV) method

Arbitrage

Black-Scholes model, 284

derivatives, 230–231

futures, 783–784

Miller-Modigliani dividend

irrelevancy theorem, 536

Modigliani-Miller Theorem,

503–504,505

net present value (NPV), 333–335

put-call parity, 263–264, 265–266

secret share accumulations by risk

arbitrageurs, 725

term structure of interest rates is

always flat, 842

tracking and, 197–199

verifying existence, 202–203

Arbitrage opportunity, 176

Arbitrage pricing theory (APT), 176–177,

199, 209

APTrisk return equation, 200–201

assumptions, 199

certainty equivalent method, 407

empirical tests, 206–209, 398–399

factor betas, 206

factor risk premiums, 206

firm-specific risk, 199–200,

203–206

risk-adjusted discount rate method

implementation, 386–390

risk-expected return for securities with

firm-specific risk, 203–206

verifying arbitrage existence,

202–203

Arithmetic sample mean, 419–421

Asset allocation, 98

Asset-backed securities, 52

Asset betas, 465

Asset covenants, 36–37

Asset substitution problem, 563, 569

government-insured debt, 572

short-term versuslong-term debt,

584–585

At the money, 225

Balance sheets, 310–311

all-equity-financed firms, 379–380

partially financed with debt firm, 380

right-hand side as portfolio, 380–381

risk of components with tax-

deductible debt interest,

463–465

Balloon payment, 43

Bank Holding Company Act of 1956, 10

Banking Act of 1933 (Glass-Steagall

Act),9

Bankruptcy

Chapter 7 bankruptcy, 559

Chapter 11 bankruptcy, 559–560, 580

connection with liquidation, 599

direct costs, 558, 560–561

indirect bankruptcy costs. SeeIndirect

bankruptcy costs

minimizing debt holder-equity holder

incentive problems, 580–587

Modigliani-Miller Theorem, 506–509

Banks and banking

assets of the 10 largest banks in the

world, 21

869

Grinblatt1741Titman: Financial	Back Matter	Index	© The McGraw1741Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

870	Subject Index

Banks and banking (cont.)

commercial banks, 4

Germany, 19

investment banks, 4, 10–11

Japan, 20–21

loans. SeeLoans

monitoring capital structure, 642–643

United Kingdom, 23–24

universal banking, 10, 19

Bargaining with the government, 606

Bargaining with unions, 605–606

Barriers to entry, 424

Basis, 698, 699, 720

hedging, 794

Basis risk, 794–795, 809

Basket options, 802

Basket swaps, 796

Bearer bonds, 54

Benchmark rate, 31–33

Best-efforts offering, 15

Betas, 147–149

asset betas, 465

Capital Asset Pricing Model (CAPM),

155–157

cash flow beta, 404–405

cash flow horizon and beta risk,

397–398

certainty equivalent method. See

Certainty equivalent method

comparison method, 391–394,

399–402

equity betas, 465

factor betas. SeeFactor betas (factor

sensitivities)

return betas, 405

risk-adjusted discount rate method,

377–378

risk-adjusted discount rate method

implementation, 386

target beta level, 774

zero-beta returns, 155

Bid-ask spread, 10

Bidder incentive programs, 703

Bid price, 10

“Big Bang,” 22–23

Bilateral monopolies, 605

Bill, 47

Binomial derivative pricing models,

234–245, 247–248

Binomial process, 235

Binomial valuation of American options,

274–278

Binomial valuation of European options,

271–274

Black-Scholes formula, 279–280

Black-Scholes model

empirical biases, 291–292

forward price, 287–291

price sensitivity to stock price,

volatility, interest rates and

expiration time, 284–287

valuation, 278–280

volatility, 280–283

Bloomberg adjustment, 157

Board terms staggered, 727–728

Bond equivalent yield, 58

Bond indentures, 35–39

Bonding mechanism, 39

Bond market conventions, 57–63

Bond ratings, 36, 47–49

Bonds, 35

accrued interest, 59–62

annuity bonds, 44–45

asset covenants, 36–37

bearer bonds, 54

binomial model tracking, 235–237

bonding mechanism, 39

cash flow pattern, 43–47

collateral trust bond, 39

convertible bonds, 585

covenants (bond indentures), 35–39

deferred-coupon bonds, 44–45

discount bonds, 47

dividend covenants, 37

dual-coupon bond, 47

dual-currency bonds, 51–52

duration, 826–829

DV01, 820–823

Eurobonds. SeeEurobonds

Euroyen bonds, 18

features, 36

financial ratio covenants, 37–39

financing covenants, 37

high-yield bonds (junk bonds),

49–51,53

increasing-rate notes (IRNs), 53

maturity, 47

municipal bonds, 60, 519–521

oil-linked bonds, 52

options, 39–43

price based, 47

prices, 36, 43, 57–63

price/yield relationship, 57–59

primary and secondary markets,

56–57

settlement date, 58–59

sinking fund provisions, 39, 40

Treasury Inflation Protected Securities

(TIPS), 52

type based on asset claims in default,

39

yields to maturity, 57–59, 62–63Book building process, 81

Book return on equity, 389

Brennan-Schwartz method, 430

Brokers, 74

Bullet bonds, 44–46

Callability, 41–42

Call options, 71

American options. SeeAmerican

options

European options. SeeEuropean

options

put-call parity. SeePut-call parity

value as function of volatility, 283

value at expiration, 223–225,

259–261

Cap, 33

Capacity expansion valuation, 438–443

Capital, 2–3

cost of. SeeCost of capital

external capital, 4–5

finance defined, 3

financial intermediaries, 3–4

Germany, 19–20

hedging, 748–749, 751–754

internal capital, 4–5

international markets, 18

Japan, 20–22

legal environment, 8–10

markets. SeeCapital markets

misallocation in mergers and

acquisitions, 706

public and private sources, 6–8, 19

trends, 25–26

United Kingdom, 22–24

Capital Asset Pricing Model (CAPM),

130–131, 151, 155, 169

applications of, 132

assumptions, 151

beta, 155–157

certainty equivalent method, 406–407

conclusions, 152

cross-sectional tests of the CAPM,

160–167

empirical tests, 158–168, 398–399

implications for optimal investment,

154

market model, 179–180

market portfolio, 152–154

market risk premium, 158

risk-adjusted discount rate method

implementation, 384–390

risk-free returns, 155

zero-beta returns, 155

Capital budgeting, 330

Capital constraints, 338–339

Capital gains tax, 719–720

Capital leases, 34

tax advantages, 523

Capital market line (CML), 138–143

Capital markets, 3

emerging capital markets, 53

U.S. capital market, 5–6

Capital structure, 382

competitive strategy, 607–611

corporate taxes affect on, 509–511

debt holder–equity holder conflicts,

614–615

dynamic capital structure

considerations, 611–615

empirical evidence, 616–617

Grinblatt1743Titman: Financial	Back Matter	Index	© The McGraw1743Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Subject Index

