I-1

Index

A financial reporting issues,3: 696–713 Expenses: Compensation–Retirement AAII. see American Association of cash flow statements,3: 706–709 Benefits (ASC 715),3: 737 Individual Investors earnings and balance sheets, Fair Value Measurements and AAR. see average accounting rate of 3:697–706 Disclosures (ASC 820), 3:475n.2 return accounting costs, 2:28 General Electric disclosures, 3:138 Abbott Laboratories, 4:135–136; 5:213 accounting equation, 3:12 Income Taxes (ASC 740), 3:566 ABG Gas Supply LLC, 3:708 accounting estimates, 3:698–699 Interest (ASC 835), 3:486n.11 ability to take risk, investors’, 4:417–419. Accounting for Income Taxes (SFAS 109), Leases (ASC 840), 3:526n.29, 526n.31, see also risk tolerance 3:566 635n.12 AbitibiBowater Inc., 3:520–522 Accounting for the Costs of Computer Statement of Cash Flows (ASC 230), abnormal returns, 5:124 Software to be Sold, Leased, or 3:529n.32 ABP (pension fund), 4:434–435 Otherwise Marketed (SFAS 86), Accounting Standards Updates (ASUs), absolute advantage, 2:347–354 3:489 3:138, 168n.24, 169 absolute dispersion, 1:430 accounting goodwill, 3:240 accounting systems, 3:73–75 absolute frequency, 1:395 accounting policies debits and credits, 3:74–75, 78–94 absolute priority rule, 5:483 changes in, 3:137–138 flow of information in,3: 74 absolute return, for alternative disclosures relating to, 3:135–138 Investment Advisers Ltd. case study, investments, 6:129–130 retrospective application of, 3:184 3:78–94 absolute risk objectives, 4:416 accounting process, 3:53–70 account reviews absorption approach to trade balance, financial statements in,3: 68–70 firm policies on,1: 105 2:449–450 Investment Advisers Ltd. case study, systematic, 1:114 ABSs. see asset-backed securities 3:53–70 accounts Abu Dhabi Investment Authority, 4:221 records in, 3:55–67 balance of payments, 2:370–371, academic designations, order of, 1:204 accounting profit 377–379 accelerated book building, 5:50 defined, 2:28; 3:566 with beneficial ownership,1: 186, 187 accelerated methods of depreciation, taxable income vs., 3:566–571 contra, 3:46, 225 3:178–180, 493 and current tax assets/liabilities, defined, 3:46 acceptance region, test statistic, 3:567–568 doubtful, 3:176, 711 1:630–631 and deferred tax assets/liabilities, equations for, 3:48–53 access, short-term borrowing strategy 3:568–571 on balance sheet and income and, 4:191 taxable profit vs.,3: 576–581 statement, 3:49–50 account information, regular statements and business combinations/deferred on statement of retained earnings, of, 1:105 taxes, 3:581 3:50–51 accounting and investments in subsidiaries, using, 3:51–53 accrual, 3:71, 698–699 branches, associates, and interests, family, 1:108, 186, 188–189 acquisition method of, 3:480 3:581 as financial statement elements,3: 46–48 “big bath,” 3:682 temporary differences,3: 577–580 in FX market, 2:412–413 cash-basis, 3:698–699 accounting records, 3:55–67 on income statements, 3:49–51 “cookie jar” reserve, 3:682–683 Accounting Regulatory Committee, in performance calculations, 1:128 double-entry, 3:51 3:113 representative, 1:223 Accounting and Auditing Enforcement accounting risk, 4:263 T-accounts, 3:78–94 Release (SEC), 3:699–701 accounting scandals, 3:666 tax asset valuation, 3:712 Accounting and Corporate Regulatory accounting standards. see also specific temporary new, 1:239, 272 Authority, 3:105, 116, 686 standards types of, 3:47 accounting choices biased application of, 3:682–683 uncollectible, 3:699–700 aggressive convergence of, 3:155–156, 168 accounts payable and bias in application of accounting for revenue recognition, 3:168–171 in accrual accounting, 3:72 standards, 3:682–683 and ROE, 3:736–738 as current liability, 3:232 conservative vs., 3:678–683 Accounting Standards Board of Japan, accounts payable management, defined, 3:670 3:115 4:185–188 biased, 3:670–678 accounting standards boards, 3:106–108 cash disbursements, 4:188 conservative, 3:678–683 attributes of, 3:108 evaluating, 4:188 aggressive vs., 3:678–683 Financial Accounting Standards Board, trade discounts, 4:187–188 benefits of,3: 682 3:107–108 accounts receivable bias in application of accounting International Accounting Standards as current assets, 3:225–227 standards, 3:682–683 Board, 3:106–107 defined, 3:48 defined, 3:670 Accounting Standards Codification and financial reporting quality,3: 714 in extractive industries, 3:679–680 (FASB), 3:107–108 and taxable/deductible temporary losses in, 3:679 Accounting Standards Updates, 3:138, differences, 3:579 and deferred-tax assets, 3:700–701 168n.24, 169 and tax bases of assets, 3:572, 573 earnings management with, Business Combinations (ASC 805), accounts receivable aging schedule, 3:676–677 3:480n.9 4:180–181

bind 1 June 17, 2017 4:16 PM I-2 Index

accounts receivable management, active strategies advanced economies, trade-to-GDP 4:175–181 borrowing, 4:192 ratio for, 2:340 customers’ receipts, 4:177–180 short-term investing, 4:171–172 Advanced Micro Devices, 5:209 evaluating, 4:180–181 activist shareholders, 6:136. see also adverse audit opinion, 3:28 trade granting process, 4:176–177 shareholder activism adverse selection, with insurance, 5:34 accounts receivable turnover, 4:160 activity ratios, 3:348–355 advertisements. see also GIPS accredited individuals, 4:236n.21 calculation of, 3:349–351 Advertising Guidelines (GIPS Accredited Investors, 6:133n.14 in company analysis, 5:230–231 Section III) accrual accounting defined, 2:222; 3:349–350 defined, 1:258 cash-basis vs., 3:698–699 evaluation of, 3:352–355 information included in, 1:258 defined, 1:264 interpretation of, 3:351–355 advisers, selecting, 1:157 Input Data (GIPS Section I.1), 1:237 fixed asset turnover,3: 354 Aegis Value Fund, 1:435 revenue recording under, 3:71 inventory turnover and DOH, aerospace industry, governmental accruals, reporting of, 3:71–73 3:351–352 influences on,5: 225–226 accrued expenses payables turnover and number of AFC. see average fixed cost as current liability, 3:232 days of payables, 3:353 AFDB. see African Development Bank reporting, 3:72–73 receivables turnover and DSO, affiliated stockholders, as takeover accrued interest, 1:378–379; 5:413–417 3:352–353 defense, 4:34 accrued revenue, 3:72 total asset turnover, 3:354 affirmative covenants,3: 617; 5:310, 626 accumulated depreciation, 3:46 working capital turnover, 3:354 Afghanistan, 3:116 accumulated other comprehensive AD. see aggregate demand Africa. see also specific regions and income, 3:248–249 ADB. see Asian Developmental Bank countries Acer Inc., 3:331–333; 5:209 ADC Telecommunications, 4:209–210 debt and equity outstanding, 5:350 ACH. see Automated Clearing House AD curve. see aggregate demand curve and IFRS, 3:117 acid-test ratio, 4:160 Additional Compensation Arrangements industrial comparative ratio, 5:617 acquisition [Standard IV(B)], 1:144–145 REIT returns, 6:164–165 of businesses, 3:593 application of the standard, 1:144–145 terms of trade for, 2:337, 338 of long-lived assets, 3:475–493 compliance procedures, 1:144 African Development Bank (AFDB), accounting for, 3:475 guidance, 1:144 2:413; 5:372 capitalisation of interest costs, text of, 1:46, 144 after-tax cost of debt, 4:85 3:486–489 additional information, 1:264 after-tax nominal return, 4:302 capitalisation of internal development additional services, for select clients, agency bonds, 5:372–373 costs, 3:489–493 1:116 agency relationship, 4:11; 5:61. see also capitalising vs. expensing costs, addition rule for probabilities, principal–agent relationship 3:481–486 1:483–484 agency RMBS, 5:490–491, 503. see also and financial reporting issues,3: 706 add-on rates, 5:429–431 collateralized mortgage obligations intangible assets, 3:478–481 adequate compliance procedures, (CMOs); mortgage pass-through property, plant, and equipment, 1:147–149 securities 3:475–478 Adidas AG, 5:657–658 agent options, 1:182 acquisition method of accounting, 3:480 adjustable-rate mortgages (ARMs), 5:487 agents, trustee, 5:479 action lag, 2:318 adjusted consolidated segment operating age ratios, asset, 3:518–522 actions income (adjusted CSOI), 3:693–696 aggregate demand (AD), 2:137–148 investment (see also Investment adjusted EBITDA, 3:692 and AD curve, 2:145–148 Analysis, Recommendations, and adjusted funds from operations (AFFO), and business cycle, 2:204–205 Actions [Standard of Professional 6:166 defined, 2:136 Conduct V]) adjustments and fiscal policy,2: 302–303 fair dealing in, 1:111–112 financial statement,3: 756–771 and global recession (2007-2009), firm policies on,1: 105–106 to debt, 3:768–770 2:165–167 impact of, 1:40–41 framework for, 3:756 and imports/exports, 2:338–339 unethical, 1:57 for goodwill, 3:762–764 and inflationary gap,2: 167–168 personal, 1:83 for inventory, 3:757–759, 757–760, investment strategies for decrease in, unethical, 1:57 759–760 2:164–165 active crawling peg currency regime, for investments, 3:756–757 investment strategies for increase in, 2:439–440 for off-balance-sheet financing, 2:168 active investment strategies 3:764–771 IS curve, 2:137–144 industry analysis in, 5:188–189 for plant, property, and equipment, LM curve, 2:144–145 information-acquisition costs for, 3:761–762 and recessionary gap, 2:163–167 5:123–124 inventory, 3:426–433 shifts in, 2:150–157 and market efficiency,5: 117 declines and recoveries of inventory capacity utilization, 2:153 active management value, 3:427–428 consumer and business expectations, of alternative investments, 6:124, 129 inventory write-downs and financial 2:153 of portfolios ratios, 3:428–433 economic growth, 2:155 capital market line for, 4:366 valuation, 3:73 exchange rate, 2:155 information-motivated trading in, 5:10 administrative costs, 2:367–368 fiscal policy,2: 153 manager performance in, 5:129 administrative fees, 1:264 household wealth, 2:151–152 manager selection for, 5:116 ADRs. see American depositary monetary policy, 2:153–154 security market indexes in, 5:94 receipts shifts in supply and, 2:170–173 of stock mutual funds, 4:232 ADSs. see American depositary shares aggregate demand curve (AD curve) active returns, 5:116 ADT Security Services, Inc., 5:199, 200 example, 2:147–148

bind 2 June 17, 2017 4:16 PM Index I-3

features of, 2:145 Agnelli Industries, 5:484–485 common characteristics, 6:124–128 interest rates and income effects, agriculture, 6:167,168 defined, 6:123–124 2:146–147 agriculture industry, 2:68–69 hedge funds, 6:133–148 investment strategies based on, AIG, 6:32, 33 about, 6:133–135 2:171–172 AIMR. see Association for Investment diversification benefits,6: 138–139 aggregate expenditures, 2:119 Management and Research due diligence, 6:146–148 aggregate income, 2:119–136 AIMR Performance Presentation fees and returns, 6:139–143 in economy, 2:119–120 Standards (AIMR-PPS®), 1:228 investment strategies for, 6:135–138 and expenditures, 2:137–144 Airbus and leverage, 6:143–144 in gross domestic product, 2:120–136 governmental influences on,5: 225–226 and redemptions, 6:144–145 components of, 2:127–131 in method of comparables, 5:270 valuation issues, 6:145–146 external sector, 2:130–131 strategic analysis with, 5:207–209, 218 historical records of, 6:126 government sector, 2:129–130 Aircastle Limited, 5:27 infrastructure investments, household and business sectors, 2:128 aircraft manufacturing industry, 6:173–175 measuring, 2:120–123 strategic analysis of, 5:207–208, 218 markets for, 5:15–16 nominal and real, 2:124–127 airline industry portfolio diversification with,6: 132 and other income measures, asset-based equity valuation for, 5:278 practice problems, 6:184–188 2:131–136 life-cycle stage and business cycle private equity, 6:148–158 values of goods and services, sensitivity, 5:227–228 diversification benefits,6: 155–156 2:123–124 Air Liquide, 1:426 due diligence, 6:158 real personal, 2:241 Air Products and Chemicals, 5:209 investment strategies, 6:150–154 aggregate indexes, fixed-income,5: 99 AirTran Airways, 2:88 portfolio company valuation, aggregate output, 2:119–136 air transportation industry, 2:66 6:156–157 in economy, 2:119–120 Akerlof, George A., 1:681 structure and fees, 6:149–150 in gross domestic product, 2:120–136 Alcatel-Lucent, 3:441–446 real estate, 6:158–167 components of, 2:127–131 consolidated balance sheet, 3:442 forms of investment, 6:159–161 external sector, 2:130–131 consolidated income statement, investment categories, 6:161–163 government sector, 2:129–130 3:441–442 performance and diversification household and business sectors, notes to consolidated financial benefits, 6:163–165 2:128 statements, 3:443–444 risks with, 6:166–167 measuring, 2:120–123 solvency ratio evaluation, 3:363 valuation, 6:165–166 nominal and real, 2:124–127 Alcoa, 5:276 returns from, 6:129–132 and other income measures, Alcon, 3:743 risk management, 6:176–180 2:131–136 Algeria, 2:437 due diligence with, 6:178–180 values of goods and services, Alibaba, 4:13, 32 process, 6:177 2:123–124 Allianz SE, 1:426; 5:165 risk–return measures, 6:178–179 aggregate price, supply of money and, all-in fees, 1:265 security market indexes for, 2:273–274 allocation(s) 5:101–104 aggregate real personal income, 2:241 asset, 1:551–553 solutions to problems, 6:189–193 aggregate supply (AS) minimum lot, 1:116–117 structures for, 6:132–133 and AS curve, 2:148–150 with safety-first rules,1: 551–553 and traditional investments, 6:132 defined, 2:136 trade allocation procedures, 1:113, 114 alternative trading systems (ATSs), and global recession, 2:165–167 transaction, 1:115–116 5:29–30 and imports/exports, 2:338–339 allocationally efficient financial systems, Altria Group Inc., 3:511 investment strategies for shifts in, 5:59 Amaranth Advisors LLC, 6:171 2:169–170 allocative efficiency,5: 116n.2 AMC. see Asset Manager Code of long-run, 2:148–150, 159–161 all-or-nothing orders (AONs), 5:47 Professional Conduct in perfectly competitive market, 2:81 allowance Ameren, 5:255 in real business cycle models, for bad debts, 3:46 American Association of Individual 2:218–219 for doubtful accounts, 3:711 Investors (AAII), 1:717 shifts in, 2:150–151, 157–162 for loan loss reserves, 3:711 American depositary receipts (ADRs), shifts in demand and, 2:170–173 Aloha Airlines, 4:274n.30 1:684; 5:167–168 short-run, 2:148–149, 157–158 alpha, 5:94 American depositary shares (ADSs), and stagflation,2: 169–170 Alpha Natural Resources, 4:382–383 5:167 aggregate supply curve (AS curve) alternative hypothesis, 1:626–627, American Express, 1:546n.17 about, 2:148–150 653–654 American options (American-style investment strategies based on, alternative inventory costing, 3:174–175, options) 2:171–172 712 callable, 1:541; 5:330 long-run, 2:148–150 Alternative Investment Fund Managers defined, 6:26, 85 short-run, 2:148–149, 157–158 Directive (AIFMD), 6:144 pricing, 6:104–107 aggressive accounting choices alternative investments, 6:123–193 putable, 5:332n.6 and biased application of standards, categories of, 6:128–129 American Stock Exchange (AMEX), 3:682–683 collectibles, 6:175–176 5:168 conservative vs., 3:678–683 commodities, 6:167–173 American-style contracts, 5:24 defined, 3:670 derivatives and indexes, 6:168–169 Americas, 6:164–165 and non-GAAP measures in reports, investment vehicles, 6:169–170 AmeriCredit Automobile Receivable 3:670, 672–673 performance and diversification Trust 2013–4, 5:509–511 aging schedule, 4:180–181 benefits, 6:170–171 AmeriGas, 5:210 AGM. see annual general meeting prices of, 6:171–173 AMEX. see American Stock Exchange

