The Basics of Finance: An Introduction to Financial Markets, Business Finance, and Portfolio Management / Edition 1

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The Basics of Finance is an accessible book for those who wantto gain a better understanding of finance, but lack a strongbusiness background. Divided into four parts, it skillfully coversthe essential concepts, tools, methods, and strategies in financewithout delving too deep into theory or jargon.

Written by expert authors Pamela Peterson Drake and FrankFabozzi, this reliable resource addresses everything from financialinstruments and markets to portfolio management techniques,understanding and analyzing financial statements, and the differenttypes of corporate financial strategy, planning, and policy.

Engaging and accessible, this practical guide:

  • Covers the three main areas of finance—capital markettheory, financial management, and investment management—anddiscusses what each one encompasses
  • Provides a solid foundation in the field of finance, which youcan quickly build upon
  • Explores in an introductory way important topics such as cashflow analysis, asset valuation, capital budgeting, andderivatives
  • Includes access to a companion Web site with an appendix ofsolutions for a selection of the sample problems

In addition, each chapter includes valuable sample problems andend-of-chapter questions so readers can measure their progress.

The Basics of Finance offers finance practitioners and studentsalike a wealth of essential guidance on the most fundamental andrudimentary topics in finance including an introduction toeverything from financial markets and institutions, businessfinance, portfolio management, and risk management. If you'relooking to learn about finance, this is the best place tostart.

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Product Details

  • ISBN-13: 9780470609712
  • Publisher: Wiley
  • Publication date: 9/21/2010
  • Series: Frank J. Fabozzi Series , #192
  • Edition number: 1
  • Pages: 672
  • Sales rank: 899,928
  • Product dimensions: 6.40 (w) x 9.10 (h) x 2.20 (d)

Meet the Author

PAMELA PETERSON DRAKE, PhD, CFA, is the J. Gray FergusonProfessor of Finance and Department Head of Finance and BusinessLaw at James Madison University. She received her PhD in financefrom the University of North Carolina at Chapel Hill and her BS inaccountancy from Miami University. Professor Drake previouslytaught at Florida State University and Florida AtlanticUniversity.

Frank J. Fabozzi, PhD, CFA, CPA, is Professor in the Practice ofFinance and Becton Fellow at the Yale School of Management andEditor of the Journal of Portfolio Management. Fabozzi earned adoctorate in economics from the City University of New York. He isan Affiliated Professor at the University of Karlsruhe's Instituteof Statistics, Econometrics, and Mathematical Finance and is on theAdvisory Council for the Department of Operations Research andFinancial Engineering at Princeton University.

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Table of Contents



Chapter 1 What is Finance?

Capital Markets & Capital Market Theory.

Financial Management.

Investment management.

Organization of this book.

The Bottom Line.


Part One: The Financial System.

Chapter 2 Financial Instruments, Markets, andIntermediaries.

The financial system.

The Role of Financial Markets.

The role of financial intermediaries.

Types of financial markets.

The Bottom Line.


Chapter 3 The Financial System’s Cast ofCharacters.

Domestic nonfinancial sectors.

Nonfinancial businesses.

Domestic financial sectors.

The foreign sector.

The Bottom Line.


Part Two: Financial Management.

Chapter 4 Financial Statements.

Accounting principles: What are they?

The basic financial statements.

How are the statements related?

Why bother about the footnotes?

Accounting flexibility.

U.S. accounting v. outside of the U.S.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 5 Business Finance.

Forms of business enterprise.

The objective of financial management.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 6 Financial Strategy and Financial Planning.

Strategy and value.

The budgeting process.


Performance evaluation.

Strategy and value creation.

The Bottom Line.


Chapter 7 Dividend and Dividend Policies.


Stock distributions.

Dividend policy.

Stock repurchases.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 8 The Corporate Financing Decision.

Debt v. equity.

Financial leverage and risk.

Financial distress.

The cost of capital.

Optimal capital structure: Theory and practice.

The Bottom Line.

Solutions to Try It! Problems.


Chapter 9 Investment Management.

Setting investment objectives.

Establishing an investment policy.

Constructing and monitoring a portfolio.

Measuring and evaluating performance.

The Bottom Line.

Solutions to Try it! Problems.


Part Three: Valuation and Analysis Tools.

Chapter 10 Time Value of Money.

Why the time value of money?

Calculating the future value.

Calculating a present value.

Determining the unknown interest rate.

The time value of a series of cash flows.


Loan amortization.

Interest rates and yields.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 11 Financial Ratio Analysis.

Classifying financial ratios.


Profitability ratios.

Activity ratios.

Financial leverage.

Return on investment.

The Du Pont system.

Common-size analysis.

Using financial ratio analysis.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 12 Cash Flow Analysis.

Difficulties with measuring Cash Flow.

Free cash flow.

Usefulness of cash flows analysis.

Ratio analysis.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 13 Capital Budgeting.

Investment decisions and owners' wealth.

The capital budgeting process.

Determining cash flows from investments.

Capital budgeting techniques.

The Bottom Line.

Solutions to Try it! Problems.


Part Four: Investments.

Chapter 14 The World of Derivatives.

Futures and forward contracts.



The Bottom Line.

Appendix: Black-Scholes option pricing model.

Solutions to Try it! Problems.


Chapter 15 Financial Risk Management.

The definition of risk.

Enterprise risk management.

Managing risks.

The Bottom Line.


Chapter 16 The Theory of Portfolio Selection.

Some basic concepts.

Estimating a portfolio's expected return.

Measuring portfolio risk.

Portfolio diversification.

Choosing a portfolio of risky assets.

Behavioral finance and portfolio theory.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 17 Asset Pricing Theory: The Capital Asset PricingModel.

Characteristics of an asset pricing model.

Overview of the capital asset pricing model.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 18 The Structure of Interest Rates.

The base interest rate.

The term structure of interest rates.

Term structure of interest rates theories.

Swap rate yield curve.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 19 Valuing Common Stock.

Discounted cash flow models.

Relative valuation methods.

The Bottom Line.

Solutions to Try it! Problems.


Chapter 20 Valuing Bonds.

Valuing a bond.

Conventional yield measures.

Valuing bonds that have embedded options.

The Bottom Line.

Solutions to Try it! Problems.


Appendix: Solutions to End of Chapter Questions andProblems.


About the Authors.


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