Financial Institutions, Investments, and Management: An Introduction / Edition 6

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South-Western, your "First in Finance" Publisher, has provided generations with a solid foundation and true understanding of finance. Now more than ever, follow the proven leader into a new century with relevant, comprehensive, and up-to-date finance products and information. We look forward to the opportunity to help with your educational experience.
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Product Details

  • ISBN-13: 9780030244094
  • Publisher: Dryden Press FL
  • Publication date: 7/28/1997
  • Edition number: 6
  • Pages: 184

Meet the Author

A well-respected author and experienced educator, Dr. Herbert Mayo has written several successful books focusing on critical finance issues and today's investment opportunities. Dr. Mayo currently teaches finance at The College of New Jersey and serves as Director of Accreditation. He earned his Ph.D. from Rutgers University and his undergraduate degree is from the University of North Carolina at Chapel Hill. Married with three children, Dr. Mayo resides in rural New Jersey where he enjoys classical music, playing the piano, Welsh Pembroke Corgis, and gardening. He also serves on the Board of Trustees of the Opera Festival of New Jersey.

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Table of Contents

Preface xiii
Chapter 1 Introduction to Finance 1
The Divisions of Finance 2
Key Financial Concepts 3
Finance and Other Business Disciplines 7
Plan of the Text 8
Part I Financial Institutions 10
Chapter 2 The Creation of Financial Assets 13
Forms of Business 14
The Role of Money 18
The Role of Interest Rates 20
The Transfer of Funds to Business 23
The Direct Transfer: The Issuing and Selling of New Securities 24
The Indirect Transfer Through Financial Intermediaries 31
Summary 45
Review Questions 46
Chapter 3 The Federal Reserve and the Supply and Cost of Credit 49
The Role of the Federal Reserve System 50
The Expansion of Money and Credit 55
The Tools of Monetary Policy 62
The Impact of Fiscal Policy on Credit Markets 65
Impact of an Inflationary Economic Environment on Credit Markets 68
The Impact of International Currency Flows on Credit Markets 73
Summary 85
Review Questions 86
Problems 88
Chapter 4 The Role of Securities Markets 89
Securities Markets 90
The Mechanics of Investing in Securities 95
Measures of Security Prices 99
Regulation 102
Foreign Securities 104
Competition in the Security Markets 105
Summary 108
Review Questions 109
Problems 110
Part II Investments 112
Chapter 5 The Tiem Value of Money 115
The Future Value of a Dollar 116
The Present Value of a Dollar 122
The Future Value of an Annuity 125
The Present Value of an Annuity 131
Illustrations of Compounding and Discounting 135
Nonannual Compounding 144
Periods of Less Than One Year 145
Summary 146
The Equations for the Interest Factors 147
Review Questions 148
Problems 148
Chapter 6 Risk and Its Management 153
The Return on an Investment 154
The Sources of Risk 155
Beta Coefficients 167
The Capital Asset Pricing Model and an Investment's Required Return 175
Summary 178
Review Questions 178
Problems 179
Appendix Using Excel to Compute Standard Deviations and Regressions Equations 183
Chapter 7 Equity: Preferred and Common Stock 187
Equity 188
The Features of Preferred Stock 190
Preferred Stock and Bonds Contrasted 191
Analysis of Preferred Stock 193
Disadvantages of Preferred Stock From an Investor's Perspective 194
Common Stock 195
Dividend Policy 197
Cash Dividends 204
Stock Dividends 206
Stock Splits 207
Dividend Reinvestment Plans 210
Repurchase of Stock 210
Summary 211
Review Questions 212
Problems 213
Chapter 8 Valuation of Stock 217
Valuation of Preferred Stock 218
Valuation of Common Stock: The Present Value and the Growth of Dividends 220
Risk and Stock Valuation 225
Alternative Valuation Techniques: Multiplier Models 228
Summary 230
Review Questions 231
Problems 232
Chapter 9 Investing in Long-Term Debt (Bonds) 237
Characteristics of All Debt Instruments 238