871

event studies, 680–681

individual investors can “undo,”

505–506

liquidation policy, 576

managerial control, 639–643

mergers and acquisitions, 722

Miller equilibrium, 529–530

Modigliani-Miller Theorem. See

Modigliani-Miller Theorem

negative taxable earnings, 515–518

payout policy, 551–552

personal taxes affect on, 512–518,

529–530

stakeholder theory, 597–604

Tax Reform Act of 1986 effect on, 522CAPM. SeeCapital Asset Pricing Model

(CAPM)

CAR, 777–778

Carve-outs, 650–651

Cash, 310–311

investment expenditures and

availability of, 684–685

Cash flow, 302

accounting cash flow, 303–305

changes following leveraged buyouts,

713–714

conditional expected cash flows, 409

corporate taxes effect on, 509–510

discounted cash flow. SeeDiscounted

cash flow (DCF)

discounting in bankruptcy, 563–564

early cash flow streams, 345, 352–353

to equity holders, 488–490

expected cash flow. SeeExpected cash

flow

factor betas, 805

financing cash flows, 303

forecasts, 308–311

horizon and beta risk, 397–398

incremental cash flows, 307–308, 331

internal rate of return (IRR), 345,

351–354

later cash flow stream, 345, 351–352

Modigliani-Miller Theorem, 501–502

negative cash flows, 393–394

nominal cash flows, 315

real assets, 302–311

real cash flows, 315

value additivity and present value of

cash flow streams, 315

Cash flow at risk (CAR), 777–778

Cash flow beta, 397–398, 404–405, 805Cash flow hedging, 743–744, 774,

808–809

Cash flow pattern, 36, 43–47

Cash flow statements, 309–310

Certainty equivalent, 372

forward prices, 413–414

Certainty equivalent method, 372

adjusted present value (APV) method,

472–473

arbitrage pricing theory (APT), 407

Capital Asset Pricing Model (CAPM),

406–407

defining, 403–404

identifying, 404–405

providing certainty equivalents

without knowing it, 413

risk-free scenario method, 408–413

tracking portfolios, 407–408

Chapter 7 bankruptcy, 559

Chapter 11 bankruptcy, 559–560, 580

Charitable foundations, 4

Chinese walls, 9

Classical tax system, 539

Clearinghouse, 227

Closed-end mutual funds, 636

CML, 138–143

CMOs, 229

Collared floating loan rate, 33

Collateralized mortgage obligations

(CMOs), 229

Collateral trust bond, 39

Commercial banks, 4

Commercial paper, 33, 34–35

accrued interest, 60

Commercial paper rate, 32

Common factors, 176

Common stock, 69–70

volume of issuances, 72

Comparison approach, 378, 384–391

comparable lines of business,

399–403

empirical failures of CAPM and APT,

398–399

growth opportunities as source of high

betas, 392–394

multiperiod risk-adjusted discount

rates, 394–398

project betas not the same as firm

betas, 391–392

taxes, 466–467

weighted average cost of capital

(WACC) method, 487–488

Compensation of management, 587

executive compensation, 643–651,

749–751

mergers and acquisitions, 650–651

Competitive analysis approach, 423,

451–454

Competitive offering, 16

Competitive strategy, 607–611

Compounding, 314

Compounding-based bias, 419–421

Compound option, 269

Conditional expected cash flows, 409

Conditional tender offers, 723–724

Confidentiality of information, 7

Conglomerate (diversifying) acquisition,

695–697

Contingent immunization, 838

Continuous-time models, 278

Contracts

forward contracts. SeeForward

contracts

futures. SeeFutures contracts

management compensation, 587

relative performance contract, 648

Convenience yields, 785–795

Conversion premium, 43

Conversion price, 43

Convertibility, 42

Convertible bonds, 585

Convertible preferred stock, 70

Convex curvature, 58

Convexity, 819, 839–845

Corporate bonds. SeeBonds

Corporate ownership and control, 629–634

Corporate strategy, 598

Correlations, 109–110, 115

factor models, 190

market model, 180–181

mean-standard deviation diagram,

117–119

Cost of capital, 132, 333

adjusted cost of capital formula,

481–482

as function of leverage ratio, 383–384

marginal cost of capital, 486

marginal weighted average cost of

capital, 486–487

risk-adjusted discount rate method,

378, 386–390

statistics, 418–421

unlevered cost of capital, 462–467

Cost of debt, 383–384

weighted average cost of capital

(WACC) method, 477–479,

482–483

Cost of equity, 383–384

weighted average cost of capital

(WACC) method, 476, 479,

482–483

Counterparties, 221

Coupon, 36

duration, 826–827

Coupon rate, 36

Coupon yields, 62–63

Covariances, 107–110

contrasting with betas, 149

factor models, 188–192

many-stock portfolios, 114–115

as marginal variance, 120–122

Covenants

asset covenants, 36–37

bond indentures, 35–39

dividend covenants, 37

financial ratio covenants, 37–39

financing covenants, 37

loan covenants, 33, 566–567

protective covenants, 582

Covered interest rate priority relation, 234

Covered option strategy, 799–803

Grinblatt1745Titman: Financial	Back Matter	Index	© The McGraw1745Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

