fundamentals how will you grow your portfolio? Whether you plan on managing a client’s portfolio or investing your own personal assets, Jordan & Miller’s Fundamentals of Investments: Valuation and Management, 5e will give you the research, tools, and skills you need to make well-informed and entals of inv competent decisions. VALUATION AND MANAGEMENT Some of the features found in Fundamentals of Investments, 5e… edition includes: a new section on the advantages th and drawbacks of mutual fund investing; discussion of the current structure investments vestments the material you just learned. Dalim #975960 7/24/08 Cyan Mag Yelo Black Fundamentals of Investments ® making investment decisions. fundamentals of investments Miller Jordan Comments from users of Fundamentals of Investments… Jordan & Miller present an organized, thematic approach of return and risk throughout VALUATION TION AND MANAGEMENT fifth edition fifth edition Learn more about Fundamentals of Investments, 5e at www.com/jm5e ISBN 978-0-07-338235-7 MHID 0-07-338235-3 Part of ISBN 978-0-07-728329-2 MHID 0-07-728329-5 9 0 0 0 0 EAN Bradford D.com Research companies with S&P Because your parents AREN’T GOING TO LOAN YOU $500,000 to practice what you learned in class today.
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Stock–Trak® gives students $500,000 in play money to trade stocks, options, futures, bonds, mutual funds, and interna- tional stocks (no other simulation offers so many!). Students can immediately apply investment material from the text or class by managing their Stock–Trak® portfolio, accessible online through the text’s Web site at www. If you bought a new book, you already have a subscription to Stock–Trak® (it comes free with this text), so follow the directions on the insert card to set up your trading account today! Professors: Use it as a Class. Who picked the best stock? Who made the best trade? See the Instructor’s Manual for information on Stock–Trak’s® reporting system so you can see how your students and class do compared to others.
Students: Use it on your Own. Your professor doesn’t have to sign up in order for you to participate–the insert card found with this text is your free subscription to this simulation. Stock–Trak® exercises in the OLC briefly summarize key topics and trades and prompt you to try these out yourself! Use it Right Away. Jordan and Miller cover the basics early so you can start trading through Stock–Trak® within the first two weeks of class! jor82353_Front.indd 2 7/23/08 4:35:07 PM ISBN: 978-0-07-338235-7; 0-07-338235-3 Front Endsheets Auther: Bradford D.
Color: 4c Title: Fundamentals of Investments Pages: 2, 3 then trade them on Stock–Trak! Standard & Poor’s Educational Version of Market Insight A free (with each new text purchased) exclusive partnership through McGraw-Hill/ Irwin and the Institutional Market Services division of Standard & Poor’s allows you to access this rich online database. Containing six years of fundamental financial data for over 1,000 companies, you can use this database to research and help answer the corresponding end-of-chapter S&P problems. For more details and to register, please see the bound-in card inside the front cover of this text or visit www.indd 3 7/23/08 4:35:08 PM Fundamentals of Investments VALUATION AND MANAGEMENT jor82353_fm.indd i 8/9/08 1:45:29 PM The McGraw-Hill/Irwin Series in Finance, Insurance and Real Estate Stephen A. Ross Franco Modigliani Professor of Finance and Economics Sloan School of Management Massachusetts Institute of Technology Consulting Editor Financial Management Ross, Westerfield, Jaffe, and Jordan Saunders and Cornett Adair Corporate Finance: Core Principles Financial Markets and Institutions: An Introduction Excel Applications for Corporate Finance and Applications to the Risk Management Approach First Edition Second Edition Fourth Edition Block, Hirt, and Danielsen Ross, Westerfield, and Jordan Foundations of Financial Management Essentials of Corporate Finance International Finance Thirteenth Edition Sixth Edition Eun and Resnick Brealey, Myers, and Allen Ross, Westerfield, and Jordan International Financial Management Principles of Corporate Finance Fundamentals of Corporate Finance Fifth Edition Ninth Edition Eighth Edition Kuemmerle Brealey, Myers, and Allen Shefrin Case Studies in International Entrepreneurship: Principles of Corporate Finance, Concise Edition Behavioral Corporate Finance: Decisions Managing and Financing Ventures in the Global First Edition that Create Value Economy First Edition First Edition Brealey, Myers, and Marcus Fundamentals of Corporate Finance White Financial Analysis with an Electronic Sixth Edition Calculator Real Estate Brooks Sixth Edition Brueggeman and Fisher FinGame Online 5.0 Real Estate Finance and Investments Bruner Thirteenth Edition Case Studies in Finance: Managing for Corporate Investments Ling and Archer Value Creation Bodie, Kane, and Marcus Real Estate Principles: A Value Approach Fifth Edition Essentials of Investments Second Edition Chew Seventh Edition The New Corporate Finance: Where Theory Bodie, Kane, and Marcus Meets Practice Investments Financial Planning and Third Edition Eighth Edition Insurance Cornett, Adair, and Nofsinger Hirschey and Nofsinger Allen, Melone, Rosenbloom, and Mahoney Finance: Applications and Theory Investments: Analysis and Behavior Retirement Plans: 401(k)s, IRAs, and Other Deferred First Edition First Edition Compensation Approaches DeMello Hirt and Block Tenth Edition Cases in Finance Fundamentals of Investment Management Altfest Second Edition Ninth Edition Personal Financial Planning Grinblatt (editor) Jordan and Miller First Edition Stephen A.
