Bodie−Kane−Marcus: Front Matter A Note from the Authors © The McGraw−Hill Essentials of Investments, Companies, 2003 Fifth Edition A Note from the Authors. The last decade has been one of rapid, profound, and than specific security-selection decisions in ongoing change in the investments industry. This is determining overall investment performance. Asset due in part to an abundance of newly designed allocation is the primary determinant of the risk-return securities, in part to the creation of new trading profile of the investment portfolio, and so it deserves strategies that would have been impossible without primary attention in a study of investment policy.
concurrent advances in computer and communications Our book also focuses on investment analysis, technology, and in part to continuing advances in the which allows us to present the practical applications of theory of investments. Of necessity, our text has investment theory, and to convey insights of practical evolved along with the financial markets. In this value. In this edition of the text, we have continued to edition, we address many of the changes in the expand a systematic collection of Excel spreadsheets investment environment.
that give you tools to explore concepts more deeply At the same time, many basic principles remain than was previously possible. These spreadsheets are important. We continue to organize our book around available through the World Wide Web, and provide a one basic theme—that security markets are nearly taste of the sophisticated analytic tools available to efficient, meaning that most securities are usually professional investors. priced appropriately given their risk and return In our efforts to link theory to practice, we also attributes.
There are few free lunches found in markets have attempted to make our approach consistent with as competitive as the financial market. This simple that of the Institute of Chartered Financial Analysts observation is, nevertheless, remarkably powerful in its (ICFA). The ICFA administers an education and implications for the design of investment strategies, certification program to candidates for the title of and our discussions of strategy are always guided by Chartered Financial Analyst (CFA). The CFA the implications of the efficient markets hypothesis.
curriculum represents the consensus of a committee of While the degree of market efficiency is, and will distinguished scholars and practitioners regarding the always be, a matter of debate, we hope our discussions core of knowledge required by the investment throughout the book convey a good dose of healthy professional. criticism concerning much conventional wisdom. This text will introduce you to the major issues This text also continues to emphasize asset currently of concern to all investors. It can give you the allocation more than most other books.
We prefer this skills to conduct a sophisticated assessment of current emphasis for two important reasons. First, it issues and debates covered by both the popular media corresponds to the procedure that most individuals as well as more specialized finance journals. Whether actually follow when building an investment portfolio. you plan to become an investment professional, or Typically, you start with all of your money in a bank simply a sophisticated individual investor, you will account, only then considering how much to invest in find these skills essential.
something riskier that might offer a higher expected Zvi Bodie return. The logical step at this point is to consider other Alex Kane risky asset classes, such as stock, bonds, or real estate. Marcus This is an asset allocation decision. Second, in most cases the asset allocation choice is far more important xviii Trắc nghiệm kiến thức Forex tại : https://tracnghiemforex.com/ Bodie−Kane−Marcus: I.
Elements of Investments Introduction © The McGraw−Hill Essentials of Investments, Companies, 2003 Fifth Edition PA RT ONE ELEMENTS OF INVESTMENTS ven a cursory glance at The Wall Street tion between the National Association of Se- E Journal reveals a bewildering collection of securities, markets, and financial institu- tions. Although it may appear so, the financial curities Dealers Automatic Quotation System (Nasdaq), the New York Stock Exchange (NYSE), and a number of non-U. exchanges environment is not chaotic: There is a rhyme or is fierce and public. reason behind the vast array of financial instru- Trading practices can mean big money ments and the markets in which they trade.
The explosive growth of online These introductory chapters provide a trading has saved them many millions of dol- bird’s-eye view of the investing environment. lars in trading costs. Even more dramatically, We will give you a tour of the major types of new electronic communication networks will al- markets in which securities trade, the trading low investors to trade directly without a broker. process, and the major players in these arenas.
These advances promise to change the face of You will see that both markets and securities the investments industry, and Wall Street firms have evolved to meet the changing and com- are scrambling to formulate strategies that re- plex needs of different participants in the fi- spond to these changes. These chapters will give you a good foun- Markets innovate and compete with each dation with which to understand the basic types other for traders’ business just as vigorously as of securities and financial markets as well as > competitors in other industries. The competi- how trading in those markets is conducted. 1 Investments: Background and Issues 2 Global Financial Instruments 3 How Securities Are Traded 4 Mutual Funds and Other Investment Companies www.com/bkm Trắc nghiệm kiến thức Forex tại : https://tracnghiemforex.com/ Bodie−Kane−Marcus: I.
Elements of Investments 1. Investments: © The McGraw−Hill Essentials of Investments, Background and Issues Companies, 2003 Fifth Edition 1 INVESTMENTS: BACKGROUND AND ISSUES AFTER STUDYING THIS CHAPTER YOU SHOULD BE ABLE TO: > Define an investment. > Distinguish between real assets and financial assets. > Describe the major steps in the construction of an investment portfolio.