872	Subject Index

Cramdown, 560

Credit rating importance, 602–603

Credit rationing, 573–575

Credit spread, 30

Cross-border acquisitions, 698

Cross-hedging, 809

Cross-sectional regression, 161

Cross-sectional tests of the CAPM,

160–163

results, 164–167

Cum-dividend value, 277

Cumulative, 70

Currency

caps and floors, 802–803

dual-currency bonds, 51–52

Currency forward rates, 232–234

Currency futures, 217–218

Currency risk, 761–767

hedging, 781–782

Currency swaps, 54, 222–223

hedging, 798–799

Currency trading, 217

Current value, 659–660

Customer confidence, 615

Dealer markets for equity, 75

Debenture, 39

Debt, 5

costs of issues, 15–16

default-free debt, 381–382, 477

dynamic perpetual risk-free debt, 483

effect on risk, 382–384

firm value, 510–511

government-insured debt, 572

non-recourse debt, 490

personal taxes, effect on debt and

equity rates of return, 512–515

protective covenants, 582

Debt capacity, 462, 469

Debt financing, 29–30, 63–64

accrued interest, 59–62

adverse selection, 677

asset-backed securities, 52

bank loans, 31–33

bankruptcy. SeeBankruptcy

bonds. SeeBonds

commercial paper, 34–35

competitive effects, 607–611

corporate bonds. SeeBonds

effect on comparisons, 379–384

emerging capital markets, 53

Euromarkets, 53–55

firm size, 589

firms with more taxable earnings, 522

information content of debt-equity

choice, 671–678

investment choice influences, 588

investment levels, 640–642

leases, 34

measures, 497–498

mergers and acquisitions, 699

pace of innovation, 53

price/earnings ratios, 446–451

primary and secondary markets,

55–57

ratios of select U.S. corporations, 499

risk-adjusted discount rate method

implementation, 384–386

settlement dates, 58–59

shareholder control and, 639–640

Treasury Inflation Protected Securities

(TIPS), 52

weighted average cost of capital

(WACC) method, 477–479,

480–485

Debt holder–equity holder conflicts

capital structure, 614–615

Chapter 11 bankruptcy, 580

hedging, 756

indirect bankruptcy costs, 561–579

minimizing, 580–587

Debtor-in-possession (DIP) financing,

580

Debt overhang problem, 563–567

short-term versus long-term debt, 584Debt ratios, 383–384, 640–641

Debt tax shield (TX), 464

discount rate, 471–472

hedging, 747

weighted average cost of capital

(WACC) method, 476

Default-free debt, 381–382

weighted average cost of capital

(WACC) method, 477

Default premium, 561

Defaults, 30

Defenses to takeovers, 727–729

Deferred-coupon bonds, 44–45

Deferred taxes, 311

Delta, 284

Delta hedging, 799, 803–804

Demeaned returns, 105

Depreciation

accelerated depreciation, 524

EBITDA, 306

economic depreciation, 341, 523

Depth, 75

Deregulation

capital markets generally, 10, 25

Germany, 20

Japan, 22

United Kingdom, 22

Derivatives, 113, 215–216, 252

forwards. SeeForwards

futures. SeeFutures

long-term capital management

(LTCM), 251–252

market friction, 251–252

mortgage-backed securities, 228–229

options. SeeOptions

pricing. SeePricing derivatives

real assets, 228

swaps, 221–223

usage, 767–769

DIPfinancing, 580

Direct bankruptcy costs, 558, 560–561Direct issuance, 18

Direct lease, 34

Disciplinary takeover, 695

management incentives, 701–703

Discount, 240

Discount bonds, 47

Discounted cash flow (DCF), 330, 425

to equity holders, 488–491

net present value (NPV), 332–335

Discounted cash flow (DCF) method, 330

Discount rates, 302

discounted cash flow and net present

value, 332–333

nominal discount rates, 315

real discount rates, 315–316

risk-adjusted discount rate method.

SeeRisk-adjusted discount rate

method

risky debt tax shields, 471–472

Discrete models, 278

Distribution, 12

joint distribution, 107

Distribution policy

in frictionless markets, 534–538

investment distortions, 547–551

payout policy, 551–552

taxes and transaction costs, 538–542

Diversification, 98, 181–183

Diversifying acquisition, 695–697

Dividend covenants, 37

Dividend discount model, 320, 388–390

Dividend growth forecasts, 388–390

Dividend payout ratio, 533

Dividend policies, 532, 534

debt overhang problem, 566

expected stock returns, 542–546

investment incentives, 668–670

optimal payout policy, 537–538

taxes, 539–541

Dividends

announcements, 664–671

Black-Scholes model, 280

cum-dividend value, 277

debt overhang problem, 567

forecasting, 308–309

Miller-Modigliani dividend

irrelevancy theorem, 532,

535–537

rations, 533–534

versus share repurchases, 667–668

Dividend signaling model, 664–668

Dividend tax, 540–541

financing choices, 546–547

investment choices, 547–551

Dividend yields, 534, 535

cross-sectional relation with stock

returns, 544–546

Grinblatt1747Titman: Financial	Back Matter	Index	© The McGraw1747Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Subject Index

873

Dollar value of one basis point decrease.

SeeDV01

Dominated portfolios, 134

Down state, 235

Dual-class common stock, 69

Dual-coupon bond, 47

Dual-currency bonds, 51–52

Due diligence, 9

Duration, 826–834

DV01, 820–825

convexity, 839–845

duration, 830–834

immunization, 837

term structure DV01, 847

Dynamic capital structure theory, 611–615Dynamic debt capacity, 469

Dynamic perpetual risk-free debt, 483

Early cash flow streams, 345, 352–353

Earnings-based compensation, 649–650Earnings before interest, taxes,

depreciation, and amortization

(EBITDA), 306

Earnings before interest and taxes

(EBIT),303

forecasting, 309

unlevered cash flow, 305–307

Earnings before taxes, 309

Earnings manipulation, 660–661

Earnings stream, 514

ECNs, 74–75

Economic depreciation, 341, 523

Economic risk, 763

hedging, 766–767

Economic Value Added (EVA), 330,

341–343

Economies of scale, 424

Economies of scope, 425–426

Effective duration, 832

Effective marginal tax rates, 518

Efficient frontier, 135–136

risky assets, 143–145

Efficient markets hypothesis, 75

Embedded options, 228

Emerging capital markets, 53

Equipment trust certificate, 39

Equity, 5

balance sheet equity, 311

costs of issues, 15–16

personal taxes effect on debt and

equity rates of return, 512–515

pricing, 81, 82–87

private equity, 77

Equity betas, 465

Equity financing, 68–69, 88

cost of, 383–384

debt holder–equity holder conflicts.

SeeDebt holder–equity holder

conflicts

globalization of equity markets,

72–73

“going public.” See“Going public”

indirect bankruptcy costs. SeeIndirect

bankruptcy costs

informational efficiency and capital

allocation, 75–77

information content of debt-equity

choice, 671–678

monitoring role, 643

ownership of U.S. equities, 72

private equity, 77

secondary markets for equity, 73–75

types of equity securities, 69–72

underpricing, 82–87

weighted average cost of capital

(WACC) method, 476, 479,

482–483

Equivalent annual benefit, 341

Equivalent rates, 322–324

Eurobonds, 54

accrued interest, 60

Eurodollar bonds, 18

Eurocurrency loans, 54–55

Eurodollar bonds, 18

Eurodollar deposits, 55

accrued interest, 60

Euro-floating rate notes (FRNs), 60

Euromarkets, 18

debt financing, 53–55

European options, 258

binomial valuation, 271–274

put-call parity, 267–268

Euroyen bonds, 18

EVA, 330, 341–343

Event studies, 678–680

evidence, 680–684

Excess returns, 158

market-adjusted excess return, 679

Exchangeability, 42

Exchange offers, 681

Exchange option, 431

Exchange rate changes, 761–767

Exchanges, 73–74

Exchange-traded options, 225–227

Ex-date, 59

Ex-dividend date, 266

stock price movements, 543–544

Ex-dividend value, 277

Executive compensation, 643–651

hedging, 749–751

Exercise commencement date, 259

Expanding capacity valuation, 438–443Expected cash flow, 371

conditional expected cash flows, 409

tracking portfolios, 376

Expected returns (mean return), 103–104

relation with risk, 146–151

tracking portfolios, 198, 376

weighted average cost of capital

(WACC) method, 478–479

Expense forecasts, 308–309

Expiration date, 223

Explicit interest, 314

Exposures, 773

External capital, 4–5

Face value, 36

Factor analysis, 184–185

arbitrage pricing theory (APT), 207Factor betas (factor sensitivities), 176,

187–188, 206

arbitrage pricing theory, 206

covariances, 189–190

hedging, 805–807

prespecification of, from theoretical

relations, 776

Factor models, 176–177, 209

correlations, 190

covariances, 188–192

diversification, 181–183

estimating factors, 184–186

market model. SeeMarket model

mean-variance analysis, 191

multifactor models, 183–184

tracking portfolios, 192–195

variances, 188–192

Factor portfolios, 184–185

pure factor portfolios. SeePure factor

portfolios

tracking portfolios, 376

Factor risk, 176, 181

Factor risk premiums, 206

Factor sensitivities. SeeFactor betas

(factor sensitivities)

