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U.S. Treasury bonds; see Treasury bonds TIPS, 298–300, 621
U.S. Treasury notes; see Treasury notes Treasury bill interest rates, 284–285
U.S. Steel, 185 Treasury securities, 618–619
University of Rochester, 520 Treasury STRIPS, 294–296
Unlimited tax bonds, 630 Treasury yield curve, 290, 291f, 293f, 294
Unseasoned equity offering, 135 Walt Disney Company, 188, 471, 594
Unsecured debt, 583 Wasatch Funds, 117
Unsystematic risk, 383–385, 396, 398 The Wave Principle (Elliott), 255
Uptick rule, 145–146 Weak-form efficient markets, 209–210
William E. Simon Business School, 520
V WisdomTree Investments, 121
Wishful thinking bias, 249
Valuation; see Common stock valuation; Financial World Bank, 624
statements forecasting; Option valuation World funds, 110
Wrap accounts, 46
Value-at-Risk (VaR), 423–424, 426–428
Value Line Investment Survey, 189–193 X
Value of a basis point, 333
Value stocks, 14–15, 111, 113, 184, 402, 552 XTO Energy Inc., 588
Value-weighted indexes, 154–157
Vanguard 500 Index Fund, 109, 220–222 Y
Vanguard ETFs, 120–122, 125
Vanguard Funds, 100 Yahoo!, 5, 53f, 78f, 148
Vanguard High-Yield Corporate Fund, 603 Yahoo! Finance
Vanguard Inflation Protected Securities
analyst estimates, 560, 563
Fund, 622 bond yield spread, 602
VaR (Value-at-Risk), 423–424, 426–428 implied volatility indexes, 532
Variable-rate demand obligation option price quotes, 470
stock screeners, 552
(VRDO), 630 Yankee bonds, 293
Variable-rate notes or bonds, 599, 630 Yield
Variance asked, 286–287
bank discount, 283–284, 286, 289
definition and introduction, 17–19 bond equivalent, 286–289
of expected returns, 352–353 calculating, 322–325
as measure of risk, 350 capital gains yield, 4
minimum variance portfolio, 364–365 coupon, 315
portfolio, 355–357, 363, 365, 420 current, 73, 284, 315–316, 319–320
value-at-risk calculation, 426 definition, 283
VC (venture capital), 134 discount, 283–284, 286, 289
Venture capital (VC), 134 dividend, 4, 534
VIX (S&P 500 Volatility Index), 531–532 earnings, 183–184
Volatility, 425 equivalent taxable, 633–634
Volume indicators, 256–257, 262f nominal, 315
VRDO (variable-rate demand obligation), 630 promised, 316, 325
VXN (NASDAQ 100 Volatility Index), realized, 325
relationship among measures of, 319–320
531–532 tax-exempt money market instruments, 106
VXO (S&P 100 Volatility Index), 531–532 Treasury STRIPS, 296–297, 616–617
Yield curve
W convexity, 587
credit risk, 602
The Wall Street Journal modern term structure theories, 303–306
agency securities, 624–625 slope of, 293, 301–303, 305
annual reports service, 546 term structure versus, 294
bond announcements, 584–585, 590, 593 traditional term structure theories, 301–304
cash prices, 450–451 Treasury, 290, 291f, 293f, 294
common stock price quotes, 78 Yield premium, 601
corporate bond price quotes, 74–75 Yield spread, 602
credit markets, 290–291 Yield to call (YTC), 323–325, 618
dividends, 79–81 Yield to maturity (YTM)
Dow as editor of, 254 accrued interest and, 320
futures price quotes, 83, 439–443 bond price relationship to, 316–321, 619–620
high-yield bonds, 602–604 calculating, 322–323
index option price quotes, 476–478 definition, 316
money rates, 278, 280, 282–283 dollar value of an 01, 333–334
municipal securities, 628–629
mutual funds, 113–116
options price quotes, 469–471
preferred stock price quotes, 78
technical indicators, 257f

674 Subject Index

Malkiel’s theorems, 326–327 Z
premium and discount bond prices and, 318–320
realized yield versus, 325 Zero correlation, 360
relationships among yield measures, 319–320 Zero-coupon bonds
Treasury bonds and notes, 618–620
Treasury STRIPS, 296–297 definition, 294, 615
yield to call compared, 324 duration, 330, 332
zero-coupon bonds, 615–617 price and yield, 615–617
Yield value of a 32nd, 333–334 term structure of interest rates, 294, 304
York University, 488 Treasury STRIPS, 615–617
YTC (yield to call), 323–325, 618 Zero-coupon yield curve, 294
YTM; see Yield to maturity Zurich Financial Services, 595

Subject Index 675

Chapter Learning Objectives

Chapter 1: A Brief History of Risk and Return
In this chapter, you will learn:

1. How to calculate the return on an investment using different methods.
2. The historical returns on various important types of investments.
3. The historical risks on various important types of investments.
4. The relationship between risk and return.