bind 3 June 17, 2017 4:16 PM I-4 Index

Amgen, 5:209 annual reports, 3:111, 671–672 framework for, 3:756 amortisation annual returns, advertisements with, for goodwill, 3:762–764 of bonds, 3:608–612 1:292–293 for inventory, 3:757–760 amortisation of discounts, 3:609–611 annual share turnover, 1:428 for investments, 3:756–757 amortisation of premiums, 3:611–612 Annual Statement Studies (Risk for off-balance-sheet financing, and interest expense/interest Management Association), 3:338 3:764–771 payments, 3:608–612 annuities. see also ordinary annuities for plant, property, and equipment, defined, 3:177 defined, 1:316 3:761–762 and expense recognition on income future value of, 1:316–318 credit risk assessments, 3:749–752 statements, 3:180 lump sums to fund, 1:335–338 Moody’s rating factors, 3:750–751 of intangible assets, 3:177, 237 size of annuity payments, 1:334–338 peer comparison ratios, 3:752 of long-lived assets, 3:501–502 annuity due, 1:316, 323–325 equity screening, 3:752–756 amortisation expenses, 3:502 anomalies, market. see market anomalies example, 3:753 amortised costs, 3:123, 224–225, 242, ANOVA. see analysis of variance ratio-based, 3:755–756 243 anticipation stock, of inventory, 4:183 financial performance evaluations, amortization provisions, 5:512 antidilutive securities, 3:195–196 3:731–739 amortization schedule, residential Antigua, 2:436 accounting standards and ROE, mortgage loan, 5:487–488 antitrust policies, 2:92, 105–106 3:736–738 amortizing bonds, 5:318–320 ANZSIC. see Australia and New Zealand and changes in business strategy, amortizing loans, 5:487, 508 Standard Industrial Classification 3:731–735 AMR Corporation, 3:765–768 AONs. see all-or-nothing orders and war chests, 3:735 Amtrak, 2:104 APC. see average propensity to consume financial performance projections, analysis of variance (ANOVA), 1:634n.16 APL. see average product of labor 3:739–749 analyst adjustments, 3:756–771 Apollo Group, 5:210 consistency of forecasts, 3:748 to debt, 3:768–770 Appendices, IPS, 4:415 example, 3:746–747 framework for, 3:756 Apple Inc. forecasting operating profit, for goodwill, 3:762–764 accounts receivable, 3:225–226 3:741–742 for inventory, 3:757–760 balance sheet components, 3:220 issues with, 3:742–745 and current ratio, 3:759–760 cash flow analysis of comparables, with market-based valuation, with LIFO accounting, 3:757–759 3:312–313 3:740–745 for investments, 3:756–757 change in accounting standards, for multiple periods, 3:745–748 for off-balance-sheet financing, 3:185–186 practice problems, 3:773–774 3:764–771 cross-sectional common-size analysis, solutions to problems, 3:775 for plant, property, and equipment, 3:258–260 Applied Materials, 5:209 3:761–762 current assets, 3:224 appraisal indexes (real estate), 6:163 analysts current liabilities, 3:231 appraisals, asset revaluation, 3:504 areas of concern about financial deferred revenue, 3:232–234 appreciation, currency, 2:420 reporting quality, 3:710–713 deferred tax assets, 3:230 approval, for outside compensation, corporate governance considerations, deferred tax liabilities, 3:247 1:145 4:31–36 earnings announcements, 3:8–9 approximate modified duration, board of directors representation, equity, 3:250 5:543–545 4:32 expected return, 4:382–383 APR. see annual percentage rate composition of investors, 4:33–34 financial assets,3: 245 a priori probability, 1:478 economic ownership and voting goodwill, 3:242 APs. see authorized participants control, 4:31–32 inventory valuation, 3:227, 228 APY. see annual percentage yield long-term risk management, 4:35 and Logitech, 2:344 AR. see average revenue remuneration and company marketable securities, 3:225 arbitrage performance, 4:32–33 non-current assets, 3:235 bounds of, 5:123 shareholders’ rights, 4:34 non-current liabilities, 3:246 commodities, 6:172 estimates of value by, 4:48 and revenue recognition on income convertible, 4:236 judgment about financial statement statements, 3:167–168 defined, 6:47 entries, 3:75–76 statement of changes in equity, in derivatives pricing, 6:47–52, 66–72 nonpublic information from, 1:93–94 3:251–252 executing, 6:67 anchor, underwritten offerings,5: 361 strategy and financial performance, fixed-income, 4:236 Andrew W. Mellon Foundation, 4:219 3:329–330, 731–735 with forward contracts, 6:49–50 Anglo American, 5:276 war chests, 3:735 frequency of arbitrage opportunities, AngloGold Ashanti, 5:276 Apple TV, 3:185–186 6:67 Anheuser-Busch, 3:481 applicable law and hedge funds, 6:136 Anheuser-Busch InBev SA/NV, 1:426; and Code/Standards, 1:50–53 limits to, 6:70 3:742–744; 5:200 on confidentiality,1: 130 and market efficiency,5: 123 annual coupon rate, 5:404 in firm policy,1: 105 and put–call parity, 6:97 annual general meeting (AGM), 4:15 global, 1:52–53 and relative valuation, 6:47–49 annualized convexity, 5:561–562 and investment products, 1:51–53 and replication, 6:68–69 annualized returns, 1:291–292; providing information on, 1:55 risk, 1:91; 6:50n.24 4:299–301 staying informed about, 1:54 with stocks and risk-free bonds, annualized yield measures, 5:420 applications of financial statement 6:47–49 annual modified duration,5: 542–544 analysis, 3:729–775 triangular, 2:423 annual percentage rate (APR), 1:315n.6 analyst adjustments, 3:756–771 arbitrage-free pricing, 6:70 annual percentage yield (APY), 1:315n.6 to debt, 3:768–770 arbitrage pricing theory (APT), 4:401

bind 4 June 17, 2017 4:16 PM Index I-5

arbitrageurs, 5:34–36, 123 Asociación Española de Presentación de utility theory and selection of, ArcelorMittal, 1:425; 5:622–623, 625 Resultados de Gestión, 1:233 4:321–324 Archer Daniels Midland Company, asset(s). see also investment risk of two-asset portfolio, 4:306–307 1:735, 739; 2:105 characteristics of assets risky Argentina average age of depreciable, 3:520–522 combining risk-free assets with, exchange rate regime, 2:436, 439–440 on balance sheets, 3:218, 242–245 4:363–366 financial reporting quality in,3: 686 and classification of markets,5: 14–16 covariance and correlation of risks, foreign direct investment, 2:341, 342 as collateral, 5:626 4:325–327 IFRS adoption, 3:116 in Conceptual Framework, 3:121 efficient frontier of,4: 339 inflation-linked bonds,5: 326, 370 currencies, 5:19–20 importance of correlation of risks in MERCOSUR, 2:362 current portfolio, 4:330 MSCI multi-market index, 5:96 and accounting profit vs. taxable portfolio return, 4:324 non-sovereign government debt, 5:650 income, 3:567–568 portfolio risk, 4:324–330 Ariane space program, 5:225 on balance sheets, 3:221, 223–230 risk and return relationship, 4:327–329 arithmetic mean, 1:406–410 defined, 3:48 utility theory and selection of, and coefficient of variation,1: 443–444 debt-to-assets ratio, 3:361, 362, 644 4:321–324 as cross-sectional mean, 1:407–409 deferred tax securities, 5:16–19 defined, 1:400n.9, 406 accounting choices about, 3:700–701 equities, 5:17–18 and geometric, 1:420–422 accounting profit vs. taxable income fixed-income, 5:17 and median, 1:412–413 for, 3:568–571 pooled investments, 5:18–19 as population mean, 1:406–407 changes in tax rates, 3:575–576 securitized, 5:474 properties, 1:409–410 current assets, 3:230 tradable, 4:367 sample mean, 1:407–409 defined, 3:567 underlying, 5:20 using, 1:458–459 and timing, 3:566 variance of return for single, 4:304 and weighted mean, 1:416n.19 unused tax losses/credits, 3:581–582 asset age ratios, 3:518–522 arithmetic return, 4:294 defined, 3:9, 45, 218 asset allocation. see also strategic asset Armenia, 3:116 financial, 5:14 allocation (SAA) Armitage, Seth, 4:106 income tax bases of, 3:571–573 indices as proxies for asset classes in, ARMs. see adjustable-rate mortgages intangible, 5:276–278 5:94 Arms index, 1:720–722 acquisition of, 3:478–481 in portfolio management, 4:223 Arngrove Group Holdings, 3:183 on balance sheets, 3:237–242 safety-first rules for,1: 551–553 Arthur Andersen, 1:6 from business combinations, tactical, 4:439–440 Articles of Incorporation, 1:51 3:480–481 asset-backed securities (ABSs), Art Market Research, 6:176 capitalization of, 3:705–706, 711 5:473–525 Artpiece, 6:176 depreciation/amortisation, 3:177 about, 5:473–474 AS. see aggregate supply depreciation/amortisation of, 3:177, auto loan, 5:508–511 ASA, 3:709 237 collateral backing for, 5:308 Asahi Breweries, 3:735 identifiable, 3:238–239 collateralized debt obligations, 5:512–515 ascending triangle pattern, 1:704 impairment of, 3:237, 508–509 structure, 5:513 AS curve. see aggregate supply curve on income statements, 3:180 transaction example, 5:513–515 ASEAN. see Association of Southeast internally-developed, 3:478–480 commercial mortgage-backed Asian Nations long-lived, 3:474 securities, 5:503–508 Asia. see also specific countries not from business combinations, balloon maturity provisions, 5:505 capitalization level and contributions 3:478 call protection, 5:504–505 to global GDP, 5:151 and research, 3:238, 479 credit risk, 5:504 current account imbalance, 2:380 lease versus buy decision for, structure, 5:504–508 debt and equity outstanding, 5:350 3:525–528 as contingent claims, 6:33–35 effects of global recession,2: 165 liquid asset requirement, 3:379, 380 creation of, 5:31–32 financial crisis (1997-1998),2: 294, 343 liquidity and sales of, 5:639 credit card receivable, 5:511–512 and IFRS, 3:116 long-lived (see long-lived assets) defined, 5:474 institutionally owned real estate, 6:159 market efficiency and prices of, economic benefits of securitization, market regulatory bodies, 3:685 5:118–120 5:474–476 natural resources, 2:178 in markets, 5:14–20 in global debt, 5:349, 350 returns on REITs, 6:164–165 non-current legal identity of issuers, 5:306 terms of trade, 2:337 on balance sheets, 3:221, 234–245 non-mortgage asset-backed securities, trade-to-GDP ratio, 2:340 defined, 3:48 5:508–512 Asia 50 ADR Index Fund, 5:169 physical, 5:14 auto loan ABS, 5:508–511 Asian call options, 1:560–561 quick, 4:160 credit card receivable ABS, 5:511–512 Asian Developmental Bank (ADB), 5:372 real, 5:14, 26–28 as pooled investments, 5:19 Asian Financial Crisis (1997-1998), recoverable amount of, 3:507 practice problems, 5:519–522 5:164 return on, 3:336, 365–366, 421 repayment sources for, 5:307 Asian Market Neutral Composite, 1:296 risk-free, 4:339–342 residential mortgage-backed securities, Asian-Pacific Aggregate Bond Index, and capital allocation line, 4:339–340 5:490–503 5:357 and capital market line, 4:367–369 collateralized mortgage obligations, Asia Pacific Association for Fiduciary combining risky assets with, 4:363–366 5:496–503 Studies, 1:233 and homogeneity of expectations mortgage pass-through securities, ask prices, 5:44; 6:10n.3, 145 assumption, 4:365–366 5:491–496 ask sizes, 5:44 two-fund separation theorem, non-agency residential ASML Holdings NV, 1:425; 5:200–202 4:340–341 mortgage-backed securities, 5:503

bind 5 June 17, 2017 4:16 PM I-6 Index

asset-backed securities (ABSs), asset swaps, 5:443 AUM. see assets under management (continued) asset turnover Aussie exchange rate, 2:418 residential mortgage loans, 5:485–490 and financial reporting quality,3: 714 Australasia, 6:159 amortization schedule, 5:487–488 fixed, 3:350, 354, 520–522 Australia interest rates, 5:486–487 total, 3:350, 354 bonds outstanding, 5:354, 360 lender’s rights in foreclosure, asset utilization ratios, 3:349. see also business investment, 2:177 5:488–489 activity ratios commodities and economy of, 1:730 maturity, 5:486 asset weighing, 1:127 current account imbalance, 2:380 prepayment options and penalties, Assicurazioni Generali, 1:425 cyclically adjusted budget deficit,2: 317 5:488 assignments of accounts receivable, disinflation, 2:227 securitization, 5:474–485 4:192 domestic and international debt economic and market benefits, Assirevi, 1:233 securities, 5:315 5:474–476 Associação Portuguesa de Analista equity risk premiums, 4:91 parties’ roles in transaction, Financeiros, 1:233 exchange rate regime, 2:437 5:478–480 associate businesses, investments in, export subsidies, 2:359 special purpose entities, 5:482–485 3:581 foreign bonds, 5:313 structure of securitization, 5:481–482 Association for Investment Management foreign investment, 5:164 transaction example, 5:476–478 and Research (AIMR), 1:228 GIPS sponsor, 1:232 solutions to problems, 5:523–525 Association for Savings and Investment, government liabilities/debt, 2:308 as structured financial instruments, South Africa, 1:233 government revenues/expenditures, 5:381 Association Française de la Gestion 2:303, 304 traditional bonds vs., 5:299 Financière, 1:232 IFRS adoption, 3:117 asset-based equity valuation models, Association of British Insurers, 1:233 inflation-linked bonds,5: 326, 327 5:276–280 Association of Hungarian Investment inflation targeting,2: 287, 289 for airline industry, 5:278 Fund and Asset Management liquidity representations on balance defined, 5:247 Companies, 1:233 sheets, 3:15 for family-owned laundry, 5:277 Association of Southeast Asian Nations mean and standard deviation of stock other models vs., 5:246–248, 278–280 (ASEAN), 2:88 returns, 1:444 for restaurant, 5:277–278 L’Associazione Bancaria Italiana, 1:233 in MSCI EAFE, 1:408 asset-based loans, 4:192 L’Associazione Italiana degli Analisti MSCI multi-market index, 5:96 asset-based valuation approach Finanziari, 1:233 natural resources, 2:178 for private equity, 6:157 Assogestioni, 1:233 net borrowing/lending, 2:305 for REITs, 6:166 assumptions residential mortgage loans, 5:487 asset beta, 4:96–99 CAPM, 4:383–385, 396n.6 returns asset class(es) Cournot, 2:90–91 on bonds and bills, 5:152–153 adding to investment opportunity set, for financial reports,3: 122 on equities, 5:152–153 4:337 of Gordon growth model, 5:259–260 on real equity, 1:400 correlation matrix, 4:432–433 heterogeneous beliefs, 4:395, 398–399 risk tolerance and equity ownership, correlation of risk among, 4:333 homogeneity of expectations, 4:365– 5:154 defining, 4:430 366, 384–385, 400 sovereign bonds, 5:370 diversification with,4: 334 infinite divisibility,4: 385 Australia and New Zealand Standard nominal returns, 4:308–310 in technical analysis, 1:680–682 Industrial Classification (ANZSIC), real returns, 4:309–310 Astra International, 1:557–558 5:196 returns by, 5:644–645 AstraZeneca PLC, 4:294 Australian Bureau of Statistics, 5:196 risk and return of, 4:308, 311 ASUs. see Accounting Standards Australian dollar security market indexes as proxies for, Updates AUD/HKD exchange rate, 2:404–406, 5:94 asymptotic properties, estimators’, 1:594 410–412 in strategic asset allocation, 4:431–433 ATC. see average total cost currency code, 2:401 asset management company, sample ATSs. see alternative trading systems exchange rate quotes with, 2:418, presentation of, 1:275–276 AT&T 419n.4 Asset Manager Code of Professional breakup of monopolistic structure, international bonds outstanding in, Conduct (AMC), 1:38, 55, 157 2:105 5:351 asset price(s) credit curves for, 5:636–637 trade balance and exchange rate for, artificial volatility in,1: 98–100 industry classification of,5: 192 2:450–453 and capital flows,2: 444 and industry structure, 5:217 USD/AUD currency pair, 2:416 and head and shoulders patterns, restructuring charges, 3:691 Australian Federal Reserve, 2:289 1:698–701 at the money, 6:27, 87 Australian Securities Exchange, 5:154 normal distribution as model for, 1:547 auctions, 5:54, 360, 362–364 Austria and oscillators, 1:710 audit committee, 4:23 employee laws in, 4:19 trends in, 1:681–683 audit function, 4:17 EU membership, 2:362n.18 and volume, 1:691–692 auditors, financial reporting quality and, exchange rate regime, 2:436 asset risk premium, 4:216 3:687–688 GIPS sponsor, 1:232 assets under management (AUM) audits government debt, 2:262 alternative investments, 6:123–124 adverse opinions, 3:28 MSCI multi-market index, 5:96 global, 6:125 auditor’s reports, 3:27–29 public sector spending, 2:263 growth of, 6:134–135 qualified and unqualified opinions, total returns, 1:408, 412, 424 hedge funds, 6:134–135 3:27–28 Austrian school of economic thought, institutionally owned real estate, 6:159 standards for, 3:27 2:214 by strategy, 6:135 audit systems, 4:22 autarkic price, 2:338, 349