Fair price amendments, 727

Fallen angels, 50

Feasible portfolios, 101

Feasible set, 133–134, 136–137

Fed funds rate, 32, 33

Financial acquisitions, 695, 697

Financial distress

benefits of with committed

stakeholders, 604–606

and reputation, 601–603

Financial distress costs, 562

estimating, 600–601

hedging, 745–747

signaling model based on tax

gain/financial distress cost trade-

off, 671–674

Financial intermediaries, 3–4

Financial leases (capital leases), 34

tax advantages, 523

Financially distressed firms, 558

Financial ratio covenants, 37–39

Financial statements

balance sheets. SeeBalance sheets

cash flow forecasts, 308–311

Financial synergies, 696, 703–704

Financing cash flows, 303

Financing covenants, 37

Firm characteristics, 185–186

Firm commitment offering, 15

Grinblatt1749Titman: Financial	Back Matter	Index	© The McGraw1749Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

874	Subject Index

Firm-specific risk, 176	demand- and supply-side explanations	High-yield bonds (junk bonds), 49–51, 53
arbitrage pricing theory (APT),	for IPO cycles, 78–79	Hold up problem, 584
199–200, 203–206	process, 81–82	Homogeneous beliefs, 151
diversification, 181–183	Gold mining risk management, 769	Horizontal mergers, 700
Firm value	Good will amortization, 721–722	Hostile takeovers, 694
debt, 510–511	Gordon Growth Model, 388	bidding strategies, 722–727
performance-based pay, 647–648	Government bargaining, 606	trends, 697–698
shareholdings by management,	Great Britain, 22–24	Hot issue periods, 78
635–636	Greenmail, 727	Human capital, 167
Fixed-income investments, 30	“Green-Shoe option,” 12	Hurdle rate, 345, 353–354
Fixed-price method, 81	Gross domestic product (GDP), 184
Flat price, 59	Gross return, 400	Immunization, 819, 834–839
Flipover rights plans, 728	Growing perpetuity, 320	convexity, 840
Floating rates, 31–33	Growth opportunities, 392	Impaired creditors, 559
Floor, 33	Growth options, 392	Implicit interest, 314
currency, 802–803		Implied volatility, 282
Follow-up merger, 726	Hamada formula, 467	versus strike price, 292
Foreign exchange risk management,	Hedge ratio, 774	Imputation systems, 539
761–767	Hedging, 739–740	Income statements, 309
Forward contracts, 216	capital, 748–749, 751–754	Increasing-rate notes (IRNs), 53
certainty equivalents, 413–414	cash flow, 743–744, 774, 808–809	Incremental cash flows, 307–308, 331
hedging, 779–782, 788–795	convenience yields, 785–795	Indirect bankruptcy costs, 558, 561–562
put-call parity, 262–264	credit rate change exposure, 761	asset substitution problem. SeeAsset
valuing, 231–232	debt tax shields (TX), 747	substitution problem
Forward delta, 803–804	decision making, 751–754	debt holder responses to shareholder
Forward prices, 216, 783–784	DV01, 823–824, 832–834	incentives, 570–575
Black-Scholes model, 287–291	economic risk, 766–767	debt overhang problem, 563–567, 584
certainty equivalent, 413–414	exchange rate changes, 766–767	equity holder incentives, 562–563
information in, 781	executive compensation, 749–751	reluctance to liquidate problem, 563,
Forward rate discount, 233	factor-based, 805–807	575–579
Forwards, 216–221	financial distress costs, 745–747	shortsighted investment problem, 563,
valuation, 231–234	interest rates, 845–850	567–569
Fourth market, 74	investor’s hedging choice, 741	taking higher risks, 569–570
Free-rider problem, 565, 722–727	long-dated commitments with short-	underinvestment problem, 563–567
financial institution mitigation, 632	maturing futures or forward	Inflation, 315–316
Frictionless markets, 135	contracts, 788–795	currency risk, 764–765
distribution policy in, 534–538	mean-variance analysis, 810–812	interest rate decomposition, 760–761
Friendly takeover, 694	measuring risk exposure, 774–778	tax gain from leverage, 521
FRNs, 60	minimum variance portfolios,	Inflation-adjusted cash flows (real cash
Full price, 59	810–812	flows), 315
Futures, 216–221	Modigliani-Miller Theorem, 740–742	Information
derivative valuation, 242–245	motivation to hedge affects what is	confidentiality, 7
hedging, 751–752, 783	hedged, 754	content of debt-equity choice, 671–678
Futures contracts, 216	options, 799–804	on dividend and share repurchases,
hedging, 783–785, 788–795	organization of hedging activities, 755	664–671
Futures markets, 216	reasons for, 743–754	forward prices, 781
Future value formulas, 313–314	regression, 807–810	of management superior to
	short-term commitments with	shareholders, 658–660
GDP, 184	maturity-matched forward	Informational efficiency, 75–77
Geometric mean, 398, 419–421	contracts, 779–782	underpricing, 85–87
Germany, 19–20	short-term commitments with	Initial public offering (IPO), 15
Glass-Steagall Act, 9	maturity-matched futures	Inside information, 7
Globalization	contracts, 783–785	Insider trading, 7
capital, 25	stakeholder effects, 756–757	Insurance, portfolio, 269–271
equity markets, 72–73	stakeholder theory, 745–747	Insurance companies, 4
international acquisitions, 698	swaps, 795–799	Interest
Going concern value, 576	taxes, 744–745	accrued interest, 59–62
“Going public,” 77–78	usage, 755–756, 767–769	compounding, 314
benefits, 79–80	value creation, 744	EBIT. SeeEarnings before interest and
costs, 80	value hedging, 774	taxes (EBIT)

Grinblatt1751Titman: Financial	Back Matter	Index	© The McGraw1751Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Subject Index