Ross, Mentor: Influence through Fundamentals of Investments: Harrington and Niehaus Generations Valuation and Management Risk Management and Insurance Grinblatt and Titman Fifth Edition Second Edition Financial Markets and Corporate Strategy Kapoor, Dlabay, and Hughes Second Edition Financial Institutions and Focus on Personal Finance: An Active Approach to Help You Develop Successful Financial Skills Higgins Markets Second Edition Analysis for Financial Management Ninth Edition Rose and Hudgins Kapoor, Dlabay, and Hughes Bank Management and Financial Services Personal Finance Kellison Seventh Edition Theory of Interest Ninth Edition Third Edition Rose and Marquis Money and Capital Markets: Financial Institutions Kester, Ruback, and Tufano and Instruments in a Global Marketplace Case Problems in Finance Tenth Edition Twelfth Edition Saunders and Cornett Ross, Westerfield, and Jaffe Financial Institutions Management: A Risk Corporate Finance Management Approach Eighth Edition Sixth Edition jor82353_fm.indd ii 8/9/08 1:45:33 PM Fifth Edition Fundamentals of Investments VALUATION AND MANAGEMENT Bradford D. University of Kentucky Saint Louis University Boston Burr Ridge, IL Dubuque, IA New York San Francisco St. Louis Bangkok Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto jor82353_fm.indd iii 8/9/08 1:45:34 PM FUNDAMENTALS OF INVESTMENTS Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2009, 2008, 2005, 2002, 2000 by The McGraw-Hill Companies, Inc.
All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 0 VNH/VNH 0 9 8 ISBN 978-0-07-338235-7 MHID 0-07-338235-3 Vice president and editor-in-chief: Brent Gordon Executive editor: Michele Janicek Developmental editor I: Elizabeth Hughes Marketing manager: Ashley Smith Senior project manager: Bruce Gin Production supervisor: Gina Hangos Lead designer: Matthew Baldwin Lead media project manager: Brian Nacik Cover design: Cara Hawthorne Interior design: Kiera Pohl Typeface: 10/12 Times Roman Compositor: ICC Macmillan Inc. Donnelley Library of Congress Cataloging-in-Publication Data Jordan, Bradford D. Fundamentals of investments : valuation and management / Bradford D. paper) ISBN-10: 0-07-338235-3 (alk.com jor82353_fm.indd iv 8/9/08 1:45:35 PM To my late father, S.
Kelly Jordan Sr., a great stock picker. BDJ To my parents, Tom and Kathy Miller, my wife Carolyn, and #21 —Thomas W.indd v 8/9/08 1:45:36 PM About the Authors Bradford D. Jordan Gatton College of Business and Economics, University of Kentucky Bradford D. Jordan is Professor of Finance and holder of the Richard W.
Furst Endowed Chair in Finance at the University of Kentucky. He has a long-standing interest in both applied and theoretical issues in investments, and he has extensive experience teach- ing all levels of investments. Professor Jordan has published numerous research articles on issues such as valuation of fixed-income securities, tax effects in investments analysis, the behavior of security prices, IPO valuation, and pricing of exotic options. He is co-author of Fundamentals of Corporate Finance and Essentials of Corporate Finance, two of the most widely used finance textbooks in the world.
John Cook School of Business, Saint Louis University Tom Miller is the Senior Associate Dean for Academic Programs and Professor of Finance at the John Cook School of Business at Saint Louis University. Professor Miller has a long- standing interest in derivative securities and investments and has published numerous articles on various topics in these areas. Professor Miller has been honored with many research and teaching awards. Professor Miller is a co-author (with David Dubofsky) of Derivatives: Valuation and Risk Management (Oxford University Press).
Professor Miller’s interests include golf, skiing, and American saddlebred horses. vi jor82353_fm.indd vi 8/9/08 1:45:36 PM Preface So why did we write this book? As we toiled away, we asked ourselves this question many times, and the answer was always the same: Our students made us. Traditionally, investments textbooks tend to fall into one of two camps. The first type has a greater focus on portfolio management and covers a significant amount of portfolio theory.
The second type is more concerned with security analysis and generally contains fairly detailed coverage of fundamental analysis as a tool for equity valuation. Today, most texts try to cover all the bases by including some chapters drawn from one camp and some from another. The result of trying to cover everything is either a very long book or one that forces the instructor to bounce back and forth between chapters. This frequently leads to a noticeable lack of consistency in treatment.
Different chapters have completely different approaches: Some are computational, some are theoretical, and some are descriptive. Some do macroeco- nomic forecasting, some do mean-variance portfolio theory and beta estimation, and some do financial statements analysis. Options and futures are often essentially tacked on the back to round out this disconnected assortment. The goal of these books is different from the goal of our students.
Our students told us they come into an investments course wanting to learn how to make investment decisions. As time went by, we found ourselves supplying more and more supplemental materials to the texts we were using and constantly varying chapter sequences while chasing this elusive goal. We finally came to realize that the financial world had changed tremendously, and investments textbooks had fallen far behind in content and relevance. What we really wanted, and what our students really needed, was a book that would do several key things: • Focus on the students as investment managers by giving them information they can act on instead of concentrating on theories and research without the proper context.
• Offer strong, consistent pedagogy, including a balanced, unified treatment of the main types of financial investments as mirrored in the investment world. • Organize topics in a way that would make them easy to apply—whether to a portfo- lio simulation or to real life—and support these topics with hands-on activities. We made these three goals the guiding principles in writing this book. The next several sections explain our approach to each and why we think they are so important.
Who Is This Book For? This book is aimed at introductory investments classes with students who have relatively little familiarity with investments. A typical student may have taken a principles of finance class and had some exposure to stocks and bonds, but not much beyond the basics.