Chapter 2: Buying and Selling Securities
In this chapter, you will learn:

1. The various types of securities brokers and brokerage accounts.
2. How to calculate initial and maintenance margin.
3. The workings of short sales.
4. The importance of investor objectives, constraints, and strategies.

Chapter 3: Overview of Security Types
In this chapter, you will learn:

1. Various types of interest-bearing assets.
2. Equity securities.
3. Futures contracts.
4. Option contracts.

Chapter 4: Mutual Funds
In this chapter, you will learn:

1. The different types of mutual funds.
2. How mutual funds operate.
3. How to find information about how mutual funds have performed.
4. The workings of Exchange-Traded Funds.

Chapter 5: The Stock Market
In this chapter, you will learn:

1. The difference between primary and secondary stock markets.
2. The workings of the New York Stock Exchange.
3. How NASDAQ operates.
4. How to calculate index returns.

Chapter 6: Common Stock Valuation
In this chapter, you will learn:

1. The basic dividend discount model.
2. The two-stage dividend growth model.
3. The residual income model.
4. Price ratio analysis.

Chapter 7: Stock Price Behavior and Market Efficiency
In this chapter, you will learn:

1. The foundations of market efficiency.
2. The implications of the forms of market efficiency.
3. Market efficiency and the performance of professional money managers.
4. What stock market anomalies, bubbles, and crashes mean for market efficiency.

Chapter 8: Behavioral Finance and the Psychology of Investing
In this chapter, you will learn:

1. Prospect theory.
2. The implications of investor overconfidence and misperceptions of randomness.
3. Sentiment-based risk and limits to arbitrage.
4. The wide array of technical analysis methods used by investors.

Chapter 9: Interest Rates
In this chapter, you will learn:

1. Money market prices and rates.
2. Rates and yields on fixed-income securities.
3. Treasury STRIPS and the term structure of interest rates.
4. Nominal versus real interest rates.

Chapter 10: Bond Prices and Yields
In this chapter, you will learn:

1. How to calculate bond prices and yields.
2. The importance of yield to maturity.
3. Interest rate risk and Malkiel’s theorems.
4. How to measure the impact of interest rate changes on bond prices.

Chapter 11: Diversification and Risky Asset Allocation
In this chapter, you will learn:

1. How to calculate expected returns and variances for a security.
2. How to calculate expected returns and variances for a portfolio.
3. The importance of portfolio diversification.
4. The efficient frontier and importance of asset allocation.

Chapter 12: Return, Risk, and the Security Market Line
In this chapter, you will learn:

1. The difference between expected and unexpected returns.
2. The difference between systematic risk and unsystematic risk.
3. The security market line and the capital asset pricing model.
4. The importance of beta.

Chapter 13: Performance Evaluation and Risk Management
In this chapter, you will learn:

1. How to calculate the three best-known portfolio evaluation measures.
2. The strengths and weaknesses of these three portfolio evaluation measures.
3. How to calculate a Sharpe-optimal portfolio.
4. How to calculate and interpret Value-at-Risk.

Chapter 14: Futures Contracts
In this chapter, you will learn:

1. The basics of futures markets and how to obtain price quotes for futures contracts.
2. The risks involved in futures market speculation.
3. How cash prices and futures prices are linked.
4. How futures contracts can be used to transfer price risk.

Chapter 15: Stock Options
In this chapter, you will learn:

1. The basics of option contracts and how to obtain price quotes.
2. The difference between option payoffs and option profits.
3. The workings of some basic option trading strategies.
4. The logic behind the put-call parity condition.

Chapter 16: Option Valuation
In this chapter, you will learn:

1. How to price options using the one-period and two-period binomial model.
2. How to price options using the Black-Scholes model.
3. How to hedge a stock portfolio using options.
4. The workings of employee stock options.

Chapter 17: Projecting Cash Flow and Earnings
In this chapter, you will learn:

1. How to obtain financial information about companies.
2. How to read basic financial statements.
3. How to use performance and price ratios.
4. How to use the percentage of sales method in financial forecasting.

Chapter 18: Corporate Bonds
In this chapter, you will learn:

1. The basic types of corporate bonds.
2. How callable bonds function.
3. The workings of convertible bonds.
4. The basics of bond ratings.

Chapter 19: Government Bonds
In this chapter, you will learn:

1. The basics of U.S. Treasury securities and how they are sold.
2. The workings of the STRIPS program and pricing Treasury bonds.
3. How federal agencies borrow money.
4. How municipalities borrow money.

Chapter 20 (Web site only): Mortgage-Backed Securities
In this chapter, you will learn:

1. The workings of a fixed-rate mortgage.
2. Government’s role in the secondary market for home mortgages.
3. The impact of mortgage prepayments.
4. How collateralized mortgage obligations are created and divided.







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
competent decisions.

Some of the features found in Fundamentals of Investments, 5e…
th edition includes: a new section on the advantages

and drawbacks of mutual fund investing; discussion of the current structure

the material you just learned. ®
Fundamentals of Investments

making investment decisions.

Comments from users of Fundamentals of Investments…
Jordan & Miller present an organized, thematic approach of return and risk throughout

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