875

EBITDA, 306

explicit interest, 314

implicit interest, 314

open interest, 219

simple interest, 321

Interest coverage ratio, 37

Interest-only securities (IOs), 229

Interest rate risk management, 758–761,

819, 850

convexity, 839–845

dollar value of one basis point

decrease (DV01). SeeDV01

duration, 826–834

hedging, 845–850

immunization, 834–839, 840

Interest rates

adjustable-rate preferred stock, 70

annualized rates, 322

Black-Scholes model, 286

covered interest rate priority relation,

234

equivalent rates, 322–324

floating rates, 31–33

forecasting, 308–309

risk hedging, 796–798

risk management. SeeInterest rate risk

management

Interest rate swaps, 60, 221–222

hedging, 796–798

Internal capital, 4–5

Internal rate of return (IRR), 345, 359

cash flows, 345, 351–354

examples, 346–349

mutually exclusive projects,

355–357

net present value (NPV), 346–349

numerical iteration of, 345–346

term structure issues, 350–351

Internal rate of return method, 345

International acquisitions, 698

In the money, 225

Intrinsic value, 658

trade-off with current value, 659–660Inventory, 310–311

Investment banks, 4, 10–11

Investment Company Act of 1940, 10

Investment-grade rating, 48, 49

Investments

cash, availability of and effect on

investment expenditures,

684–685

debt financing, 588, 640–642

dividend policies, 668–670

leveraging an investment, 104

management decisions, 636–639

shareholder policies, 547–551

shortsighted investment choices,

662–663

Investor clienteles, 541

IOs, 229

IPO, 15

demand- and supply-side explanations

for IPO cycles, 78–79

underpricing, 82–87

IRNs, 53

IRR. SeeInternal rate of return (IRR)

Japan, 20–22

cash flow and investment, 685

debt holder–equity holder conflicts,

589

Joint distributions, 107

Junior bonds, 36

Junk bonds, 49–51, 53

Keiretsu,21

Later cash flow stream, 345, 351–352

Layoffs, 343–344

LBOs. SeeLeveraged buyouts (LBOs)

LEAPS, 226

Leases, 34

tax advantages, 523–525

Legal environment, capital, 8–10

Lessees, 34

tax advantages, 523

Lessors, 34

tax advantages, 523

Leverage. SeeDebt financing

Leveraged buyouts (LBOs), 43

empirical evidence on gains from,

712–714

management incentives, 701–703

trends, 697–698

Leveraged lease, 34

Leveraged recapitalization, 43

Leverage ratios, 382–384, 640–641

Leveraging an investment, 104

Liability management, 758

Liability streams, 758–761

LIBID, 32

LIBOR, 32, 33

LIBOR term structure, 363

Limit order, 74

Line of credit, 31

Liquidation, 70

connection with bankruptcy, 599

Liquidation costs, 576

imposed on stakeholders, 599

Liquidation value, 576

Loan commitment, 31

Loan covenants, 33

underinvestment problem, 566–567

Loans, 31–33

Eurocurrency loans, 54–55

Lock-box, 37

Long position, 100

call option value at expiration, 262

Long-term capital management (LTCM),

251–252

Long-term risk-free rates, 395–397

Long-term share price maximization,

658–660

LTCM, 251–252

MacAuley duration, 847–849

Macroeconomic variables, 176

arbitrage pricing theory (APT),

207–208

factors, 185–186

Management

capital structure, 613, 639–643

compensation. SeeCompensation of

management

earnings manipulation, 660–661

executive compensation, 643–651,

749–751

hedging influences, 749–751, 757

incentives in mergers and acquisitions,

701–703

incentives when managers have better

information than shareholders,

658–660

influences on incentives, 629–630

investment decisions, 636–639

outside shareholders, 638–639

separation of ownership and control,

629–634

shareholder control of managers,

630–632

shareholdings by, 634–636

shortsighted investment choices,

662–663

takeover defenses, 727–729

value-based, 650

Management buyout (MBO), 701

Manufacturing project delay valuation,

435–438

Many-stock portfolios, 101–102

minimum variance portfolio,

124–125

returns, 104

variances, 114–115

Margin accounts, 220

Marginal cost of capital, 486

Marginal variances, 120–122

versus total variance, 149

Marginal weighted average cost of

capital, 486–487

Market-adjusted excess return, 679

Market capitalization, 152

Marketing, 81

Market making, 10

Market model, 177

covariances, 188–189

diversifiable risk and fallacious

CAPM intuition, 179–180

regression, 177–178

residual correlation, 180–181

variance decomposition, 178–179

Grinblatt1753Titman: Financial	Back Matter	Index	© The McGraw1753Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

876	Subject Index

Market order, 74

Market portfolio, 152–154

tracking portfolios, 376

Market risk, 178

Market risk premium, 158

Market share, 610–611

Market-to-book ratio, 158, 164–167

Marking to market, 220

hedging, 783

Material information, 81

Mathematical tables, 854–862

Maturity, 36

Maturity date (settlement date), 58–59, 216MBO, 701

Mean-beta diagram, 148

Mean returns, 103–104

derivative valuation, 239–240

relation with risk, 146–151

tracking portfolios, 198, 376

weighted average cost of capital

(WACC) method, 478–479

Mean-standard deviation diagram

defined, 115

feasible means, 119–120

feasible set, 133–134, 136–137

historical returns, 140

negative correlation, 118–119

negative weighted portfolio, 117

positive correlation, 117–118

positive weighted portfolio, 115–117

versus securities market line, 147–148

standard deviation, 119–120

Mean-variance analysis, 98, 130–131, 169

applications of, 132

assumptions, 133–135

Capital Asset Pricing Model. See

Capital Asset Pricing Model

(CAPM)