bind 6 June 17, 2017 4:16 PM Index I-7

autarky, 2:338, 349 A.W. Jones & Co., 4:235 interest costs, 3:486 authorities, investment policy, 4:172 AXA, 1:426 inventories, 3:227–229 authorized participants (APs), 5:19 Azerbaijan, 2:436; 3:116 leases, 3:529 auto loan asset-backed securities, LIFO liquidation, 3:422–423 5:508–511 B non-current assets, 3:221, 234–245 Automated Clearing House (ACH), Baby Boom, 5:223, 224 Apple Inc., 3:235 4:178 backfill bias,6: 125n.3 financial assets,3: 242–245 automatic stabilizers, 2:140, 304, back simulation, 1:564–565 goodwill, 3:239–242 317–318 back-testing, 3:754–755 intangible assets, 3:237–242 automobile industry backup lines of credit, 5:375 investment property, 3:236–237 and GDP, 2:122–123 backwardation, 6:173 property, plant, and equipment, monopolistic competition in, 2:86, 100 bad debts, allowance for, 3:46 3:235–236 similar companies in, 5:189 Bahamas, 2:295 SAP Group, 3:234–235 available-for-sale securities Bahrain, 5:96 non-current liabilities, 3:245–247 defined, 3:243 Baidu, 3:741, 742; 4:292 Apple Inc., 3:246 as financial assets,3: 243–245 Baker, James, 2:440 deferred tax liabilities, 3:247 on income statements, 3:202 Baker Hughes, 5:219–221 long-term financial liabilities, AVC. see average variable cost balanced budget multipliers, 2:315–316 3:246–247 average accounting rate of return (AAR), balanced budgets, 2:304 SAP Group, 3:245–246 4:57–58 balanced funds, 4:229–230, 232–233 practice problems, 3:265–269 average age of depreciable assets, Balanced Growth Composite, 1:295 quality of reporting on, 3:697–706 3:520–522 balance of payments (BOP) system, solutions to problems, 3:270–272 average bank prime lending rate, 2:241 2:369–381 unclassified, 3:58 Average Consumer Expectations for accounts in, 2:370–371, 377–379 vertical common-size, 3:339 Business and Economic Conditions, components of, 2:371–373 balloon maturity provisions, 5:505 2:241 imbalances since 1996, 2:379–381 balloon payments, 5:318 average costs paired transactions in, 2:374–376 balloon risk, 5:505 average fixed cost,2: 31–35 for United States, 2:372–373 Bancel, Franck, 4:108 average total cost balance of trade deficit,2: 130, 338 Banco Central del Uruguay, 3:109n.9 with economies of scale, 2:45–46 balance sheet equation, 3:12 BancoFinansur, 5:509 and other costs/output, 2:31–35 balance sheet ratios, 3:260–262 Banco Santander, 5:306 in perfect competition vs. monopoly, balance sheets, 3:217–272 Bangladesh, 5:323 2:36–37 about, 3:218 bank certificates of deposit (CDs), average variable cost accounts on, 3:49–50, 51 4:168 defined, 2:30 analysis of, 3:13–16, 252–262 bank discount basis, 1:377 in perfect competition vs. monopoly, balance sheet ratios, 3:260–262 bank discount yield, 1:377–378, 380 2:36–37 common-size, 3:252–260, 339, banker’s acceptances (BAs), 4:168, 190; and shutdown decision, 2:39–40 342–344 5:430–431 in perfectly competitive markets, and capitalising vs. expensing of costs, Bank for International Settlements (BIS), 2:36–37, 79–80 3:481 2:415–416; 5:476; 6:39 average daily rate, 3:381 and cash flow statements,3: 225, bank guarantees, 5:309 Average Duration of Unemployment, 288–289 Banking and Finance Commission, 2:241 cash on, 5:618, 639 2:278 average fixed cost (AFC),2: 31–35 classified, 3:222 bank loans, 5:349, 350, 373–374 average inventory days outstanding. see components of, 3:219–221 Bank of Canada, 2:185, 289, 440 days of inventory on hand (DOH) consolidated Bank of England average inventory period, 4:161 Alcatel-Lucent, 3:442 in FX market, 2:440 average life, mortgage pass-through Micron Technology, Inc., 3:587–588 independence of, 2:288 securities, 5:494–495 Volvo Group, 3:429–430 monetary policy, 2:276, 279, 289 average product of labor (APL), 2:25–28 current assets, 3:223–230 quantitative easing, 2:298–299, 323 average propensity to consume (APC), Apple Inc., 3:224 two-week repo rate, 2:284 2:139 cash and cash equivalents, 3:224–225 Bank of International Settlement, 5:161 average quote, for hedge fund valuation, inventories, 3:227–229 Bank of Italy, 2:245, 278 6:145 marketable securities, 3:225 Bank of Japan average revenue (AR), 2:35 other, 3:229–230 in FX market, 2:413, 440 average total cost (ATC) SAP Group, 3:223–224 monetary policy, 2:292, 299–301 with economies of scale, 2:45–46 trade receivables, 3:225–227 and money measures in Japan, 2:270 and other costs/output, 2:31–35 current liabilities, 3:230–234 Bank of Korea, 2:281, 289 in perfect competition vs. monopoly, Apple Inc., 3:231 Bank of Montreal, 6:171 2:36–37 deferred revenue analysis, 3:232–234 Bank of Netherlands, 2:279 average variable cost (AVC) SAP Group, 3:231 Bank of New York Mellon, 5:166 defined, 2:30 defined, 3:12, 48, 218 bank runs, 4:265n.24 in perfect competition vs. monopoly, equity, 3:247–252 bankruptcy 2:36–37 components of, 3:248–250 and business risk, 4:145–147 and shutdown decision, 2:39–40 statement of changes in equity, priority of claims in, 5:599–600 average weekly claims for 3:250–252 regulations for bankrupt traders, 5:63 unemployment insurance, 2:240 financial assets on,3: 242–245 and special purpose entities, average weekly hours, manufacturing, format of, 3:221–223 5:483–485 2:240 information provided by, 3:69–70 and technical analysis, 1:684

bind 7 June 17, 2017 4:16 PM I-8 Index

bankruptcy risk, 4:29 BBVA, 1:426 Bermuda-style puts, 5:332 banks BCO Santander, 1:426 Bernanke, Ben, 2:298 aggregate demand and reserves of, bearer bonds, 5:314 Bernoulli, Jakob, 1:532 2:153–155 bearish rectangles, 1:706 Bernoulli random variable(s), 1:532–533 benefits of securitization for,5: 475 bear markets Bernoulli trials, 1:532 as brokers, 5:29 Elliott waves in, 1:725 best bid, 5:44 capital adequacy ratios, 3:380 forecasting, 1:562–564 best efforts offering,5: 51, 360 credit cycle assessments by, 5:598n.7 beer industry, 2:87, 88 best execution (term), 1:104, 106 credit from, 4:189–190 behavior best-in-class, 4:39 depository, 5:166 consumer, 2:208–210 best offer,5: 44 as financial intermediaries,5: 32, 33 external trade sector, 2:211–213 Best Practice Guidelines Governing in FX market, 2:414–415 housing sector, 2:210–211 Analyst/Corporate Issuer Relations portfolio management for, 4:220 behavioral biases, 1:11–12; 5:137–139 (CFA Institute), 1:61 regulation of, 3:105 behavioral finance,5: 136–139 beta, 4:376–383 risk management for, 4:246 behind the market (term), 5:45 asset, 4:96–99 short-term funding for, 5:384–390 “Beige Book,” 2:244 calculation and interpretation, repurchase and reverse repurchase Belarus, 2:436 4:379–380 agreements, 5:386–389 Belgian Asset Managers Association, and CAPM, 4:380–381, 400 retail deposits, 5:385 1:232 estimating, 4:94–101 wholesale funds, 5:385–386 Belgium with CAPM, 4:380–381 bank sweep services, 4:168 banking supervision, 2:278 inferring asset betas, 4:98–99 Barbados, 2:294 customs union, 2:362 pure-play method, 4:97–99 bar charts, 1:685–686 equity risk premiums, 4:91 and expected return, 4:381–383 Barclays plc, 1:734–735, 739 in EU, 2:362n.18 levering and unlevering, 4:96 Barings Bank, 4:264 exchange rate regime, 2:436 return-generating models, 4:376–377 Barrick Gold, 5:276 floating-rate bonds,5: 369 risk budgeting with, 4:258 barriers to entry GIPS sponsor, 1:232 as risk metric, 4:272; 6:129 in credit analysis, 5:612 government debt, 2:262 and security characteristic line, 4:394 and market structure, 2:67, 97 MSCI multi-market index, 5:96 and security market indexes, 5:94 in strategic industry analysis, 5:206– public sector spending, 2:263 B+H Ocean Carriers, 3:616–619 208, 219 returns BHP Billiton, 3:741, 742; 5:276 barriers to exit, 5:208 on bonds, bills, and equities, 5:153 biased accounting choices, 3:670–678 barriers to success, 5:207 real equity, 1:400 biases. see also sampling biases Barron’s, 1:717 total, 1:408, 412 in accounting standard application, barter economy, 2:123, 265 beliefs, investors’, 4:384–385, 395, 3:682–683 barter transactions, revenue recognition 398–399 backfill, 6:125–126 for, 3:165, 713 Belize, 2:295 behavioral, 5:137–139 BAs. see banker’s acceptances benchmark description in equity screening, 3:754–755 base currency, 2:401, 418 defined, 1:265 price index, 2:228 Basel Accords, 3:105 Disclosure (GIPS Section I.4), 1:240 survivorship, 5:102; 6:125–126, 143 Basel Committee on Banking GIPS Advertising Guidelines (GIPS bid–ask spread, 4:314; 5:44, 365–366 Supervision, 3:105, 106, 109 Section III), 1:259 bid–offer spread,5: 365–366 Basel III global framework for bank benchmark issue, 5:368 bid prices, 5:44, 574; 6:10n.3, 145 supervision, 5:601n.12 benchmark rate, 4:174; 5:418, 441–443 bid sizes, 5:44 Baseline (database), 3:350 benchmarks “big bath” accounting, 3:682 base metals, as commodities, 6:167,168 defined, 1:265 Big Mac index, 2:402 base prospectus, 5:478n.3 Disclosure (GIPS Section I.4), 1:241, bilateral loans, 5:373, 374 base rates, 2:284 242 bill-and-hold transactions, 3:710 BASF Group GIPS Advertising Guidelines (GIPS Bill & Melinda Gates Foundation, 4:219 disclosure of leases, 3:628–629 Section III), 1:259 bill-to-bill terms, 4:177 globalization of share ownership, 5:165 incentives for managers to meet, 3:683 binomial distribution of discrete random market capitalization, 1:426 and investment policy statements, variables, 1:532–541 merger involving, 2:105 1:121 evaluating block brokers with, 1:533– basic earnings per share, 3:188–190, Presentation and Reporting (GIPS 534, 536–537 377, 378 Section I.5), 1:243, 244 and expected defaults in bond Basic Materials and Processing sector, Private Equity (GIPS Section I.7), portfolio, 1:539–540 5:193 1:250, 251 mean and variance of, 1:539 basis point, 5:418 PSA prepayment, 5:493 and one-period stock price as Bernoulli defined, 5:301 Real Estate (GIPS Section I.6), 1:248 random variable, 1:532–533 price value of, 5:558 security market indexes as, 5:94 symmetry and skewness of, basis point value (BPV), 5:558 spread over, 5:418 1:535–536 basis swaps, 6:24 Verification (GIPS Section IV),1: 262, and tracking objectives, 1:538 baskets of listed depository receipts 263 binomial formula, 1:512 (BLDRs), 5:169 benchmark spread, 5:442 binomial model BATS, 5:30 benchmark yield, 5:574 for bond defaults, 1:539–540 Baxter-FX, 5:30 benchmark yield curve, 5:443–445 for stock price, 1:540–541 Bayer, 1:426 beneficial ownership,1: 186, 187 binomial random variables, 1:534–536 Bayes’ formula, 1:478, 506–510 Berkshire Hathaway, Inc., 5:160, 176 binomial tree (tree diagrams), BBA. see British Bankers’ Association Bermuda-style calls, 5:331 1:493–494, 540

bind 8 June 17, 2017 4:16 PM Index I-9

binomial valuation of options, method of comparables for, 5:270–271 covenants, 5:310–311, 626 6:100–104 strategic analysis with, 5:207–209, 218 credit enhancements, 5:308–310 Biomet, 5:213 Bolivia, 2:436; 3:116 legal identity of issuer/legal form of BIS. see Bank of International Settlement Bollinger, John, 1:709 bond, 5:305–306 BJ’s Wholesale Club, 1:406, 434 Bollinger bands, 1:709–710 repayment proceeds, 5:306–307 Black, Fischer, 1:430 bond(s). see also fixed-income securities; bond indexes, stratified sampling and, blackout periods, 1:187 specific types 1:586–587 BlackRock, 5:210 amortisation, 3:608–612 bond market. see also fixed-income Black–Scholes–Merton model arbitrage with, 6:47–49, 67 market as continuous time finance model, consol, 1:327–328 developed, 5:355 1:555n.32 convertible, 6:146 emerging, 5:355 for European call options, 1:565 correlation of T-bills/stocks with, primary, 5:359–365 lognormal distribution in, 1:553 4:332, 333 private placements, 5:360, 364–365 volatility of, 1:557 credit ratings and prices of, 5:607–608 public offerings,5: 360–364 BLDRs. see baskets of listed depository credit ratings of issuers vs., 5:603–605 secondary, 5:359, 365–367 receipts default bond market vigilantes, 2:297–298 block brokers binomial model for, 1:539–540 bond mutual funds, 4:229–232 defined, 5:28 recovery rates on, 1:644–646 bond portfolios, duration of, 5:555–557 evaluating, 1:533–534, 536–537 defined, 4:307; 5:298, 304 bonds payable, 3:604–622 blogs, confidential firm information on, at discount, 3:607–611 and amortisation of bonds, 3:608–612 1:143 downside frequencies of, 6:131 debt covenants, 3:617–619 Bloomberg, 3:337, 350, 373 at face value, 3:604–607 derecognition of debt, 3:615–617 Bloomberg Barclays face value of, 1:497 disclosure of long-term debt, corporate yields, 5:629–630 government, 4:432 3:619–622 minimum issue size and bond holdings historical risk and return, 4:307–308 fair value reporting, 3:612–615 in indexes, 5:98 interest expense for, 3:608–612 and interest expense, 3:608–612 Bloomberg Barclays Global Aggregate interest payments for, 3:608–612 and interest payments, 3:608–612 Bond Index, 5:100, 103, 357; 6:134, intrinsic value of, 5:119 and issuance of bonds, 3:604–608 165 investment grade, 4:432 presentation of long-term debt, Bloomberg Barclays US Aggregate Bond issuance, 3:604–608 3:619–622 Index, 5:99, 491n.9 legal form of, 5:305–306 bond yield plus risk premium approach, Bloomberg Fixed Income Electronic margin, 6:11 4:94 Trading, 5:365 municipal, 4:425 bonos del Estado, 5:368 Bloomberg Fixed Income Relative Value nominal returns of, 4:310 Bon-Ton Stores Inc., 1:414 page, 5:444 notes vs., 5:17 bonus compensation, 1:25–27, 144–145 Bloomberg risk statistic, 5:558 performance of, 6:11, 134–135 bonus issue of shares (stock dividend), Bloomberg Yield and Spread Analysis at premium, 3:611–612 5:249 page, 5:547–548, 558, 560–561 puts vs. short sales and, 6:93 book building, 5:50 BLS. see US Bureau of Labor Statistics returns book runners, 5:50 blue-chip companies, 5:173 on commodities and stocks vs. book value blue-chip shares, 5:121n.7 bonds, 6:170 in asset-based valuation models, 5:247 Blume, Marshall, 4:95n.26 on equities and alternative intrinsic vs., 5:176–177 BME Spanish Exchanges, 5:152 investments vs. bonds, 6:126 and market value, 5:172 BMW, 1:425; 2:86; 5:218 on equities and bills vs. bonds, in ROE, 5:172–173 BNP Paribas, 1:426 5:152–153 boom phase (business cycle), 2:203, BNY Mellon, 5:209 on hedge funds and global stocks vs. 205 board, risk governance, 4:249, 256 bonds, 6:139 BOP system. see balance of payments board member–shareholder real returns, 4:309–310 system relationships, 4:8–9, 12–13 risk-free, 6:47–49 borrowers, size and short-term strategy board of directors, 4:21–25 securitization vs. issue of, 5:483 of, 4:191 committees, 4:22–25 Sharpe and Sortino ratios, 6:131 borrowing audit committee, 4:23 as short positions, 5:40 costs of, 3:477–478; 4:186, 193–194 governance committee, 4:23 surety, 4:279 and equilibrium interest rate, 5:12 investment committee, 4:24 US Treasury, 1:729; 4:89, 91, 432 as financial system function,5: 8–9 nomination committee, 4:23 volatility, 6:126 short-term, 4:167, 191–192 remuneration (compensation) with warrants, 3:621–622 Borrowing Costs (IAS 23), 3:486n.11 committee, 4:23 zero-coupon, 1:496–497 borrowing rates, effects on leveraged risk committee, 4:24 bond classes portfolios, 4:372–374 composition of, 4:21–22, 32 mezzanine, 5:513 Bosnia and Herzegovina, 2:436 employee representation on, 4:19 and tranching, 5:481–482 Boston Scientific,5: 213 functions and responsibilities, 4:22 bond convexity, 5:559–567 Botswana, 3:117; 5:96 manager relations with, 4:13 bond equivalent yield, 1:381; 4:170; bottom line, income statement, 3:153 staggered boards, 4:21–22 5:431–433 bottom-up analysis stakeholder management mechanisms, bond ETFs, 4:234 of equities, 3:752–753 4:17 bondholders of portfolios, 4:223 as stakeholders, 4:9–10 negotiation on covenants by, 5:627 bottom-up approach to equity valuation, Boeing shareholders vs., 5:610–611 5:244 effects of government purchases on, bond indenture, 4:19; 5:305–313 bottom up strategies, hedge fund, 6:136, 5:226 collateral backing, 5:307–308 137