Types of Corporate Bonds 241
Foreign Bonds 245
Registered and Book Entry Bonds 246
Determination of the Price of a Bond 246
Yields 250
Retiring Debt 256
Convertible Bonds and Convertible Preferred Stock 258
Convertible Preferred Stock 268
Government Securities 269
Summary 273
Review Questions 274
Problems 275
Chapter 10 Analysis of Financial Statements 279
General Accounting Principles 280
The Balance Sheet 281
The Income Statement 287
Statement of Cash Flows 289
Limitations of Accounting Data 293
Depreciation 294
Losses and Tax Savings 300
Ratio Analysis 302
Liquidity Ratios 304
Activity Ratios 307
Profitability Ratios 312
Leverage Ratios 314
Coverage Ratios 318
Analysis of Financial Statements and the Internet 320
Analysis of Financial Statements and the Use of Excel Spreadsheets 322
Summary 326
Review Questions 327
Problems 328
Chapter 11 Investment Companies 335
Investment Companies: Origins and Terminology 336
Closed-End Investment Companies 338
Mutual Funds 342
The Returns Earned on Investments in Mutual Funds 347
Selecting a Mutual Fund 350
Index Funds and Exchange-Traded Funds 353
Summary 354
Review Questions 354
Problems 356
Part III Corporate Finance 358
Chapter 12 Break-Even Analysis and Leverage 361
Break-Even Analysis 362
Operating Leverage 366
Financial Leverage 370
Financial Leverage and Risk 373
Financial Leverage Through Preferred Stock Financing 377
Summary 378
Review Questions 379
Problems 379
Chapter 13 Cost of Capital 383
Components of the Cost of Capital 384
Cost of Capital: A Weighted Average 391
The Optimal Capital Structure 393
The Marginal Cost of Capital 395
The Optimal Capital Structure and the Value of the Firm's Stock 399
Cost of Capital Review and Problem Areas 402
Summary 403
Review Questions 404
Problems 405
Chapter 14 Capital Budgeting 409
Valuation and Long-Term Investment Decisions 411
Importance of Cash Flow 412
Payback Period 414
Introduction to Discounted Cash Flows Methods of Capital Budgeting 416
Net Present Value 417
Internal Rate of Return 419
Net Present Value and Internal Rate of Return Compared 421
Ranking Investment Opportunities 427
The Introduction of Risk into Capital Budgeting 434
Risk Adjustments in Capital Budgeting 436
Adjusting the Discount Rate 439
Summary 443
Review Questions 444
Problems 445
Chapter 15 Planning: Forecasting and Budgeting 453
Planning 454
Fluctuations in Asset Requirements 456
Forecasting External Financial Requirements: Percent of Sales 457
Forecasting External Financial Requirements: Regression Analysis 464
Forecasting External Financial Requirements: Changes in Fixed Assets 470
The Cash Budget 472
Summary 480
Review Questions 481
Problems 481
Chapter 16 Management of Short-Term Assets 489
Working Capital and Its Management 490
The Impact of the Operating Cycle on Working Capital Policy 491
Financing and Working Capital Policy 494
The Inventory Cycle 497
The Economic Order Quantity 498
Management of Accounts Receivable 509
Cash Management 514
Money Market Instruments and Yields 518
The Calculation of Yields 520
Summary 522
Review Questions 523
Problems 524
Chapter 17 Sources of Short- and Intermediate-Term Funds 529
Free Sources: Accruals 531
Commercial Bank Loans 531
Trade Credit 538
Commercial Paper 543
Secured Loans 545
Factoring 547
Intermediate-Term Debt 548
Leasing 551
Bankruptcy and Reorganization 559
Summary 562
Review Questions 563
Problems 564
Chapter 18 Derivatives and Risk Management 569
Options 570
The Intrinsic Value of an Option to Buy Stock 571
Leverage 573
Call Options 576
Puts 582
Stock Index Options 584
Futures 586
Hedging 593
Financial and Currency Futures 595
Stock Index Futures 598
Summary 600
Review Questions 601
Problems 602
Appendix A Interest Factors for the Future Value of One Dollar 605
Appendix B Interest Factors for the Present Value of One Dollar 606
Appendix C Interest Factors for the Future Value of an Annuity of One Dollar 607
Appendix D Interest Factors for the Present Value of an Annuity of One Dollar 608
Appendix E Answers to Selected Problems 609
Index 617
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