efficient portfolios, 145

essentials, 132–135

factor models, 191

hedging, 810–812

value-weighted market index, 160

Mean-variance efficient portfolios, 133

efficient frontier, 135–136, 143–145

risk and return, 146–151

two-fund separation, 136–138

Mean-variance optimizers, 98

Mergers and acquisitions, 691–692

accounting implications, 720–722

capital structure, 722

compensation of management,

650–651

defenses, 727–729

disadvantages, 705–707

empirical evidence on gains from

leveraged buyouts (LBOs),

712–714

empirical evidence on takeover gains

for non-LBO takeovers,

707–712

financial acquisitions, 695, 697

financial synergies, 703–704

financing acquisitions, 719–722

history, 692–694

hostile takeovers. SeeHostile

takeovers

information effects, 722

management incentives, 701–703

operating synergies, 699–701,

704–705

sources of takeover gains, 698–705

tax implications, 719–720

tax motivations, 698–699, 704–705

trends, 697–698

types, 694–697

valuing acquisitions, 714–719

Miller equilibrium, 529–530

Miller-Modigliani dividend irrelevancy

theorem, 532, 535–537

Mines and minerals

risk management, 769

valuations, 426–432

Minimum variance portfolios, 120,

123–125

hedging, 810–812

MIPS, 71

Modified duration, 831

Modigliani-Miller Theorem, 501

assumptions, 504–505

cash flows, 501–502

proof, 502–504

risk management, 740–742

risky debt, 506–509

Momentum, 158, 164–167

Money market hedge, 782

Monopolies, 605

Monthly income preferred securities

(MIPS), 71

Mortgage-backed securities, 228–229

Mortgage bond, 39

Mortgage passthroughs, 228

Mortgages

accrued interest, 60

amortization, 46

collateralized mortgage obligations

(CMOs), 229

Multifactor models, 183–184

covariances, 189–190

Multiperiod binomial derivative

valuation, 245–248

Municipal bonds

accrued interest, 60

taxes, 519–521

Mutual funds, 4

closed-end mutual funds, 636

Investment Company Act of 1940, 10

open-ended mutual funds, 636

Mutually exclusive projects, 330

comparison approach, 402–403

internal rate of return, 355–357

Negative amortization, 45

Negative cash flows, 393–394

Negotiable, 30

Negotiated offering, 16

Net present value (NPV), 330–332, 359

capital constraints, 338–339

debt tax shield (TX), 471–472

discounted cash flow, 332–333

internal rate of return (IRR), 346–349

layoffs, 343–344

positive net present value sources,

424–426

product price cuts, 343–344

project evaluation, 333–336, 340–341

value additivity, 336–338

Net present value (NPV) criterion, 330Net profitability rate, 339

Net working capital, 37

Nominal cash flows, 315

Nominal discount rates, 315

Nominal exchange rates, 763, 765

Non-debt tax shields, 515

Nondiversifiable risk, 178

Nonfinancial stakeholders, 558, 596, 598

Nonnegotiable, 30

Non-recourse debt (project financing),

490, 586

Nonrevolving loan commitment, 31

Notes, 47

structured notes, 229–230

Notional amount, 221

NPV. SeeNet present value (NPV)

Numerical iteration, 345–346

Numerical methods, 248–250

Offer for sale by tender, 24, 219

OID, 47

Oil and gas risk management, 769

Oil futures, 219

stack hedge error, 791–792

Oil-linked bonds, 52

Oil price risk, 779–781, 804

One-factor model. SeeMarket model

One-period binomial trees, 236

On-the-run Treasuries, 32

Open-ended mutual funds, 636

Open interest, 219

Operating leases, 34

tax advantages, 523

Operating leverage, 392

Operating synergies, 695

mergers and acquisitions, 699–701,

704–705

Options, 36, 223–228, 257–258, 292

American options. SeeAmerican

options

basket options, 802

Black-Scholes model. SeeBlack-

Scholes model

bonds, 39–43

call options. SeeCall options

Grinblatt1755Titman: Financial	Back Matter	Index	© The McGraw1755Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Subject Index

877

description, 258–259

European options. SeeEuropean

options

expiration, 259–261

growth options, 392

hedging, 799–804

markets, 258–259

put-call parity. SeePut-call parity

put options. SeePut options

volatility, 280–283, 285

Original issue discount (OID), 47

Origination, 12

OTC, 56

equities, 73

Out of the money, 225

Outside shareholders, 638–639

Overallotment option (Green-Shoe

option), 12

Oversubscribed offering, 81

Over the counter (OTC), 56

Over-the-counter (OTC) market

equities,73

Par bonds, 47

Par rates, 363–368

Partial hedging, 748–749

Par value, 43

Par yield curves, 363

Passthroughs, 229

Payback method, 358

Pay-for-performance, 645–650

hedging, 749–751

Payment-in-kind bonds, 44

Pecking order of financial choices, 552

capital structure, 612–613

Pension funds, 4

Perfect tracking portfolios, 230

Perpetuities, 316–321

Perpetuity bonds (consol), 44–46

PIK (payment-in-kind) bonds, 44

Plowback ratio, 389

Plowback ratio formula, 389

Poison put bond, 43

Poison pills, 727–728

Pooling of interests accounting,

720–722

Portfolio betas, 148–149

Portfolio insurance, 269–271

Portfolios, 97–99, 126

correlations. SeeCorrelations

covariances. SeeCovariances

defined, 97

dominated portfolios, 134

factor portfolios. SeeFactor portfolios

feasible portfolios, 101

many-stock portfolios. SeeMany-

stock portfolios

market portfolio, 152–154, 376

mean-standard deviation diagram. See

Mean-standard deviation

diagram

mean-variance efficient portfolios. See

Mean-variance efficient

portfolios

minimum variance portfolios, 120,

123–125, 810–812

perfect tracking portfolios, 230

pure factor portfolios. SeePure factor

portfolios

returns, 102–104

standard deviation. SeeStandard

deviation

tangency portfolios. SeeTangency

portfolios

tracking portfolios. SeeTracking

portfolios

two-stock portfolios. SeeTwo-stock

portfolios

value-weighted portfolio, 152

variances. SeeVariances

weights, 99–102, 115–117

Portfolio-weighted average method, 102POs, 229

PPE, 310–311

Predation, 609–610

Preferred stock, 70–71

adverse selection, 677–678

taxes, 518–519

volume of issuances, 72

Premium bonds, 47

Present value duration, 847–850

Present value (PV), 302, 324

annuities and perpetuities, 316–321

betas, 401–402

certainty equivalent method,

404–405, 406

certainty equivalents from future

prices, 414

estimation error and denominator-

based biases, 418–419

generalizing, 313–314

inflation, 315–316

interest rate hedging when term

structure not flat, 847–850

multiperiod settings, 312–315

risk-adjusted discount rate method.

SeeRisk-adjusted discount rate

method

risk-free scenario method, 409–410

simple interest, 321

single period returns, 312

time horizons and compounding

frequencies, 321–324

tracking errors, 375

value additivity, 315, 336–338

Price/earnings ratio method, 444

adjusted present value (APV) method,

475

Price/earnings ratios, 444–450

Pricing bonds, 36, 57–63

conversion price, 43

Pricing derivatives, 230–234

binomial pricing models, 234–245,

247–248

financial service industry techniques,

248–250

multiperiod binomial valuation,

245–248

numerical methods of the financial

services industry, 248–250

risk-free rate, 250

Pricing equities, 81

underpricing, 82–87

Primary issue, 15

Primary market for corporate bonds, 56

Primary market for U.S. Treasury

Securities, 56

Primary offerings, 9

Prime rate, 32, 33

Principal, 30

Principal-agent relationship, 643

Principal-only securities (POs), 229

Principals, 643

Private equity, 77

Private placements, 7–8

Private sources of capital, 6–8

Germany, 19

Productivity, 713–714

Product price cuts

net present value (NPV), 343–344

Profitability index, 338–339

Project evaluation

internal rate of return (IRR), 355–357

net present value (NPV), 333–336,

340–341

value additivity, 336–338

Project financing, 490, 586

Property, plant and equipment (PPE),

310–311

Proprietary trading, 10

Prospectus, 9, 13–14

Protective covenants, 581–583

Proxy fights, 631

Pseudo-American value, 279

Public sources of capital, 6–8

Germany, 19

United Kingdom, 24

Purchase of assets, 720

Pure discount bonds. SeeZero-coupon

bonds (pure discount bonds)

Pure factor portfolios, 195–197

decomposing into weights, 198–199

tracking returns of a security, 197–198

Putability, 42

Put-call parity, 261

American options, 264–268

corporate securities as options,

268–269

European options, 267–268

forward contracts, 262–264

hedging, 802

minimum value for a call, 264

portfolio insurance, 269–271

Grinblatt1757Titman: Financial	Back Matter	Index	© The McGraw1757Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