bind 9 June 17, 2017 4:16 PM I-10 Index

box size, point and figure charts’, brokers Business Combinations (IFRS 3), 1:689–690 clearinghouses for, 5:36 3:480n.9 BP, 4:37; 5:209 and dealers, 5:30–31 business confidence,2: 153, 155 BP/Amoco/Arco, 2:107 as financial intermediaries,5: 28–29 Business Cycle and Dating Committee, BPV. see basis point value lending by, 5:33 2:203 Brady bonds, 5:357 prime, 5:33, 49; 6:144 business cycles, 2:199–258 branches of businesses, investments in, broker-sponsored limited partnerships, defined, 2:200 3:581 1:179 economic indicators, 2:239–246 brand loyalty, 2:84, 98 Brounen, Dirk, 4:108 building permits as, 2:243 Brazil Brown, Constance, 1:715 cyclical measures as, 2:244–245 absolute and comparative advantage, Brown, E. H. Phelps, 1:724 diffusion index of,2: 244 2:347–348 Brown, George Garvin, 5:262 leading, lagging, and coincident, business investment, 2:177 brownfield investments,6: 174 2:239–243 domestic and international debt Brown-Forman Corporation, 5:262–264 and external trade sector behavior, securities, 5:315 Bruce, Roger, 4:209 2:211–213 effects of Asian financial crisis,2: 343 Bruce Fund, 1:435 and GDP, 2:150 exchange rate regimes, 2:439 Bruner, Robert F., 4:90n.16 and housing sector behavior, GDP vs. GNP, 2:337 bubbles, 6:42 2:210–211 IFRS adoption, 3:116 budget constraints, price elasticity of inflation, 2:225–239 inflation-linked bonds,5: 326 demand and, 2:71 cost-push, 2:233–235 inflation targeting,2: 287 budget deficit (fiscal deficit),2: 304 deflation, hyperinflation, disinflation, investment committees, 4:24 and business cycles, 2:129 2:226–227 market regulatory authorities, 3:686 and fiscal policy,2: 317–318 demand-pull, 2:235–236 MERCOSUR, 2:362 and foreign capital, 2:138 expectations, 2:236–237 MSCI multi-market index, 5:96 and national debt, 2:307–309 price indexes, 2:227–233 natural resources, 2:178 and Ricardian equivalence, 2:316 types of, 2:233–236 as small country, 2:356 budgeting phases of, 2:200–204 sovereign bonds, 5:369, 370 capital, 1:362 practice problems, 2:249–254 Brazilian Bovespa Index (BVSP), 1:686 risk, 4:257–259 resource use, 2:204–210 Brazilian GAAP, 3:116, 736–738 budget surplus, 2:304 capital spending, 2:205–207 Brazilian real, 2:401 Buenos Aires, Argentina, 5:650 consumer behavior, 2:208–210 breakeven analysis Buffett, Warren,5: 176 inventory levels, 2:207–208 and breakeven point of production, Bühner, Thomas,4: 106 sensitivities to, 5:190–191, 227–228 2:36–37 building permits, 2:240, 243 as short-term movements in economy, in shutdown analysis, 2:38–41 Bulgaria, 2:436; 5:96 2:199–200 breakeven point(s) bulldog bonds, 5:313 solutions to problems, 2:255–258 in firm analysis,2: 36–40 bullet bonds, 5:318–320 unemployment, 2:221–225 and leverage, 4:143–144 bullet loans, 5:374 analyzing, 2:224–225 operating, 4:143–145 bullet mortgages, 5:488 indicators, 2:224 breakeven reinvestment rate, 5:439 bullish rectangle, 1:706 rate of, 2:223–224 breaking the buck, 4:231 bull markets business cycle theories, 2:213–221 break point, 4:103 Elliott waves in, 1:726–728 Austrian school, 2:214 Bretton Woods system, 2:434 forecasting, 1:562–564 Keynesian school, 2:214–215 bridge financing,5: 374 Bundesanstalt für Monetarist school, 2:217 Brightman, Christopher J., 5:116n.1 Finanzdienstleistungsaufsicht, 5:29 Neoclassical school, 2:213–214 Brink’s Home Security, 5:199–200 Bundesverband Investment und Asset New Classical school, 2:217–221 British American Tobacco, 5:209 Management, 1:233 business entities, distinct, 1:236, 267 British Bankers’ Association (BBA), 5:353 bundled fees business environment, in industry British Financial Services Authority, 5:29 Calculation Methodology (GIPS analysis, 5:188 British pound Section I.2), 1:238 business expectations, aggregate demand currency code, 2:401 defined, 1:265 and, 2:153 EUR/GBP exchange rate, 2:418, 419n.4 Disclosure (GIPS Section I.4), 1:241 business relationships, conflicts of exchange rate quotes with, 2:418–420 Presentation and Reporting (GIPS interest and, 1:180, 184 GBP/EUR exchange rate, 2:403, 408 Section I.5), 1:243 business risk gold standard for, 2:434 Wrap Fee/SMA Portfolios (GIPS components of, 4:128 international bonds outstanding in, Section I.8), 1:252–253 for creditors and owners, 4:145–147 5:351 Bunds, 5:300, 367, 368, 630 defined, 4:95 as reserve currency, 5:19 Burlington Northern, 5:209 financial risk,4: 136–140 USD/GBP currency pair, 2:416 Burns, Wesley Clair, 2:200 and leverage, 4:128–136 British Telecom, 5:324, 634–635 business activities, classifying, 3:44–45 operating risk, 4:130–136 broad-based equity ETFs, 4:234 business combinations sales risk, 4:128–130 broad market equity indexes, 5:95 IFRS vs. US GAAP on, 3:593 business sector (corporate sector), 2:128; broad measure of liquidity, 2:270 intangible assets from, 3:480–481 5:349 broad money, 2:269 intangible assets not from, 3:478 business segments, financial analysis for, brokerage arrangements, 1:104, 107 and quality of financial reporting, 3:385–387 brokerage commissions, 4:314 3:691–692 business spending, 2:153, 202 broker–dealers, 5:30 taxable vs. accounting profit for,3: 581 business strategy, financial performance brokered markets, 5:55, 57 Business Combinations (ASC 805), and, 3:731–735 broker recruiting, 1:135 3:480n.9 business taxes, SRAS and, 2:158, 160

bind 10 June 17, 2017 4:16 PM Index I-11

buy-and-hold investors, market timers minimum prices for, 6:91–93 returns vs., 1:562–564 payments on underlying and carrying on bonds and bills, 5:153 buy-and-hold strategies, 4:294n.2 costs for, 6:91 on equities, 5:153 buyback (share repurchase), 5:249 and risk-free rate of interest, 6:89 risk tolerance and equity ownership, buyers. see also consumer(s) time to expiration for, 6:88 5:154 derivatives, 6:7 and value of underlying, 6:87 say on pay, 4:18 power of, 5:205, 612 volatility of underlying for, 6:90 securities backed by quasi-government buyout funds, 4:237 fiduciary, 6:95–96, 99 entities, 5:490 buy-side clients, 1:59 make-whole, 5:330 sovereign bonds, 5:370 buy-side firms,4: 225 margin transactions vs., 6:91–92 trade balance with US, 2:130, 131 buy-side participants, FX market, payoff from,6: 26–28 Treasury bills, 1:307n.3, 379n.16 2:412–414 profits from,6: 27–28 underground economy, 2:124 BVSP. see Brazilian Bovespa Index call premium, 5:330 Canada–yen exchange rate, 2:419, Bylaws and Rules of Procedure for call price, 5:330 422–423 Professional Conduct (Rules of call protection, 5:504–505 Canadian Broadcasting Corporation, Procedure), 1:37, 51 call protection period, 5:330, 424 1:417 call provisions, 5:322 Canadian dollar, 2:401 C calls. see call options CAD/USD currency pair, 2:416 CAC 40 index, 1:418; 4:366 call schedule, 5:330 in cross-rate calculations, 2:421–422 Cadbury, 5:209, 219–221 Cambodia, 2:437 exchange rate quotes with, 2:419 Cadbury Report, 4:7 Cambridge Associates Modified Public international bonds outstanding in, CAIA Association. see Chartered Market Equivalent (mPME), 6:155 5:351 Alternative Investment Analyst Cameco Corporation, 5:274–275 Canadian GAAP, 3:115 Association Cameroon, 3:117 Canadian Investment Performance Caisse de dépôt et placement du Canada Committee, 1:232 Québec, 2:413 ACH system, 4:178 candidacy in CFA program, referring to, calculated statistical indexes, 1:717–720 auctions in, 5:362 1:199–200 Calculation Methodology (GIPS Section banking supervision, 2:278 Candidate Pledge, 1:51, 195 I.2), 1:237–238 bank regulation, 3:105 Candidate Responsibility Statement, 1:51 about, 1:234 bonds outstanding, 5:354, 360 candidates, CFA. see Responsibilities as recommendations business investment, 2:177 a CFA Institute Member or CFA general, 1:238 capitalization level and contributions Candidate [Standard of Professional for private equity, 1:252 to global GDP, 5:151 Conduct VII] for real estate closed-end fund commodities in economy, 1:730 candlestick charts, 1:686–688 composites, 1:248 common law system, 4:27 cannibalization, 4:51 requirements consumption expenditures, 2:139 Canon Inc., 5:271–272 general, 1:237–238 credit rating services, 5:602 capacity, 5:611–625 for private equity, 1:249 disinflation, 2:227 aggregate demand and utilization of, for real estate, 1:245–246 domestic and international debt 2:153, 155 for real estate closed-end fund securities, 5:315 and company fundamentals, composites, 1:247 equity risk premiums, 4:91 5:613–617 calendar anomalies, 5:131–132 exchange rate regime, 2:437 and industry fundamentals, 5:613 California, 5:650, 651 expected inflation,2: 282 and industry structure, 5:612 callable bonds, 5:330–331, 379, 424 foreign bonds, 5:313 and issuer liquidity, 5:618 effective convexity of,5: 567 in FX market, 2:413 productive, 3:519 effective duration of,5: 545–546 GIPS sponsor, 1:232 in strategic industry analysis, interest rate risk with, 5:553–554 government spending, 2:129 5:211–212, 219 zero-coupon bonds as, 5:382 gross domestic product, 2:121, of Watson Pharmaceuticals, Inc., callable common shares, 5:158–159, 171 131–136 5:618–625 callable preference shares, 5:160, 171, forecasts of, 2:184–185 capital 254 GNP vs., 2:337 capital structure vs., 3:254 call markets, 5:54 potential, 2:183, 184 committed, 1:247, 248, 251, 266; call money rate, 5:41 IFRS adoption, 3:115 6:149–150 call options (calls) income trusts, 5:225 composite since inception paid-in American, 1:541; 5:330; 6:105–107 inflation-linked bonds,5: 326, 327 capital, 1:247, 248, 251 Asian, 1:560–561 inflation targeting,2: 287, 289 cost of (see cost of capital) Bermuda-style, 5:331 international investments, 5:165 debt/capital ratio, 5:616 defined, 5:24; 6:26, 85 labor productivity, 2:181 debt-to-capital ratio, 3:361, 362, 644 as embedded options (see callable liquidity representations on balance development, 6:148–149 bonds) sheets, 3:15 as factor of production, 2:24 European MSCI multi-market index, 5:96 financial and American call options, 5:331; NAFTA, 2:362 in Heckscher–Ohlin model, 6:105 NAICS system, 5:197 2:354–355 binomial option pricing with, national debt, 2:309 and international trade, 2:336 6:101–103 real equity returns, 1:400 in long-term economic growth, Black-Scholes-Merton model for, residential mortgage loans, 2:175 1:565 5:486, 487 human, 2:159, 176; 4:255n.12 exercise price of, 6:87, 88 retractable term preferred shares, net working, 5:618 at expiration, 6:86 5:256 paid-in, 1:251, 269

bind 11 June 17, 2017 4:16 PM I-12 Index

capital (continued) net present value, 4:52–53, 58–63 portfolio of risk-free and risky assets, physical payback period, 4:54–57 4:362–366 aggregate supply, 2:160 popularity and use of capital combining risk-free asset with risky defined, 2:139 budgeting methods, 4:66–68 assets, 4:363–366 and economic growth, 2:176–177 profitability index,4: 58 homogeneity of expectations and labor productivity, 2:180 popularity and use of, 4:66–68 assumption, 4:365–366 and long-term aggregate supply, practice problems, 4:70–72 capital protected instruments, 5:382 2:159 principles, 4:50–52 capital rationing, 4:52 and private equity valuation, 6:158 process, 4:48–49 capital restrictions, 2:356, 366–369 proportions of, 4:81–82 solutions to problems, 4:73–75 capital returns, 1:246, 265 raising equity, 5:9 capital consumption allowance (CCA), capital spending requirements, 5:61–62 2:133 cyclical use of resources, 2:205–207 return on, 3:365, 366, 383 capital deepening investments, 2:175 and fiscal policy,2: 314 ROIC, 5:204 capital employed (term), 1:265 capital stock, 2:176–177 total invested, 3:739n.4 capital expenditures capital structure venture, 5:15, 162 committed, 5:618 defined, 1:362; 3:254; 5:595 WACC, 5:178, 204 financing for,5: 8, 9 in high-credit analysis, 5:642 working, 3:222, 354, 747n.7; 5:618, 639 and fiscal policy,2: 311 marginal cost of, 4:102–105 capital account, BOP, 2:372, 444 net cash flow to,3: 383 simple vs. complex, 3:188 capital adequacy ratios, for banks, 3:380 property, plant, and equipment as, target, 4:80 capital allocation, efficiency of,5: 13–14 3:475, 476 capital-to-labor ratio, 2:175 capital allocation line. see also capital capital flows capital transfers sub-account, BOP, market line (CML) and international trade, 2:356–369 2:372 defined, 4:321, 362 and trade balance, 2:443–445 CAPM. see capital asset pricing model of optimal portfolio, 4:342–343 capital gains, 5:316, 533, 569 capped floating interest rate,5: 511 and optimal risky portfolio, 4:339–340 capital gains taxes, 4:302 caps, floating-rate note,5: 324 and portfolio selection, 4:321–324 capital goods, 2:128 captive finance subsidiaries,4: 175 for risk-free assets in portfolios of risky capital-indexed bonds, 5:327 carbon assets, 4:39 assets, 4:364 capitalization carbon credits, 5:10 SML vs., 4:385–387 of costs, 3:481–493 care. see Loyalty, Prudence, and Care capital asset pricing model (CAPM), expensing of costs vs., 3:481–486 [Standard III(A)] 4:383–402 on financial statements,3: 481–486 Carhart, Mark, 4:377 applications, 4:388–399 of interest costs, 3:486–489 Carnegie, Andrew, 2:96 capital budgeting, 4:388–389 of internal development costs, Carpenter Technology Corporation, estimate of expected return, 3:489–493 3:757–759 4:388–389 for ongoing purchases, 3:485 Carrefour Group, 1:425; 5:210 portfolio construction, 4:396–399 and financial reporting issues,3: 705– carried interest, 1:249, 265 portfolio performance evaluation, 706, 715 carry, 6:65. see also cost of carry 4:389–394 of intangibles, 3:711 carrying amount, 3:502–505, 567 security characteristic line, of interest, 3:708–709 carrying costs, 4:184 4:394–395 capitalization rate (cap rate), 6:165,166 carrying value, 5:247, 533. see also book security selection, 4:395–396 capital leases. see finance leases value assumptions of, 4:383–385 capital losses, 5:316, 533–535, 569 cartels, 2:93, 96 and beta/expected return, 4:381–383 capital market expectations, 4:431 carve-out cost of common equity, 4:89–92, capital market line (CML), 4:366–374 Composite Construction (GIPS 108–109 defined, 4:367–369 Section I.3), 1:239 for cost of equity, 5:178 and definition of market,4: 367 defined, 1:265 extensions, 4:401–402 of leveraged portfolios, 4:370–374 Disclosure (GIPS Section I.4), 1:241 Fama and French three-factor model with different lending/borrowing Presentation and Reporting (GIPS vs., 5:133 rates, 4:372–374 Section I.5), 1:243 limitations, 4:399–400 with equal lending/borrowing rates, CAS. see Chinese accounting standards and portfolio construction, 4:396–399 4:371 case studies required rate of return from, 5:254 passive and active portfolios, 4:366 Investment Advisers Ltd., 3:53–70, security market indexes as proxy, 5:94 risk and return on, 4:369–370 78–94 security market line, 4:385–388 and single-index model of beta, 4:377, Watson Pharmaceuticals Inc., and expected return, 4:386–387 378 5:618–625 portfolio beta, 4:387–388 SML vs., 4:385–387 cash capital budget, planning of, 4:48 capital markets. see also Integrity of on balance sheets, 3:224–225; 5:618, capital budgeting, 4:47–75 Capital Markets [Standard of 639 CAPM for, 4:388–389 Professional Conduct II] from customers, 3:291–292 and cost of capital, 4:82–84 analyzing developments in, 2:383 defined, 3:48 cost of debt and equity in, 5:178 and benefit of ethics to society,1: 40 to employees, 3:293–294 defined, 1:362 functions of, 2:406–407 generation of, 3:707–708 importance of, 4:47–48 primary, 5:13–15 for income taxes, 3:295 investment decision criteria, 4:52–68 regulation of, 3:113 for interest, 3:294–295 average accounting rate of return, sustainability of, 1:40–41 interim, 1:309–310 4:57–58 capital market securities, 5:300 minimum balances, 4:165 internal rate of return, 4:53–54, capital market theory, 4:362–374 monitoring uses and levels of, 60–66 capital market line, 4:366–374 4:166–167