> Identify major participants in financial markets. > Identify types of financial markets and recent trends in those markets. 2 Trắc nghiệm kiến thức Forex tại : https://tracnghiemforex.com/ Bodie−Kane−Marcus: I. Elements of Investments 1.
Investments: © The McGraw−Hill Essentials of Investments, Background and Issues Companies, 2003 Fifth Edition Related Websites research from the various banks is available online. The Federal Reserve Economic Database, or FRED, is http://www.com available through the St. Louis Federal Reserve Bank. A This site provides a list of links related to all aspects of search engine for all of the Bank’s research articles is business, including extensive sites related to finance available at the San Francisco Federal Reserve Bank.edu/fin/journal/ http://www.htm Dedicated to corporate governance issues, this site has This site contains a directory of finance journals and extensive coverage and numerous links to other sites associations related to education in the financial area.
related to corporate governance.com http://www.com This investment site contains information on financial This is an excellent general site that is dedicated to markets. Portfolios can be constructed and monitored finance education. It contains information on debt at no charge. Limited historical return data is available securities, equities, and derivative instruments.
for actively traded securities.com http://moneycentral.asp This is a thorough finance search engine for other Similar to Yahoo! Finance, this investment site contains financial sites. comprehensive information on financial markets.htm This site contains a map that allows you to access all of the Federal Reserve Bank sites. Most of the economic n investment is the current commitment of money or other resources in the A expectation of reaping future benefits. For example, an individual might pur- chase shares of stock anticipating that the future proceeds from the shares will justify both the time that her money is tied up as well as the risk of the invest- ment.
The time you will spend studying this text (not to mention its cost) also is an in- vestment. You are forgoing either current leisure or the income you could be earning at a job in the expectation that your future career will be sufficiently enhanced to jus- tify this commitment of time and effort. While these two investments differ in many ways, they share one key attribute that is central to all investments: You sacrifice something of value now, expecting to benefit from that sacrifice later. This text can help you become an informed practitioner of investments.
We will focus on investments in securities such as stocks, bonds, or options and futures con- tracts, but much of what we discuss will be useful in the analysis of any type of in- vestment. The text will provide you with background in the organization of various securities markets, will survey the valuation and risk-management principles useful in particular markets, such as those for bonds or stocks, and will introduce you to the principles of portfolio construction. Broadly speaking, this chapter addresses three topics that will provide a useful perspective for the material that is to come later. First, before delving into the topic of “investments,” we consider the role of financial assets in the economy.
We discuss the relationship between securities and the “real” assets that actually produce goods and services for consumers, and we consider why financial assets are important to the functioning of a developed economy. Given this background, we then take a first look at the types of decisions that confront investors as they assemble a portfolio of Trắc nghiệm kiến thức Forex tại : https://tracnghiemforex.com/ Bodie−Kane−Marcus: I. Elements of Investments 1. Investments: © The McGraw−Hill Essentials of Investments, Background and Issues Companies, 2003 Fifth Edition 4 Part ONE Elements of Investments investment assets.
These investment decisions are made in an environment where higher Commitment of returns usually can be obtained only at the price of greater risk, and in which current resources in it is rare to find assets that are so mispriced as to be obvious bargains. These the expectation of deriving greater themes—the risk-return trade-off and the efficient pricing of financial as- resources in the sets—are central to the investment process, so it is worth pausing for a brief future. discussion of their implications as we begin the text. These implications will be fleshed out in much greater detail in later chapters.
Finally, we conclude the chapter with an introduction to the organization of security markets, the various players that participate in those markets, and a brief overview of some of the more important changes in those markets in recent years. Together, these various topics should give you a feel for who the major participants are in the securities markets as well as the setting in which they act. We close the chapter with an overview of the remainder of the text.1 REAL ASSETS VERSUS FINANCIAL ASSETS The material wealth of a society is ultimately determined by the productive capacity of its economy, that is, the goods and services its members can create. This capacity is a function of real assets the real assets of the economy: the land, buildings, machines, and knowledge that can be used Assets used to to produce goods and services.
produce goods and In contrast to such real assets are financial assets, such as stocks and bonds. Such securi- services. ties are no more than sheets of paper or, more likely, computer entries and do not contribute directly to the productive capacity of the economy. Instead, these assets are the means by financial assets which individuals in well-developed economies hold their claims on real assets.
Financial as- Claims on real assets sets are claims to the income generated by real assets (or claims on income from the govern- or the income ment). If we cannot own our own auto plant (a real asset), we can still buy shares in General generated by them. Motors or Toyota (financial assets) and, thereby, share in the income derived from the pro- duction of automobiles. While real assets generate net income to the economy, financial assets simply define the al- location of income or wealth among investors.
Individuals can choose between consuming their wealth today or investing for the future. If they choose to invest, they may place their wealth in financial assets by purchasing various securities.