878	Subject Index

Put-call parity formula, 261

Put options, 223–225

American options. SeeAmerican

options

European options. SeeEuropean

options

put-call parity. SeePut-call parity

value at expiration, 259–261

PV. SeePresent value (PV)

Quality, 601–602

Raiders, 701

Rate of return, 358

Ratio comparison approach, 423,

443–444, 452–454

adjusted present value (APV) method,

475

investments hidden in multibusiness

firms, 445–446

leverage differences, 450–451

price/earnings ratios, 444–450

Ratio method, 102

Real asset cash flows, 302–311

Real cash flows, 315

Real discount rates, 315–316

Real estate investment trusts (REITs), 444Real exchange rates, 763, 765

Real investments, 301

Real options, 490–491

Real options approach, 423, 452–454

adjusted present value (APV) method,

473–474

valuing strategic options, 426–443

Recovery rate, 479

Refundable bonds, 42

Registration statements, 8–9, 81

Regression

beta estimate, 156–157

cross-sectional regression, 161

hedging, 807–810

market model, 177–178

risk exposure estimates, 775–776

R-squared, 178–179

Regression method, 775

REITs, 444

Relative performance contract, 648

Reluctance to liquidate problem, 563,

575–579

Reorganization plan, 559

Repos, 56

accrued interest, 60

Repurchase agreements (repos/RPs) of

U.S. securities, 56

accrued interest, 60

Repurchase of shares. SeeShare

repurchases

Reputation, 601–603

Residual correlation, 180–181

Restructuring, 77

Retail price, 10

Return betas, 405

Return on assets, 358

Returns, 98, 102–104

accounting rate of return, 358

book return on equity, 389

covariances, 115

demeaned returns, 105

excess returns, 158, 679

expected returns. SeeExpected returns

(mean return)

gross return, 400

internal rate of return. SeeInternal rate

of return (IRR)

mean returns. SeeMean returns

pure factor portfolio tracking,

197–198

rate of return, 358

risk return equation, APT, 200–201

stock. SeeStock returns

variances, 105

Revolver, 31

Rights offerings, 17–18

Risk

debt’s effect on, 382–384

diversification, 181–183

Economic Value Added (EVA), 330,

341–343

factor risk, 176, 181, 206

firm-specific risk. SeeFirm-specific

risk

internal rate of return. SeeInternal rate

of return (IRR)

long-term risk-free rates, 395–397

market model, 179–180

market risk premium, 158

net present value. SeeNet present

value (NPV)

relation with expected return,

146–151

short-term risk-free rates, 395–397

systematic (market) risk, 158, 178

unsystematic (nonmarket) risk, 178

weighted average cost of capital

(WACC) method, 477–479

Risk-adjusted discount rate method, 371,

377

adjusted present value (APV) method,

470

betas, 399–402

cash flow valuations, 490–491

defining and implementing with given

betas, 377–378

implementing, 384–391

multiperiod risk-adjusted discount

rates, 394–398

mutually exclusive projects, 402–403

statistical issues in estimating cost of

capital, 418–421

tracking portfolios, 379

Risk aversion, 105

derivative valuation, 239–240

Risk bearing, 12

Risk exposure measurement, 774–778

Risk-free debt, 381–382

static perpetual risk-free debt,

464–465

Risk-free scenario method, 408–413

Risk management, 739

foreign exchange, 761–767

hedging. SeeHedging

interest rates. SeeInterest rate risk

management

mines and mining, 769

Modigliani-Miller Theorem, 740–742

oil and gas, 769

Risk neutral, 105

Risk-neutral probabilities, 240

Risk-neutral valuation method, 240

Risk-neutral valuation of derivatives,

239–245

Risk premiums, 140

factors, 206

market risk premium, 158

pure factor portfolios, 196–197

Risk profile, 739

Risk return equation, APT, 200–201

Rolling stock, 792

Rosenberg adjustment, 157

RPs, 56

accrued interest, 60

R-squared regression, 178–179

Rule 144A, 7

Rule 415, 16

Rule of 70, 313

Rules of Fair Practice, 12

Sale and leaseback, 34

Sales forecasts, 308–309

Scallop effect, 63

Seasoned offering (SEO), 15

SEC, 7

Secondary issue, 15

Secondary markets, 7

corporate bonds, 56–57

equity, 73–75

U.S. Treasury securities, 56–57

Secret share accumulations, 725

Secured bonds, 36, 39

Securities, 6

See alsospecific types of securities

asset-backed securities, 52

debt financing. SeeDebt financing

equity financing. SeeEquity financing

event studies, 681

mortgage-backed securities, 228–229

put-call parity, 268–269

Securities Act of 1933, 8–9

Securities and Exchange Commission

(SEC), 7

Grinblatt1759Titman: Financial	Back Matter	Index	© The McGraw1759Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

Subject Index

879

Securities Exchange Act of 1934, 8–9

Securities market line, 147–148

Securitization, 26

Self-financing, 143

Sell short, 56

portfolio weights, 100

Senior, 5

Senior bonds, 36

SEO, 15

Settlement date, 58–59

forwards, 216

Shareholder control and leverage,

639–640

Shareholder control of managers,

630–632

Shareholder information inferior to

management, 658–660

Shareholder value, 468–469

Shareholdings by management, 634–636Share price maximization, 658–660Share repurchases, 533–534