bind 12 June 17, 2017 4:16 PM Index I-13

mutual fund cash position indicator, operating, 3:277–288 overall statement of cash flows, 1:722–723 and capitalising vs. expensing of 3:297–302 for other operating expenses, 3:294 costs, 3:485–486 direct method, 3:23, 278, 297–298 from sale of equipment, 3:295–296 direct-format statement under IFRS, indirect method, 3:23, 278–279, sources and uses of, 3:302–305 3:282–284 298–301 to suppliers, 3:292–293 financing vs.,3: 277 practice problems, 3:315–320 cash-basis accounting, 3:698–699 in free-cash-flow-to-equity valuation, preparation of, 3:288–302 cash before delivery (CBD), 4:177 5:252 financing activities,3: 296 cash collateral accounts, 5:309–310 free operating cash flow to debt, investing activities, 3:295–296 cash collections systems, 4:177–180 3:383 operating activities, 3:291–295 cash concentration, 4:179 indirect-format statement under overall statement of cash flows, cash conversion cycle, 3:356–358; 4:163 IFRS, 3:279–282 3:297–302 cash disbursements, 4:188 and issuer liquidity, 5:618, 639 solutions to problems, 3:321–323 cash dividends, 4:293 and leases, 3:529 cash flow yield,5: 555 cash equivalents, 3:48, 224–225 under US GAAP, 3:284–288 cash inflows, in forecasts,4: 166 cash flow(s),4: 164–167 for plain vanilla bonds, 5:302, 318 cash management, 4:164–167 in capital budgeting, 4:50–51 present value of (see present value [PV]) cash markets, 6:5 and capitalisation of interest costs, price to cash flow ratio,3: 376, 377 cash market securities, 5:437 3:486–488 profits vs.,3: 7–8 cash on delivery (COD), 4:177 on cash flow statements,3: 275–277 retained, 3:749 cash outflows, in forecasts,4: 166 for collateralized debt obligations, series of, 1:316–318, 322–330 cash position, 4:164–167 5:514–515 short-term, 4:165–166 cash prices. see spot prices conventional, 4:51 significant, 1:239, 242, 271 cash ratio, 3:356, 357 in credit analysis, 5:615–616, 618 single, 1:308–316, 319–322 cash reserve funds, 5:309 DCF valuation approach, 6:157, 166 structures, 5:318–329 cash reserve ratio, 3:379, 380 discounted, 1:361–388 in swaps, 6:82 cash settlement in equity valuation, 5:246–247 typical, 4:165–166 of bonds, 5:366 internal rate of return, 1:364–369; unequal, 1:318, 330 of futures, 6:20 4:67n.5 cash flow additivity principle,1: 335, 340 of options, 6:26 money market yields, 1:376–381 cash flow from operations (CFO),5: 252, physical settlement vs., 5:20 net present value, 1:362–364 615n.24, 618, 639 Caterpillar, Inc. portfolio return measurement, cash flow per share,3: 377 consolidated financial position, 1:369–376 cash flow ratios,3: 311–312 3:417–418 practice problems, 1:383–385 cash flow statements,3: 273–323 consolidated results of operation, in private equity valuation, 6:157 about, 3:274 3:416–417 in real estate valuation, 6:166 analysis of, 3:20, 22–23, 302–313 inventories of Volvo Group and, solutions to problems, 1:386–388 cash flow ratios,3: 311–312 3:436–439 and time value of money, 1:361 common-size, 3:306–310 LIFO to FIFO conversion for, discretionary cash flow to debt,3: 383 for comparables, 3:312–313 3:416–421 equal free cash flow to equity,3: 310–311 notes to consolidated financial future value of series with, 1:317–318 free cash flow to the firm,3: 310–311 statements, 3:418 future value of series without, 1:318 sources and uses of cash, 3:302–305 peer group for, 5:198 infinite series of,1: 327–328 and balance sheets, 3:225, 288–289 price–earnings ratio, 1:412 present value of series with, and capitalising vs. expensing costs, strategic analysis, 5:219 1:322–327 3:481–482 two-factor analysis, 5:209 present value of series without, 1:330 components and format, 3:275–288 Cathay Pacific Airways,4: 210–213 excess interest, 5:509 cash flows and non-cash activities, CBD. see cash before delivery external, 1:237, 238, 267 3:275–277 CBOE Volatility index (VIX), 1:718 and financial reporting issues,3: 715 cash flows from operating activities, CBOs. see collateralized bond financing, 3:277 3:278–288 obligations free cash flow to equity,3: 310–311; and IFRS vs. US GAAP, 3:277–278 CBOT. see Chicago Board of Trade 4:84n.7; 6:157 defined, 3:12 CBS. see currency board system free cash flow to the firm,3: 310–311; disclosures about long-lived assets on, CBS Records, 3:717 4:84n.6 3:513 CCA. see capital consumption allowance future value of (see future value [FV]) effects of reporting quality on, CCR. see corporate credit rating geometric and arithmetic mean of 3:706–709 CD equivalent yield, 1:379. see also future cash flows,1: 459 financing activities on,3: 275–276, 296 money market yields government, 2:303–306 and income statements, 3:288–289 CDOs. see collateralized debt obligations incremental, 1:362n.1; 4:51 information provided by, 3:70 CDs. see certificates of deposit IRR vs. NPV and patterns in, 4:60–61 investing activities on, 3:275, 295–296 CDSs. see credit default swaps large, 1:237, 268 leases on, 3:529 CEC Entertainment, Inc., 3:534–538 monitoring cash uses and levels, operating activities on, 3:275, 291–295 cell (term), 1:586 4:166–167 cash for income taxes, 3:295 Center for Research in Security Prices for mortgage pass-through securities, cash for interest, 3:294–295 (CRSP), 1:607 5:491, 493–494 cash for other operating expenses, Central African Republic, 2:364 net, 3:276, 383 3:294 Central America, 3:116. see also specific net income and, 3:715 cash from customers, 3:291–292 countries of non-agency RMBSs, 5:503 cash to employees, 3:293–294 central bank funds market, 5:385 nonconventional, 4:51 cash to suppliers, 3:292–293 central bank funds rates, 5:385

bind 13 June 17, 2017 4:16 PM I-14 Index

Central Bank of Brazil, 2:280; 4:24 grading guidelines and results for, charities, strategic asset allocation for, central banks, 2:281 1:197 4:441–443 countercyclical policies of, 2:202 passing, in consecutive years, 1:202–203 Charles Schwab Corporation, 3:763–764 credibility of, 2:288–289 sharing content of, 1:196–197 Chartered Alternative Investment and credit cycle, 5:598n.7 sharing questions from, 1:195 Analyst (CAIA) Association, currency purchases by foreign, writing after exam period, 1:196 6:135n.17 2:375–376 CFA Institute, 1:233. see also specific Chartered Financial Analyst. see entries exchange rate regime switching by, committees and programs beginning with CFA 2:440 clarifications of GIPS by,1: 230, 235, Chartered Financial Analyst Program, in FX market, 2:413–414 236, 261 5:61 independence of, 2:288, 322 code of ethics, 1:8–9 chart of accounts, for financial and inflation,2: 168, 226, 287–293 compromising integrity of, 1:197 statements, 3:46 as investors in fixed-income securities, ethical commitment of, 1:42–43 chart patterns, 1:696–707 5:358 GIPS standards, 1:227, 228 continuation patterns, 1:703–707 monetary policy by, 2:263n.1, 279 IPS presentations by, 4:415 flags and pennants,1: 706–707 monetary transmission mechanism of, mission of, 1:35 rectangles, 1:706 2:285–287, 297–298 monitoring of financial reporting reversal vs., 1:696 objectives of, 2:280–281 standards, 3:134–135 triangles, 1:704–706 policy rate of, 2:284 performance standards of, 5:61 reversal patterns, 1:696–703 price index use by, 2:230 referring to, 1:199 continuation vs., 1:696 reserve requirements of, 2:268, standards for communicating double tops and bottoms, 1:701–703 284–285 recommendations, 3:34 head and shoulders, 1:697–701 roles and responsibilities of, 2:277–280 Standards of Professional Conduct, triple tops and bottoms, 1:702–703 stress tests required by, 4:274 5:49, 51 charts, 1:684–693 transparency of, 2:289 values of, 1:43 bar, 1:685–686 central banks, technical analysis by, website, 1:43, 157, 194 candlestick, 1:686–688 1:683 website of, 1:51 line, 1:684–685 Central Europe. see also specific CFA logo, 1:200–201, 203–204 point and figure,1: 688–690 countries CFA marks, use of, 1:200–201 relative strength analysis of, 1:692–693 current account imbalance, 2:380 CFA members and candidates scale of, 1:690–691 debt and equity outstanding, 5:350 knowledge of the law [Standard I(A)], time intervals of, 1:692 trade-to-GDP ratio, 2:340 1:54 volume on, 1:691–692 centralization, of financial organization, responsibilities of (see Responsibilities Chebyshev, Pafnuty, 1:441 4:186 as a CFA Institute Member or CFA Chebyshev’s inequality, 1:441–443 central limit theorem, 1:590–593, 598, Candidate [Standard of Professional Chevron/Texaco, 2:107 628n.7 Conduct VII]) Chicago, Illinois, 6:39 central tendency. see measures of central CFA Program. see also Reference to CFA Chicago Board of Trade (CBOT), 6:37, tendency Institute, Designation and Program 39–40 Centre for Economic Policy Research [Standard VII(B)] Chicago Board Options Exchange, 1:718 (CEPR), 2:245 conduct restrictions for candidates and Chicago Fed National Activity Index century bonds, 5:377, 442 members, 1:193 (CFNAI), 2:244 CEOs. see chief executive officers confidential information about, Chicago Mercantile Exchange (CME), Certificate in Investment Performance 1:193–194 2:408; 5:29, 209 Measurement (CIPM) certificants, stating facts about, 1:204 chief executive officers (CEOs),4: 21 1:37 testing policies for, 1:195 chief financial officers (CFOs), Certificate in Investment Performance CFA Society of Hungary, 1:233 4:108–109 Measurement (CIPM) Program, CFA Society of New Zealand, 1:233 chief risk officers (CROs),4: 255 1:193, 194 CFA Sri Lanka, 1:233 Chile certificates of deposit (CDs),4: 168; CFD. see contracts for difference exchange rate regimes, 2:437, 439–440 5:386 CFNAI. see Chicago Fed National IFRS adoption, 3:116 CESR. see Committee of European Activity Index inflation-linked bonds,5: 326, 370 Securities Regulators CFO. see cash flow from operations inflation targeting,2: 287 CFA Association of Pakistan, 1:233 CFOs. see chief financial officers market regulatory authorities, 3:686 CFA charterholders, 1:199 CFR. see corporate family rating MSCI multi-market index, 5:96 CFA Denmark, 1:232 CGM Focus Fund, 1:435 China CFA designation, 1:199. see also Chamberlin, Edward H., 2:65 business investment, 2:177 Reference to CFA Institute, change in polarity principle, 1:695 capital goods expenditures, 2:128 Designation and Program [Standard change of control covenant, 5:626n.26 capital restrictions, 2:367 VII(B)] change of control put option, 5:643 central bank reserves, 2:413 guidance on using, 1:199 changes comparative advantage, 2:347–348, 352 order of professional and academic fund mandate, 1:170 CPI, 2:229 designations with, 1:204 to investment process, 1:170–172 current account, 2:377, 380 right to use, 1:203 channel stuffing,3: 710 debt and equity outstanding, 5:350 stating facts about, 1:204 Chapter 7 bankruptcy, 4:146n.8, 147 demand for commodities, 6:167–168 CFA examinations, 1:33 Chapter 11 bankruptcy, 4:146–147 domestic and international debt bringing written material into exam character, in four Cs framework, 5:611, securities, 5:315 room, 1:195 627 economic growth, 2:179 confidential information in,1: 193–194 charitable foundations, endowments for, economic indicators, 2:244 expressing opinions about, 1:194 4:218–220 effects of global recession,2: 166