announcements, 664–671

versus dividends, 667–668

optimal payout policy, 537–538

tax consequences, 540

Shelf offering, 16

Short position, 100

value in call and put options at

expiration, 260–262

Short sales, 56

portfolio weights, 100

Shortsighted investment problem, 563,

567–569

Short squeeze, 100

Short-term risk-free rates, 395–397

Short-term share price maximization,

658–660

Signals, 657

dividend signaling model, 664–668

empirical evidence, 678–685

model based on tax gain/financial

distress cost trade-off, 671–674

theories and implications, 679

Simple interest, 321

Simulation, 250

estimating VAR and CAR using, 778

risk exposure measurements,

775–776, 778

Simulation method, 775

Sinking fund provisions, 39, 40

Smile effect, 291

Specialist, 74

Spin-offs, 650–651

Spot delta, 803–804

Spot market, 779

Spot price, 220

convenience yield risk, 793–794

forward price computations, 288–289Spot rates, 232, 363–368

Spot term structure, 363

Staggered board terms, 727–728

Stakeholder theory, 597–604

capital structure, 613–614

hedging, 745–747

Standard deviation, 106–107

estimating VAR and CAR from,

777–778

firm-specific, 182

historical returns, 140

mean-standard deviation diagram,

119–120

two-stock portfolios, 111–114

Standby basis, 17

Static capital structure theory, 612

Static debt capacity, 469

Static perpetual risk-free debt, 464–465Stepping up the basis, 698, 699, 720

Stock

common stock, 69–70, 72

many-stock portfolios. SeeMany-

stock portfolios

preferred stock. SeePreferred stockStock-based compensation, 649

Stock exchanges, 7

responses to pure capital structure

changes, 680

Stock returns

cross-sectional relation with dividend

yields, 544–546

dividend policies, 542–546

mergers and acquisitions, 707–710

Straight-coupon bonds (bullet bonds),

44–46

Strategic acquisition, 694–695, 697

Strategic options, 423

valuing with real options

methodology, 426–443

Strategy

competitive strategy, 607–611

corporate strategy, 598

covered option strategy, 799–803

Strike price, 223

implied volatility versus,292

Structured notes, 229–230

Subordinated claims, 36

Subscription price, 17

Supermajority rules, 727–728

Swap maturity, 221

Swaps, 221–223

basket swaps, 796

hedging, 795–799

Swap spread, 797

Syndicate desk, 56

Synergies

financial synergies, 696, 703–704

mergers and acquisitions, 699–701,

703–705

operating synergies, 695, 699–701,

704–705

valuing, 715–719

Systematic (market) risk, 178

premium, 158

Tailing the hedge, 784

Takeover premium, 692

Tangency portfolios, 138–143

hedging, 811–812

market portfolios as, 153–154

relevant risk, 146–147

Target beta level, 774

Target firm, 692

Tax Equity and Fiscal Responsibility Act

of 1982, 698

Taxes, 501, 525

adjusted present value method. See

Adjusted present value (APV)

method

capital gains tax, 719–720

classical tax system, 539

comparison approach, 466–467

corporate taxes affect on capital

structure, 509–511

debt tax shield. SeeDebt tax shield

(TX)

deferred taxes, 311

distribution policies, 538–542

dividend policies, 539–541

dividend tax. SeeDividend tax

EBIT. SeeEarnings before interest and

taxes (EBIT)

EBITDA, 306

effective marginal tax rates, 518

empirical implications, 522

hedging, 744–745

imputation systems, 539

inflation, 521

investment distortions, 547–551

leasing, 523–525

mergers and acquisitions, 698–699,

704–705, 719–720

Miller equilibrium, 529–530

Modigliani-Miller Theorem. See

Modigliani-Miller Theorem

municipal bonds, 519–521

negative earnings, 515–518

non-debt tax shields, 515

personal taxes effect on capital

structure, 512–518, 529–530

personal taxes effect on investment

policies, 547–551

personal taxes payout policy,

551–552

preferred stock, 518–519

signaling model based on tax

gain/financial distress cost trade-

off, 671–674

Tax Reform Act of 1986, 522, 699

weighted average cost of capital

method. SeeWeighted average

cost of capital (WACC) method

Grinblatt1761Titman: Financial	Back Matter	Index	© The McGraw1761Hill
Markets and Corporate			Companies, 2002
Strategy, Second Edition

880	Subject Index

Tax Reform Act of 1986

capital structure, 522

mergers and acquisitions, 699

Technical default, 581

Technology

capital, 25

valuing flexibility in production

technology, 440–443

Tender offers, 694

conditional tender offers, 723–724

Term structure DV01, 847

Term structure of interest rates (yield

curve), 330, 363–368

Third market, 74

Time series regression, 160

Time-series tests of the CAPM, 163

results, 164–167

TIPS, 52

Tobin’s q,711

Tombstone ad, 12

Track, 149

Tracking portfolios, 149–151

certainty equivalent method, 407–408

derivative valuation, 237–239, 242

expected returns, 198

factor models, 192–195

forward contracts, 414

perfect tracking portfolios, 230

put-call parity, 263

real asset valuation, 373–377

risk-adjusted discount rate method,

379

Tranches, 229

Transaction costs

distribution policies, 538–542

Modigliani-Miller Theorem, 505

Transaction risk, 761–762

Translation risk, 762–763

Treasury bills, 32, 33

primary and secondary markets, 56

Treasury bonds, 32

accrued interest, 60–61

primary and secondary markets, 56

Treasury Inflation Protected Securities

(TIPS), 52

Treasury notes, 32, 33

accrued interest, 60–61

primary and secondary markets, 56

Treasury rate, 32

Treasury strips, 58

True lease, 525

Two-fund separation, 136–138

Two-stock portfolios, 99–101

minimum variance portfolio, 123–124

returns, 103–104

standard deviation, 111–114

variances, 110–114

Two-tiered offers, 726–727

TX. SeeDebt tax shield (TX)

UA, 464

Unconditional (any-or-all) offer, 724

Underinvestment problem, 563–567

Underlying asset, 215

Underwriters, 9

top global underwriters, 11

underpricing, 84–87

Underwriting agreement, 12–15

Underwriting arrangement types, 15–18Underwriting process, 11–12

Underwriting spread, 12

Underwriting syndicate, 9

Union bargaining, 605–606

United Kingdom, 22–24

Unit offering, 71

Universal banking, 10

Germany, 19

Unleveraged price/earnings ratio,

450–451

Unlevered assets (UA), 464

Unlevered cash flows, 303–308

Unlevered cost of capital, 462–467

Unlevered earnings, 449

Unsecured creditors, 39

Unsystematic (nonmarket) risk, 178Up state, 235

U.S. capital market, 5–6

U.S. equity ownership, 72

Vacant land valuations, 432–435

Valuation

Black-Scholes valuation, 278–280

capacity expansion valuation,

438–443

of derivatives. SeePricing derivativesValuation by components, 461

Value additivity, 315

present values and net present values,

336–338

Value at risk (VAR), 777–778

Value-based management, 650

Value hedging, 774

Value-weighted market index, 160

Value-weighted portfolio, 152

Valuing acquisitions, 714–719

VAR, 777–778

Variances, 104–106

beta versus as measure of risk, 149

covariances. SeeCovariances

factor models, 188–192

many-stock portfolios, 114–115

marginal variances, 120–122, 149

market model decomposition,

178–179

minimum variance portfolio, 123–125

two-stock portfolios, 110–114

Venture capital, 77

Venture capital firm, 4

Vertical mergers, 700

Volatility, 279

Black-Scholes model, 280–283

implied volatility, 282, 292

risk exposure measurements, 776–777

Warrants, 71, 227–228

Weighted average cost of capital (WACC)

method, 461, 475–476

comparison approach, 487–488

cost of debt, 477–479, 482–483

cost of equity, 476, 479, 482–483

debt financing, 480–485

debt tax shields (TX), 476

individual project evaluation,

485–488

unlevered cost of capital

distinguished, 462–463

Weights

decomposing pure factor portfolios

into, 198–199

derivative valuation, 241

portfolios, 99–102, 115–117

Well-diversified portfolios, 178

Winner’s curse, 86

Writing an option, 227

Yield-beta, 846–847

Yields to maturity, 57–59, 62–63

discounted cash flow and net present

value, 332

Zerfix bond, 44

Zero-beta returns, 155

Zero-cost instruments, 223

valuation, 232

Zero-coupon bonds (pure discount

bonds), 44–46

convexity, 843–845

discounted cash flow and net present

value, 332

duration, 826