bind 14 June 17, 2017 4:16 PM Index I-15

exchange rate regime, 2:436, 437, 441 client commission practices, 1:106–108 notification of,1: 142 exports from, 2:337, 342, 354 client–plan participants, identifying, and principle-based standards, 1:10 foreign bonds, 5:313 1:106 and Professional Conduct Program, foreign investment in, 5:164 clients. see also prospective clients 1:37–38 GDP, 2:121, 155 additional services for, 1:116 and Standards of Practice Council, globalization of production, 2:342 approval from, 1:105 1:38–39 as growth country, 5:190n.2 buy-side, 1:59 in Standards of Practice Handbook, housing sector, 2:211 communication with (see 1:3, 8, 33–35, 42 IFRS adoption, 3:116 Communication with Clients and text of, 1:44 industrialization, 5:211 Prospective Clients [Standard and values of CFA Institute, 1:43 labor supply, 2:176 V(B)]) Code of Hammurabi, 4:277 market efficiency,5: 121 disclosure to, 1:178–179 codes of ethics (in general) market regulatory authorities, 3:685 duties to (see Duties to Clients adopting, 1:148 in MSCI multi-market index, 5:96 [Standard of Professional Conduct commitment to, 1:42 Multi Fiber Agreement, 2:345 III]) defined, 1:8 reserve requirements, 2:285 fair dealing between, 1:118 developing, 1:54–55, 82 say on pay, 4:18 gathering information from, 4:427–430 and stakeholder management, 4:20 securitization pilot program, 5:475 gifts and entertainment from, 1:67 Codification. see Accounting Standards trade balance with US, 2:130, 131 identifying, 1:103, 108–109, 121 Codification (FASB) two-tier boards, 4:10 individual investors as, 4:216 coefficient of variation (CV),1: 443–445 underground economy, 2:124 informing, of investment process, of net income, 3:380 China Aviation Oil Corp., 6:171 1:166–167 of operating income, 3:380 China Construction Bank, 3:222–223 institutional investors as, 4:216–222 of revenues, 3:380 China Investment Corporation, 4:221 interests of, 1:106 coils, 1:704 China Mobile Limited, 1:694–695, 707; loyalty to, 1:109 coincident economic indicators, 2:239, 5:192 maintaining lists of, 1:113 241 China Petroleum & Chemical priority of personal trading vs. trading Coinstar, Inc., 5:199 Corporation, 3:621–622 for, 1:185 collateral(s) China Securities Regulatory risk profile of,1: 119 for bond indenture, 5:305 Commission, 3:109n.9 select, additional services for, 1:116 default rate for, 5:503 Chinese accounting standards (CAS), soliciting former, 1:137–142 in four Cs framework, 5:611, 625–626 3:116 status of, 1:130 for hedge funds, 6:143–144 Chinese yuan (yuan renminbi), 2:401 client updates, 1:159–160 real estate as, 6:158 CNY/USD exchange rate, 2:403–404 climate bonds, 4:40 and repo margin, 5:388 exchange rate regime, 2:437 climate change, 4:40 and repo rate, 5:387 international bonds outstanding, 5:351 CLNs. see credit-linked notes and stakeholder management, 4:19 chi-square test CLOs. see collateralized loan obligations collateral backing, 5:307–308, 379 for value of population variance tests, closed economy, 2:338, 377–378 collateralized bond obligations (CBOs), 1:650–651 closed-end funds, 5:18–19 5:512; 6:34 values of chi square, 1:745 defined, 1:265; 4:228 collateralized debt obligations (CDOs), Chi-X Europe, 5:30 discounts with, 5:133–134 5:512–515 Christie’s, 6:176 Private Equity (GIPS Section I.7), defined, 6:34 CIPM certificants. see Certificate 1:249 ethical issues with, 1:142 in Investment Performance Real Estate (GIPS Section I.6), structure, 5:513 Measurement certificants 1:247–248 as structured financial instruments, CIPM Program. see Certificate real estate presentations with, 5:381 in Investment Performance 1:279–281 transaction example, 5:513–515 Measurement Program closing day, 5:362 underlying for, 6:37–38 Cisco Systems, 3:228–229; 5:209 CMBS. see commercial mortgage-backed valuation of, 6:146 Citibank Inc., 4:91; 5:166 securities collateralized loan obligations (CLOs), Citigroup, Inc., 2:412, 414; 3:708; 4:94 CME. see Chicago Mercantile Exchange 5:513; 6:34 Citigroup Commercial Mortgage Trust CML. see capital market line collateralized loans, 4:190, 191 2013-GCJ11, 5:506–508 CMOs. see collateralized mortgage collateralized mortgage obligations civil law system, 4:27 obligations (CMOs), 5:496–503; 6:34 Claritas Investment Certificate,1: 193, Coca-Cola defined, 5:497 194 and book value vs. intrinsic value, with floating-rate tranches,5: 501 classical gold standard, 2:434 5:176 mortgage pass-through securities vs., classified balance sheet,3: 222 in monopolistic competition, 2:65 5:496–497 clawback, private equity, 6:150 price elasticity of demand, 2:71, 447, non-agency residential mortgage- clean price, 5:413 448 backed securities vs., 5:503 clearing (term), 6:11 two-factor analysis, 5:209, 211 with planned amortization class clearinghouses CoCos. see contingent convertible tranches, 5:499–501 daily settlement by, 5:36; 6:18, 19 bonds with sequential-pay structures, in exchange-traded derivatives market, COD. see cash on delivery 5:497–499 6:11 Code of Ethics (CFA Institute), 1:33–44 with support tranches, 5:499–501 in futures market, 5:22 adoption of, 1:38 collateral managers, 5:513 clearing instructions, 5:44, 49–50 and applicable law, 1:50–53 collateral trust bonds, 5:307 Clearstream, 5:366, 380 evolution of, 1:34 collateral yield, 6:173 CLI. see Composite Leading Indicators and importance of ethics, 1:39–43 collectibles, 6:175–176

bind 15 June 17, 2017 4:16 PM I-16 Index

Colombia growth in, 6:127 application of the standard, 1:169–174 exchange rate regime, 2:437 investment vehicles, 6:169–170 compliance procedures, 1:168–169 IFRS adoption, 3:116 performance and diversification eleventh edition revision, 1:36 inflation-linked bonds,5: 326 benefits, 6:170–171 guidance, 1:166–168 inflation targeting,2: 287 prices of, 6:171–173 different forms of communication, MSCI multi-market index, 5:96 returns on, 6:126, 131, 167, 170 1:167 Columbia Pictures, 3:717 risk–return tradeoffs for,6: 132 facts vs. opinions in reports, 1:168 Columbia University, 4:218 Sharpe and Sortino ratios, 6:131 identifying risks and limitations, combination(s) traders of, 5:25–26 1:167–168 defined, 1:512 as underlying, 6:5, 37 informing clients of investment stock, 5:157 volatility, 6:126 process, 1:166–167 combination formula, 1:512–513 commodity exchange traded funds, report presentation, 1:168 combined ratio, 3:335–336 6:129 text of, 1:46, 165–166 Comcast, 4:13 commodity futures, 6:37 co-movement patterns, 4:213–215 commercial banks, 5:32, 33 pricing of, 6:171–173 Companhia Vale do Rio Doce, 1:687 commercial industry classification risk management with, 6:177 Companies Act 2006 (United Kingdom), systems, 5:192–196 commodity indexes, 5:101; 6:126, 4:14 example, 5:194–196 168–169 companion (support) tranches, GICS standard, 5:192 commodity inventories, 3:681 5:499–501 ICB system, 5:192–193 Commodity Research Bureau (CRB) company(-ies) representative sectors in, 5:193–194 Index, 5:101 as bond issuers, 5:299 RGS system, 5:192 commodity swaps, 5:24 borrowing by, 5:8 commercial loans, 2:241 commodity trading advisers (CTAs), comparable, 4:96 commercial mortgage-backed securities 6:128 cyclical, 5:190–191, 221, 613 (CMBS), 5:503–508; 6:162–163 common equity, cost of. see cost of fundamentals of, 5:613–617 balloon maturity provisions, 5:505 common equity non-cyclical, 5:190–191, 613 call protection, 5:504–505 common law system, 4:27 as risk drivers, 4:270 credit risk, 5:504 common markets, 2:362–366 securitization benefits for,5: 475 structure, 5:504–508 common shares (common stock), similar, 5:189–191 commercial paper (CP), 5:374–377 5:156–159 value of, 5:172–178, 204 credit quality, 5:375–376 callable, 5:158–159, 171 variability of recovery rates for, 5:599 issuance of, 5:639n.34 for commodities investing, 6:169 company analysis, 5:228–232 issuers, 5:374 as component of equity, 3:248 defined, 5:188 other short-term investments vs., 4:169 and corporate governance, 4:31–32 elements of, 5:229–232 short-term financing from,4: 190 defined, 5:156 and industry analysis, 5:614–615 US vs. Euro markets, 5:376–377 and fixed-income securities,5: 298 spreadsheet modeling in, 5:232 commercial real estate investments at Ford Motor Company, 5:157–158 company promotion, 1:97 direct and indirect investing in, 6:162 and long-term debt, 3:297 company stakeholders. see stakeholder(s) global assets under management, 6:125 and preference shares, 5:159–160 company value, cost of capital and, 4:78 institutionally owned, 6:159 preferred vs., 5:17–18 comparability, of accounting choices, commercial receivables, 3:48 putable, 5:159, 171 3:24 Commission Bancaire, 2:278 in US GAAP, 3:188 comparable companies (comparables). commissions at Viacom Corporation, 5:156–157 see also method of comparables brokerage, 4:314 common-size analysis cash flow analysis of,3: 312–313 and duties to clients, 1:106–108 for balance sheets, 3:252–260 defined, 4:96 ethical issues with, 1:25–27 analysis of ratios, 3:339, 342–344 comparable sales approach to real estate commitment fees, 4:193n.10 cross-sectional, 3:258–260 valuation, 6:165 committed bank lines, 5:618 for S&P 500, 3:256–257 comparable store sales ratio, 3:379, 380 committed capital for cash flow statements,3: 306–310 comparative advantage, 2:347–355 defined, 1:266 horizontal, 3:197n.50, 339, 342–344 absolute advantage vs., 2:347–354 Private Equity (GIPS Section I.7), 1:251 for income statements, 3:197–199, defined, 2:336n.1 for private equity, 6:149–150 340–341 Ricardian and Heckscher–Ohlin Real Estate (GIPS Section I.6), 1:247, of ratios, 3:338–345 models, 2:354–355 248 vertical, 3:197n.50, 252, 339–341 comparative growth information, committed lines of credit, 4:190; 5:618 common stock. see common shares 3:344–345 Committee of European Securities common stock portfolio, probabilities compensation. see also Additional Regulators (CESR), 3:113 for, 1:550 Compensation Arrangements Committee on the Financial Aspects of Commonwealth of Independent States, [Standard IV(B)] Corporate Governance, 4:7 2:340; 5:350 bonus, 1:144–145 commodities, 6:167–173 communication(s) and company performance, 4:32–33 benefits and costs of holding,6: 64–65 different forms of,1: 167 and conflict of interest,1: 181–182 contracts on, 5:14 to employees of material nonpublic disclosure of, 1:105 correlation with other asset classes, information, 1:91 externally compensated assignments, 4:432 interdepartmental, 1:89 1:141 defined, 6:129 in risk management framework, 4:248 as form of payment, 2:119 derivatives and indexes, 6:168–169 communication assets, 6:174 in GDP, 2:133 downside frequencies, 6:131 Communication with Clients and as motivation for issuing low-quality forwards on, 5:21 Prospective Clients [Standard V(B)], financial reports,3: 683–684 global assets under management, 6:125 1:165–174 notification of,1: 144–145

bind 16 June 17, 2017 4:16 PM Index I-17

outside, 1:145 with GIPS Fundamentals of Compliance (GIPS policy development, 4:18 benefits of,1: 224–225 Section I.0), 1:236 remuneration vs., 4:9n.3 claiming, 1:224, 231 GIPS Advertising Guidelines (GIPS and research independence, 1:68 GIPS-compliant historical Section III), 1:258, 259 say on pay, 4:18–19 performance, 1:230–231 Verification (GIPS Section IV),1: 262 compensation committee, 4:23, 24 compliance officers,1: 64 composite inception date compensation plans, 4:33 compliance procedures defined, 1:266 compensation policies, 4:29 adequate, 1:147–149 GIPS Advertising Guidelines (GIPS competence, 1:82 adoption of, 1:148 Section III), 1:259 competition education and training Presentation and Reporting (GIPS in credit analysis, 5:612 implementation, 1:149 Section I.5), 1:242–243 imperfect inadequate, 1:147, 152 Private Equity (GIPS Section I.7), breakeven analysis, 2:40–41 and incentive structure, 1:150 1:250 marginal revenue, 2:29–30 as responsibility of supervisors, Real Estate (GIPS Section I.6), 1:247, revenue in perfect competition vs., 1:148–149 248 2:35–36 compliant presentations Composite Leading Indicators (CLI), monopolistic, 2:83–87 Composite Construction (GIPS 2:239 benefits of,2: 343–344 Section I.3), 1:239 composites characteristics of, 2:67 defined, 1:266 Calculation Methodology (GIPS defined, 2:65 Disclosure (GIPS Section I.4), Section I.2), 1:237, 238 demand analysis, 2:84–85 1:239–241 Composite Construction (GIPS long-run equilibrium, 2:86–87 Fundamentals of Compliance (GIPS Section I.3), 1:238, 239 optimal price and output, 2:85 Section I.0), 1:236 defined, 1:266 supply analysis, 2:85 GIPS Advertising Guidelines (GIPS Disclosure (GIPS Section I.4), non-price, 2:67 Section III), 1:258, 259 1:240–242 perfect, 2:68–83 GIPS Valuation Principles (GIPS Fundamentals of Compliance (GIPS breakeven point for firm,2: 38–39 Section II), 1:255 Section I.0), 1:236 characteristics of, 2:67 Input Data (GIPS Section I.1), 1:237 GIPS, 1:225 defined, 2:65 Presentation and Reporting (GIPS GIPS Advertising Guidelines (GIPS demand, average, and marginal costs, Section I.5), 1:242–244 Section III), 1:259 2:36–37 Private Equity (GIPS Section I.7), GIPS Valuation Principles (GIPS demand analysis, 2:69–76 1:249, 250 Section II), 1:254–256 and innovation, 2:83 Real Estate (GIPS Section I.6), 1:244, Input Data (GIPS Section I.1), long-run equilibrium, 2:81–82 246, 247 1:237 marginal revenue, 2:29–30 Verification (GIPS Section IV),1: 260, investment firm balanced growth and oligopoly, 2:96 264 composite (sample), 1:274–275 optimal price, 2:77–81 Wrap Fee/SMA Portfolios (GIPS List of Composite Descriptions (GIPS output optimization, 2:77–81 Section I.8), 1:252–254 Section V.0.1), 1:294–297 revenue in imperfect competition vs., “comply or explain” codes, 4:34 Presentation and Reporting (GIPS 2:35–36 component cost of capital, 4:78 Section I.5), 1:242–244 shutdown decision, 2:39–40 component method of depreciation for Private Equity (GIPS Section I.7), supply analysis, 2:76–77 long-lived assets, 3:499–501 1:250–252 and price collusion, 2:93 Composite Construction (GIPS Section Real Estate (GIPS Section I.6), 1:247, in strategic analysis, 5:205 I.3), 1:238–239 248 competition policy, 1:137 about, 1:234 Verification (GIPS Section IV), competitive position, as fundamental, recommendations 1:260–264 5:613 general, 1:239 Wrap Fee/SMA Portfolios (GIPS competitive strategy for private equity, 1:252 Section I.8), 1:253, 254 and capacity, 5:612 requirements composite since inception distributions, in company analysis, 5:228 general, 1:238–239 1:247, 248, 251 Competitive Strategy (Porter), 2:68 for private equity, 1:250 composite since inception paid-in complacency, passive investment for real estate closed-end fund capital, 1:247, 248, 251 strategies and, 4:171 composites, 1:247 composite termination date complement(s) for wrap fee/SMA portfolios, 1:253 defined, 1:266 defined, 2:15 composite construction, Fundamentals of Compliance (GIPS elasticity of demand and, 2:73 misrepresenting, 1:80 Section I.0), 1:236 of event, 1:488 composite creation date, 1:240, 266 Presentation and Reporting (GIPS identifying, 2:16 composite definition Section I.5), 1:243 completed contract method of revenue Composite Construction (GIPS compounded yield measures, 5:420 recognition, 3:160–161, 163 Section I.3), 1:239 compounding complete markets, 5:58 defined, 1:266 continuous, 1:314–315, 555–556 complex capital structures, 3:188 Private Equity (GIPS Section I.7), defined, 1:308–309 complexity, of derivatives, 6:44 1:250 frequency of, 1:312–314, 321–322 compliance Real Estate (GIPS Section I.6), 1:247 future value of lump sum with, Fundamentals of Compliance (GIPS Verification (GIPS Section IV), 1:313–314 Section I.0), 1:235–236 1:263 solving TMV problems for number of about, 1:234 composite description compounding periods, 1:333–334 recommendations, 1:236 defined, 1:266 compounding conversions, requirements, 1:235–236 Disclosure (GIPS Section I.4), 1:240 5:421–422

bind 17 June 17, 2017 4:16 PM I-18 Index

A Comprehensive Business Reporting confections industry, 5:219–221 Consensus Bullish Sentiment Index, Model (CFA Institute), 3:134–135 Conference Board, 2:239, 240, 244 1:717 comprehensive income confidence conservative accounting choices defined, 3:49n.4, 249n.21 business and consumer, 2:153, 155 (conservatism) IFRS on, 3:201, 204 investor, 1:229 aggressive vs., 3:678–683 on income statements, 3:201–204 confidence intervals,1: 595–601 behavioral biases associated with, other construction of, 1:595–596 5:138 accumulated, 3:248–249 definition, 1:595 benefits of,3: 682 defined, 3:49n.4, 201 for hypothesis testing, 1:625 biased application of standards, on income statements, 3:203–204 and hypothesis tests, 1:631–632 3:682–683 on statement of comprehensive for population mean, 1:595–600 defined, 3:670 income, 3:19–20 with normally distributed population in extractive industries, 3:679–680 statement of, 3:12, 16–20 with known variance, 1:596 losses in, 3:679 total, 3:201 t-distribution, 1:599–600 conservatorship, 5:490n.8 US GAAP on, 3:201, 204 z-alternative, 1:597–599 consistency Compustat, 3:337 reliability factors for, 1:596–597, estimator, 1:594–595 computations, financial analysis vs., 600–601 of financial performance forecasts, 3:328–330 and sample size, 1:601–603 3:748 computer hardware industry, 5:222–223 confidence limits,1: 595 consistent probabilities, 1:480 ConAgra Foods, Inc., 3:699–700 confidential information consol bonds (consols), 1:327–328; concavity, 5:567 about CFA program, 1:193–194 5:368, 550 concentrated portfolio strategies, 6:130 accidental disclosure of, 1:132–133 consolidated balance sheets concentration, industry, 5:208–211, 219 of firm,1: 143 Alcatel-Lucent, 3:442 concentration ratio, 2:106–108 intentional disclosure of, 1:131–132 Micron Technology, Inc., 3:587–588 “Conceptual Framework for Financial possessing, 1:131 Volvo Group, 3:429–430 Reporting” (Concepts Statement 8), confidentiality, 1:106. see also consolidated financial position, 3:668n.2 Preservation of Confidentiality 3:417–418 Conceptual Framework for Financial [Standard III(E)] consolidated financial statements, notes Reporting 2010 (IFRS), 3:117–129 confirmations of transactions, duplicate, to and barriers to single standards 1:188 Alcatel-Lucent, 3:443–444 framework, 3:130–131 conflicts of interest Caterpillar Inc., 3:418 conservatism in, 3:679 and business relationships, 1:180, 184 Micron Technology, Inc., 3:588–589 constraints on financial reports, and business stock ownership, 1:180 Volvo Group, 3:430–431 3:120–121 and compensation arrangement, consolidated income statements convergence of US GAAP and, 1:181–182 Alcatel-Lucent, 3:441–442 3:127–129 and directorship, 1:182–183 Volvo Group, 3:429 and effective standards frameworks, disclosure of, 1:105 (see also Disclosure consolidated results of operation, 3:129–130 of Conflicts [Standard VI(A)]) 3:416–417 elements of financial reports, and personal stock ownership, 1:181 consolidated statements of operations, 3:121–123 and personal trading, 1:183 3:586–587 objective of financial reporting/ and priority of transactions, 1:185 constant-yield price trajectory, 5:410, reports, 3:102–104, 118–119 and requested favors, 1:183 411 qualitative characteristics of financial in stakeholder management, 4:18 constituent securities, 5:78, 92 reports, 3:119–120 Conflicts of Interest [Standard of constraints and quality of financial reporting, Professional Conduct VI], budget, 2:71 3:668–669 1:177–192 investor, 1:121 requirements of Presentation of Disclosure of Conflicts [Standard construction industry, 5:225 Financial Statements (IAS No. 1), VI(A)], 1:177–184 consumer(s) 3:123–127 application of the standard, behavior of, 2:208–210 conclusions, from financial statement 1:180–184 demand and supply analysis, analysis, 3:34 compliance procedures, 1:180 2:6–23 conditional expected values, 1:492 guidance, 1:177–180 demand concepts, 2:6–8 conditional prepayment rate (CPR), text of, 1:46, 177 elasticity of demand, 2:9–18 5:492, 493 Priority of Transactions [Standard substitution and income effects, conditional probability, 1:480–483, VI(B)], 1:185–190 2:18–23 487–488 application of the standard, expectations of, 2:153 conditional value at risk (CVaR), 4:273 1:188–190 in microeconomics, 2:5 conditional variances, 1:494–497 compliance procedures, 1:186–188 theory of the consumer, 2:5 Conduct as Participants in CFA Institute guidance, 1:185–186 consumer confidence,2: 153, 155 Programs [Standard VII(A)], text of, 1:46–47, 185 Consumer Discretionary sector, 5:193 1:193–197 Referral Fees [Standard VI(C)], consumer goods, arbitrage opportunity application of the standard, 1:195–197 1:190–192 with, 6:47 eleventh edition revision, 1:36–37 application of the standard, consumer installment debt, income and, guidance, 1:193–195 1:190–192 2:242 additional CFA restrictions, 1:194, 195 compliance procedures, 1:190 consumer price index (CPI), 2:229, 230, confidential program information, guidance, 1:190 242 1:193–194 text of, 1:47, 190 Consumer Price Index for All Urban expressing opinions, 1:194 conforming mortgages, 5:490 Consumers (CPI-U), 2:229, 230; text of, 1:47, 193 Conroy, Robert M., 4:90n.16 5:370

bind 18 June 17, 2017 4:16 PM Index I-19

consumer spending forwards, 5:21–22 convexity adjustment, 5:560–563 and business cycles, 2:208–210 futures, 5:22–23 convexity effect,5: 407–409, 567 and expectations, 2:153 insurance contracts, 5:25 “cookie jar” reserve accounting, in phases of business cycle, 2:202 market information systems, 5:58 3:682–683 Consumer Staples sector, 5:193 options, 5:24–25 copies, maintaining, 1:75 consumer surplus swaps, 5:23–24 copyright laws, 2:97 and alternative trade policies, 2:357, 360 trading sessions on, 5:54 core inflation,2: 230–231 in monopoly, 2:102–104 contract rates, mortgage, 5:486–487 core–satellite approach, 4:443–444 in perfect competition, 2:74–76 contracts Corning, 4:209–210 and tariffs,2: 357 American- vs. European-style, 5:24 corporate accounts, in FX market, 2:412 consumption currency, 5:39 corporate bond mutual funds, 4:231 and aggregate demand, 2:138–139 defined, 5:14 corporate bonds, 5:377–380 and alternative trade policies, 2:360 derivative, 5:15 earnings surprise for, 5:135n.43 in autarky, 2:349 and discipline for financial reporting legal issuers of, 5:306 average propensity to consume, 2:139 quality, 3:688 sources of repayment for, 5:307 marginal propensity to consume, forward (see forwards [forward corporate credit rating (CCR), 5:603 2:139, 314–316 contracts]) corporate culture, financial reporting wealth effect on,2: 152 futures (see futures [futures contracts]) issues and, 3:717–718 consumption bundle (consumption insurance, 5:25 corporate debt, 5:373–381 basket), 2:227–229 modifications of,3: 170–171 bank and syndicated loans, 5:373–374 consumption spending, 2:138–139 options (see options [options commercial paper, 5:374–377 contango, 6:172–173 contracts]) corporate notes and bonds, 5:377–380 contingency provisions, 5:298, 329–335 and revenue recognition, 3:160–163, corporate debt securities, 5:610–628 callable bonds, 5:330–331 168–171 corporate family rating (CFR), 5:603 convertible bonds, 5:332–334 short positions in, 5:39–41 corporate governance, 4:5–36 with corporate notes/bonds, 5:379–380 sides of, 5:39 about, 4:6–8 putable bonds, 5:332 spot, 5:20 analyst considerations, 4:31–36 contingent claims, 4:280; 6:25–35. see contracts for difference (CFD),5: 20–21; board of directors representation, also options 6:17 4:32 asset-backed securities, 6:33–35 contractual infrastructure, 4:14 composition of investors, 4:33–34 credit derivatives, 6:30–33 contrarian effect,5: 91 economic ownership and voting defined, 6:7, 61 contrarian trading strategies, 1:709–710 control, 4:31–32 forward commitments vs., 6:35–36 contribution margin, 4:131 long-term risk management, 4:35 options, 6:25–30, 33 control(s) remuneration and company contingent convertible bonds (CoCos), board’s role in, 4:22 performance, 4:32–33 5:334 change of control covenant, 5:626n.26 shareholders’ rights, 4:34 contingent liabilities, 5:648 change of control put option, 5:643 board of directors representation, continuation patterns, 1:696, 703–707 and governance practices, 4:30 4:32 flags and pennants,1: 706–707 internal control systems, 3:29 boards of directors, 4:21–25 rectangles, 1:706 and market structure, 2:66–67 committees, 4:22–25 reversal vs., 1:696 price, 2:367 composition of, 4:21–22 triangles, 1:704–706 weak, 4:28 functions and responsibilities, 4:22 continuous compounding, 1:314–315, control deficiency disclosures, staggered boards, 4:21–22 555–556 1:639–641 company stakeholders, 4:8–14 continuous random variables, 1:541–559 controlling shareholders, 4:9 relationships, 4:11–14 continuous uniform distribution, convenience yield. see roll yield stakeholder groups, 4:8–11 1:542–545 conventional bonds, 5:301. see also plain composition of investors, 4:33–34 defined, 1:529 vanilla bonds defined, 4:6 lognormal distribution, 1:553–559 conventional cash flow,4: 51 economic ownership and voting normal distribution, 1:545–553 convergence control, 4:31–32 applications of, 1:551–553 income, 2:175 factors affecting,4: 25–28 and probabilities for common stock oscillator and price, 1:710 market factors, 4:25–26 portfolio, 1:550 conversion premium, 5:333 non-market factors, 4:27–28 safety-first optimal portfolio, conversion price, 5:333 long-term risk management, 4:35 1:551–553 conversion ratio, 5:333 non-profit organizations,4: 10–11 continuous time finance models,1: 555n.32 conversion value, 5:333 for private equity firms,5: 163 continuous trading markets, 5:54, 56–57 convertible arbitrage, 4:236 remuneration and company continuous uniform distribution, convertible bonds, 5:332–334, 379–380; performance, 4:32–33 1:542–545 6:146 risks and benefits,4: 28–31 contra accounts, 3:46, 225 convertible common stock, 5:157 benefits of effective governance, contractionary fiscal policy,2: 304, 317 convertible debt, 3:192–193 4:29–31 contractionary monetary policy, convertible mortgages, 5:487 risks of poor governance, 4:28–29 2:296–297 convertible preference shares, 5:161 shareholders’ rights, 4:34 contraction phase (business cycle), convexity, 5:559–567 stakeholder management, 4:14–20 2:200–204. see also recession annualized, 5:561–562 about, 4:14 contraction risk, 5:492 of credit risk/return, 5:633–634 defined, 4:14 contract markets, 5:20–25, 54–58 effective, 5:566–567 mechanisms, 4:15–20 contracts for difference,5: 20–21 money, 5:564–565 corporate governance committee, 4:23 execution mechanisms, 5:54–57 and return, 5:530 corporate governance industry, 4:28

bind 19 June 17, 2017 4:16 PM I-20 Index

corporate governance reports, 4:20 of international trade, 2:343–347 cost flow assumptions,3: 697–698 corporate notes, 5:377–380 inventory, 3:172–174, 404–406; 4:184 cost function, 2:24 corporate profile, in company analysis, labor, 2:158–160 cost of capital, 4:50, 77–122 5:229 line, 3:706 about, 4:78–79 corporate sector (business sector), 2:128; long-run average, 2:102 for capital budgeting and security 5:349 long-run marginal, 2:102 valuation, 4:82–84 corporate structure, in high-yield credit marginal and company value, 4:78 analysis, 5:642–643 defined, 2:23 cost of common equity, 4:88–94 corporate transparency, 4:17 and marginal revenue/profit bond yield plus risk premium corporate treasurers, 5:6 maximization, 2:29–30 approach, 4:94 corporations in monopolies, 2:36–37, 102 CAPM approach, 4:89–92 as intermediaries, 5:32–33 and other costs/output, 2:31–35 dividend discount model approach, multinational, 2:341–342 in perfect competition, 2:36–37 4:93 real assets of, 5:27 menu, 2:219–220, 282 and equity risk premium, 4:89–92 correction, of unintentional errors, 1:76 opportunity cost of debt, 4:84–87 corrective waves, 1:726–728 in capital budgeting, 4:50, 51 debt-rating approach, 4:85–86 correlation(s) and economic vs. accounting profit, estimating, 4:86–87 of asset classes, 4:333, 432–433 2:77 yield-to-maturity approach, 4:84–85 defined, 1:503; 4:325 of money invested, 6:65 cost of preferred equity estimating, 1:505–506 in productivity, 2:24 best estimate, 4:88 and historical risk, 4:332 and required rate of return, 6:63 calculating, 4:88 hypothesis tests with, 1:657–660 ordering, 4:184 cost of preferred stock, 4:87–88 and investment opportunity set, and output, 2:31–35 and country risk, 4:101–102 4:336–337 period, 3:173 defined, 4:78 and portfolio risk, 4:325–327, 330 policy, 4:184 estimating, 4:94–109 properties of, 1:503 production, 3:405n.7 with beta and project beta, and risk diversification,4: 332 and production, 2:23–25 4:94–101 of risk-free asset in portfolio of risky quasi-fixed, 2:33 with weighted average cost of capital, assets, 4:363 rebuilding, 6:166 4:99–101 risk from changing, 4:263n.21 research, 3:572, 573, 579, 681 flotation costs,4: 106–108 correlation coefficient,4: 325 shoe leather, 2:282 in investment decision-making by correlation matrix, 1:503 “soft,” 6:166 CFOs, 4:108–109 COSCO Pacific,4: 210–213 software development, 3:480, 489–492 marginal cost of capital schedule, cost(s) standard, 3:227 4:102–105 accounting, 2:28 stock-out, 4:184 practice problems, 4:112–118 administrative, 2:367–368 sunk, 2:28; 4:51 solutions to problems, 4:119–122 amortised, 3:123, 224–225, 242, 243 total, 2:24, 31–35, 41–42 and taxes, 4:79–80 average, 2:36–37 transaction weighted average, 5:178 average fixed,2: 31–35 with active portfolios, 4:396n.6 in capital budgeting decisions, average total, 2:31–37, 45–46 assumptions of CAPM about, 4:384 4:82–83 average variable, 2:30, 36–37, 39–40 for borrowing, 5:9 computing, 4:79 borrowing, 3:477–478 with derivatives, 6:41, 70 defined, 4:79 capitalisation of, 3:481–493 and financial risks,4: 261–262 estimations, 4:99–101 carrying, 4:184 and market efficiency,5: 123 and raising of additional capital, current, 3:123 unit labor, 2:234, 241 4:102–105 deferred, 3:715 variable and return on invested capital, 5:204 development, 3:489–493, 572–573, 579 average, 2:30, 36–37, 39–40 risk factors in, 4:94 economic, 2:28, 38, 77 defined, 2:30 weights for, 4:80–82 expensing of, 3:481–486 and leverage, 4:126–128 cost of carry financing, 4:50 and operating leverage, 3:360; and price of European options, fixed 4:133–135 6:90–91 and breakeven points, 4:145 of production, 3:405n.7 and price of forward contracts, 6:77 and capacity, 5:612 total, 2:31–35, 41–42 and storage, 6:46 and degree of operating leverage, weighted average, 3:228 for underlying assets, 6:65 4:133–135 cost approach to real estate valuation, cost of common equity, 4:88–94 and degree of total leverage, 4:142–143 6:166 bond yield plus risk premium fixed production overhead costs, Costa Rica approach, 4:94 3:405n.7 exchange rate regime, 2:436 CAPM approach, 4:89–92 and leverage, 3:360–361; 4:125–128 exports from, 2:342 dividend discount model approach, and shutdown decision, 2:41–42 government spending, 2:130 4:93 total, 2:31–35, 41–42 IFRS adoption, 3:116 and equity risk premium, 4:89–92 flotation, 4:106–108 underground economy, 2:124 cost of debt, 4:84–87 historical, 3:123 cost arrangements, restricting, 1:64 after-tax, 4:85 of holding assets, 6:64–66 cost averaging, 1:423 for capital budgeting, 4:50 incremental, 3:171 Costco Wholesale Corporation, 1:406, company’s, 4:94n.23 of inflation,2: 281–283 434 debt-rating approach, 4:85–86 information-acquisition, 5:123–124 cost curves defined, 4:84 interest, 3:486–489 long-run average, 2:44–48 estimating, 4:86–87 internal development, 3:489–493 short-run, 2:43–44 and governance, 4:30

bind 20 June 17, 2017 4:16 PM Index I-21

and taxes, 4:79 of risk-free asset in portfolio of risky four Cs framework, 5:610–628 in weighted average cost of capital, assets, 4:363 capacity, 5:611–625 5:177 and strategic asset allocation, 4:436 character, 5:627 yield-to-maturity approach, 4:84–85 covariance matrix, 1:501–502, 504 collateral, 5:625–626 cost of equity covenant(s), 5:310–311 covenants, 5:626–627 common equity, 4:88–94 affirmative, 5:310, 626 Watson Pharmaceuticals Inc. case in private equity valuation, 6:156–157 for bond indenture, 5:305 study, 5:618–625 and required rates of return, change of control covenant, 5:626n.26 functions of, 5:592 5:177–178 debt, 3:617–619, 684 high-yield, 5:638–645 cost of goods sold and employee laws, 4:19 corporate structure in, 5:642–643 and activity ratio, 3:351 in four Cs framework, 5:611, 626–627 covenant analysis, 5:643–644 on balance sheet, 3:63 in high-yield credit analysis, 5:643–644 debt structure and leverage in, in inventory valuation, 3:228 with leveraged loans, 6:151 5:640–642 cost of preferred stock, 4:87–88 limitations on liens, 5:644 equity-like approach to, 5:644–645 cost of sales maintenance, 5:644 financial projections for,5: 639–640 and inflation,3: 413–414 negative, 5:310–311, 626 liquidity in, 5:638–639 and inventory valuation method, 3:404, probability of breaching, 1:544–545 and non-investment grade ratings, 408–410 restricted payments, 5:644 5:638 and LIFO reserve, 3:415–416 and stakeholder groups, 4:9 for non-sovereign government debt, in periodic vs. perpetual inventory Covenant Review, 5:627 5:650–652 systems, 3:410–412 coverage, prior, 1:66 practice problems, 5:656–665 cost-push inflation,2: 233–235 coverage ratios, 3:362 by ratings agencies, 5:601–610 cost recovery method of revenue for capitalised interest, 3:487–489 credit ratings, 5:602–603 recognition, 3:164–165 debt service, 5:651–652 issuer vs. issue ratings, 5:603–605 cost structures fixed charge,3: 362–363, 644, 645 risks of relying on ratings, and leverage, 4:126–128 and four Cs framework, 5:617 5:605–608 in monopolies, 2:99–100 interest, 3:362, 383, 644, 645 use of ratings, 5:601–602 and price collusion, 2:93 for operating lease adjustment, recovery rates in, 5:597–600 Cote D’Ivoire, 3:117 3:770–771 research on ratios in, 3:384 Council of the European Union, 3:113 and solvency ratios, 3:644–647 seniority ranking in, 5:595–597 counterparties, futures, 6:18 covered bonds, 5:308 solutions to problems, 5:666–670 counterparty risk, 4:261, 267; 5:22, 36 covering, of positions, 5:40 for sovereign debt, 5:645–650 countervailing duties, 2:359 C P. see commercial paper flexibility and performance profile, counting, 1:510–513 CPI. see French consumer price index; 5:647–648 combination formula, 1:512–513 US Consumer Price Index political and economic profile,5: 647 multinomial formula, 1:512 CPI-U. see Consumer Price Index for All in Portugal, 5:649–650 multiplication rule of, 1:511–512 Urban Consumers sovereign debt defaults, 5:645–646 permutation formula, 1:513 CPR. see conditional prepayment rate credit analysts, 3:30 country risk, cost of capital and, CRA International Inc., 3:155 credit card networks, barriers to entry 4:101–102 crashes, 6:42 for, 5:206–207 coupon effect,5: 408, 409 crawling band currency regimes, 2:436, credit card receivable asset-backed coupon payment structures, 5:323–329 440 securities, 5:511–512 corporate notes/bonds, 5:378 crawling peg currency regimes, 2:436, credit crisis (2007-2009), 2:303, 307, credit-linked coupon bonds, 439–440 308; 5:160, 309 5:324–325 Crazy Eddie’s, 3:677 credit curve, 5:636–637 deferred coupon bonds, 5:325 CRB Index. see Commodity Research credit cycle, 5:598–599, 631 floating-rate notes,5: 323–324 Bureau Index credit default swaps (CDSs) index-linked bonds, 5:325–328 creative destruction theory, 2:213–214 contracts for, 5:25 payment-in-kind coupon bonds, 5:325 credibility credit as underlying for, 6:37 step-up coupon bonds, 5:324 of central banks, 2:288–289 as credit derivatives, 6:31–33 coupon rate (nominal rate) of monetary and fiscal policy mix, defined, 4:274n.32 of Asian and North American bonds, 2:323 as insurance contracts, 5:34 5:403–405 credit credit derivatives, 6:30–33 and bond duration, 5:550–551 and accounts receivable management, credit duration, 5:546, 574 defined, 3:605 4:175 credit enhancements and frequency of coupon payments, as drag on liquidity, 4:158 for auto loan ABSs, 5:509 5:300–301 for short-term financing,4: 189–191 and bond indenture, 5:308–310 for securities, 4:169 trade, 4:185, 186 defined, 5:305 coupon-type classification for fixed- as underlying, 6:37–38 external, 5:309–310, 479 income markets, 5:352–353 credit accounts, 4:176–177 internal, 5:308–309, 479 Cournot, Augustin, 2:90 credit analysis, 5:591–670 with non-agency RMBSs, 5:503 Cournot assumption, 2:90–91 capital structure in, 5:595 in securitizations, 5:479 Cournot equilibrium, 2:91, 93, 94 for corporate debt securities, credit events, 4:274 covariance, 1:499–505 5:610–628 credit insurance, 4:176 and correlation of risks in portfolio, credit rating process, 3:382–384 credit limits, 4:159 4:325–327 credit risk credit lines, 4:159, 189–191 in covariance matrix, 1:501–502, 504 defined, 5:592–594 credit-linked coupon bonds, defined, 1:499–501 return vs., 5:628–637 5:324–325 of return, 4:305 defined, 3:749 credit-linked notes (CLNs), 5:382; 6:31

bind 21 June 17, 2017 4:16 PM I-22 Index

credit migration risk, 5:593 crop types (farmland investments), 6:163 fixed parity with crawling bands,2: 440 creditors CROs. see chief risk officers free-floating, 2:440–441 business risk for, 4:145–147 cross-border real estate investments, historical perspective on, 2:434–436 contractual agreements with, 4:19 6:159 ideal, 2:433 legal protections for, 4:27 cross-default provisions, 5:604 managed float,2: 440 shareholder interests vs., 4:13 cross-departmental conflicts,1: 179 target zone, 2:439 as stakeholders, 4:9 crossing networks, derivatives pricing taxonomy of, 2:436–443 credit quality rule for, 5:57 foreign exchange market, 2:399–418 classifying fixed-income markets by, cross-price elasticity of demand about, 2:399–400 5:350–351 for consumers, 2:15–18 currency conventions, 2:401–402 of commercial paper, 5:375–376 in perfect competition, 2:73 functions, 2:406–412 and repo margin, 5:388 cross-rates, currency, 2:419, 421–425 nominal vs. real exchange rates, of sovereign bonds, 5:368–369 cross-sectional common-size analysis, 2:402–406 credit rating agencies, 5:601–610 3:258–260 participants in, 2:412–415 basis for ratings, 5:602–603 cross-sectional data, 1:407, 587, 589 size and composition of, 2:415–418 and corporate governance, 4:30 cross-sectional mean, 1:407–409 and international trade, 2:443–453 fallibility of, 5:608 cross-sectional pricing anomalies, 5:130, absorption approach to trade balance, opinions of, 1:61–62 133 2:449–450 risks of relying on, 5:605–608 cross-sectional ratio analysis, 3:341, 349 elasticities approach to trade balance, use of, 5:601–602 cross-sectional regression analysis, 2:106 2:445–449 credit ratings cross-shareholdings, 4:33–34 practice problems, 2:457–459 basis for, 5:602–603 crowding out, 2:309 quotations, 2:418–421 and country risk, 4:102 C R SP. see Center for Research in solutions to problems, 2:460–462 for credit risk management, 4:274 Security Prices currency option bonds, 5:302 for issuer vs. issue, 5:603–605 CTAs. see commodity trading advisers Currency Overlay Composite, 1:295–296 non-investment grade, 5:638 culture currency quotes, 2:418–421 risks of relying on, 5:605–608 corporate, 3:717–718 currency regimes, 2:432–443 and special purpose entities, 5:482, 483 risk, 4:252 arrangements with no separate legal use of, 5:601–602 cumulative distribution function, 1:530, tender, 2:437–438 credit risk, 4:30. see also default risk 531, 543 CBS, 2:438–439 assessing, 3:749–752 cumulative frequency, 1:396–400 with crawling bands/pegs, 2:439–440 with commercial mortgage-backed cumulative frequency distributions, fixed parity,2: 439 securities, 5:504 1:404–405 free-floating, 2:440–441 components of, 5:592–594 cumulative preference shares, 5:160, 171 historical perspective on, 2:434–436 with corporate notes/bonds, 5:379 cumulative probabilities, 1:742–743 ideal, 2:433 credit derivatives for hedging, 6:30, 32 cumulative relative frequency, managed float,2: 440 defined, 3:382, 749; 4:261 1:396–397 target zone, 2:439 with fixed-income securities,5: 299– cumulative voting, 4:16; 5:156 currency reserves 300, 574–575 currency(-ies), 5:14. see also specific foreign, 2:279, 294 with floating-rate bonds,5: 426 currencies requirements, 2:267, 268, 284–285, 367 with floating-rate notes,5: 323 in business cycles, 2:212 currency risk, managing, 4:245–246 measuring, 4:274 classifying fixed-income markets by, currency swaps, 5:24; 6:23n.12, 37 with repurchase agreements, 5:388 5:351 current account, BOP, 2:371, 377–381 return vs., 5:628–637 for fixed-income securities,5: 301–302 current assets safety measures for, 4:171 foreign central bank purchases of, and accounting profit vs. taxable and yield-to-maturity, 5:433 2:375–376 income, 3:567–568 Credit Roundtable, 5:627 FX conventions for, 2:401–402 on balance sheets, 3:221, 223–230 credits in markets, 5:19–20 Apple Inc., 3:224 in accounting systems, 3:74–75, 78–94 for sovereign bonds, 5:368–369 cash and cash equivalents, 3:224–225 BOP system, 2:370–371 in sovereign credit analysis, 5:647 inventories, 3:227–229 unused tax, 3:581–582 as underlying, 6:5, 37 marketable securities, 3:225 credit sales, revenues and, 3:698–699 and yield-to-maturity, 5:433 other, 3:229–230 credit scoring model, 4:177 currency board system (CBS), 2:436, SAP Group, 3:223–224 credit services, financial institutions’, 438–439 trade receivables, 3:225–227 5:32 currency codes, FX market, 2:401 defined, 3:48 credit spread options, 6:30–31 currency contracts, 5:39 current cost, 3:123 credit spreads currency exchange rates, 2:399–462 current government spending, 2:311 and credit ratings, 5:607 calculations, 2:418–432 current liabilities defined, 5:482–483 cross-rate, 2:421–425 of Apple Inc., 3:231 term structure of, 5:419 and exchange rate quotations, on balance sheets, 3:221–222, 230–234 Credit Suisse, 5:210 2:418–421 deferred revenue analysis of, 3:232–234 credit tranching, 5:308–309, 481 forward, 2:425–432 of SAP Group, 3:231 credit-worthiness, 4:159, 177, 191 currency regimes, 2:432–443 current ratio CRH, 1:425 active and passive crawling pegs, and conversion from LIFO to FIFO, “Critical Accounting Estimates” 2:439–440 3:421 (MD&A), 3:683 arrangements with no separate legal defined, 3:356; 4:160 critical region, test statistic, 1:631 tender, 2:437–438 interpretation of, 3:357 critical value, 1:630–632 CBS, 2:438–439 inventory value in comparison of, Croatia, 2:436; 5:96 fixed parity,2: 439 3:759–760

bind 22 June 17, 2017 4:16 PM Index I-23

current tax, 3:582–585 day order, 5:48 in weighted average cost of capital, tax charged to equity, 3:583–585 days in receivables, 4:160, 181 5:177 and valuation allowance, 3:583 days of inventory on hand (DOH) yield-to-maturity approach, 4:84–85 current tax liabilities, 3:567–568 and activity ratios, 3:349–351 in credit ratios, 3:383–384 current yield, 5:304, 423 and conversion from LIFO to FIFO, defined, 5:297 curve duration, 5:538, 545, 548, 562 3:420 derecognition of, 3:615–617 custodial relationships, 1:60 inventory management with, discretionary cash flow to,3: 383 custodial services, by financial 3:434–435 distressed, 6:146 intermediaries, 5:36–37 and inventory turnover, 3:351–352 external, 5:647 custody fees, 1:266 and inventory write-downs, extinguishment of, 3:615–617 custody of client assets, 1:102 3:432–433 FCF after dividends/debt ratio, 5:617 customers days of sales outstanding (DSO) FFO/debt ratio, 5:617 cash from, 3:291–292 in activity ratio definition,3: 349 fixed-rate, 4:86; 5:352 contractual agreements with, 4:20 and quality of financial reporting, floating-rate, 4:86; 5:352 power of, 5:612 3:714 forgiveness of, 3:183 receipts of, 4:177–180 and receivables turnover, government, 2:262, 316 segregation of, 2:103 3:352–353 in high-yield credit analysis, 5:640–642 shareholder conflicts with,4: 13 day’s sales outstanding, 4:160 leveraging role of, 4:139–140 as stakeholders, 4:10 DB pension plans. see defined-benefit lien, 5:596 supplier conflicts with,4: 13 pension plans long-term The Customers’ Afternoon Letter, 5:78 DBRS. see Dominion Bond Rating on cash flow statement,3: 297 customs union, 2:362 Service disclosure of, 3:619–622 C V. see coefficient of variation DBS Bank, 5:161 and lease disclosure, 3:630–635 CVaR. see conditional value at risk DBS Group Holdings, 5:161 presentation of, 3:619–622 CVC Capital Partners, 3:743 DCFs. see discounted cash flows margin, 1:718–719, 722 CVS Corporation, 4:96 DC pension plans. see defined market value of, 5:274–275 cyclical companies contribution pension plans mortgage, 5:596 credit analysis with, 5:613 DDM. see dividend discount model national, 2:307–309 descriptions related to, 5:190–191 dead cross pattern, 1:708 net, 5:616 growth and defensive companies vs., deadweight loss, 2:356, 357 nonrated, 4:86 5:221 dealer markets. see over-the-counter non-sovereign government, 5:650–652 in investment strategies based on (OTC) markets; quote-driven with optionlike features, 4:86 aggregate demand, 2:165 markets ratio of consumer installment debt to cyclical economic indicators, 2:244–245 dealers income, 2:242 cyclically adjusted budget deficit,2: 317 and arbitrageurs, 5:34–36 secured, 5:595, 596 Cyprus, 2:362n.18, 436 and brokers, 5:30–31 segment debt ratio, 3:386 Czech Republic, 2:287; 3:115; 5:96 in OTC derivatives market, 6:12 seniority rankings of, 5:595–597 primary, 5:30, 364 sovereign, 5:645–650 D risk shifting to, 4:281 credit analysis for, 5:645–650 %D (stochastic oscillator), 1:714–715 dealing securities, 3:275 flexibility and performance profile, Daejan Holdings PLC, 3:523–524 De Beers Consolidated Mines Limited, 5:647–648 Daily Sentiment Index, 1:717 2:97 political and economic profile, daily settlement, 6:18, 19 debentures, 5:307, 595 5:647 Daimler AG, 1:426; 3:366–368; 5:189, debits in Portugal, 5:649–650 209, 269 accounting system, 3:74–75, 78–94 sovereign debt defaults, 5:645–646 DaimlerChrysler, 3:158; 5:168 BOP system, 2:370–371 subordinated, 5:596–597 Damodaran, Aswath, 4:101n.35 DeBondt, Werner, 5:132 Treasury, 1:307 Danish Society of Financial Analysts, debt. see also collateralized debt unsecured, 5:595, 596 1:232 obligations (CDOs) debt burden, 2:308 Danone. see Groupe Danone amount of debt coming due, 5:618 debt covenants, 3:617–619, 684 dark pools, 5:29 analyst adjustments to, 3:768–770 debt financing, for real estate,6: 161,162. data, financial statement bad, 3:46 see also mortgages analysis, 3:33 collateralized debt obligations, 1:142 debt incurrence test, 4:103 collection, 3:32 convertible, 3:192–193 debt instruments, 5:15 interpretation, 3:33 corporate, 5:373–381 debt markets, credit analysis in, 5:592 manipulation, 3:75–76 bank and syndicated loans, debt-rating approach, for cost of debt, misrepresentation, 3:76 5:373–374 4:85–86 processing, 3:33 commercial paper, 5:374–377 debt ratios, 3:361, 362 data mining, 1:603–606; 5:130 corporate notes and bonds, debt securities. see also fixed-income data-mining bias, 1:603–606 5:377–380 securities data snooping, 1:603n.20, 604n.23; 5:130 cost of, 4:84–87 corporate, 5:610–628 data-snooping bias, 3:754–755 after-tax, 4:85 equity vs., 5:155 Daves, Phillip R., 4:95n.25 for capital budgeting, 4:50 and preference shares, 5:159–160 David and Lucile Packard Foundation, company’s, 4:94n.23 debt service coverage ratio (DSCR), 4:219 debt-rating approach, 4:85–86 5:504, 651–652 Davide Campari-Milano S.p.A., defined, 4:84 debt-to-assets ratio, 3:361, 362, 644 5:658–659, 667 estimating, 4:86–87 debt-to-capital ratio, 3:361, 362, 644; Davidson, Russell, 1:634n.15 and governance, 4:30 5:616 day-of-the-week effect,5: 132 and taxes, 4:79 debt-to-EBITDA ratio, 3:384; 5:616

bind 23 June 17, 2017 4:16 PM I-24 Index

debt-to-equity ratio, 3:361, 362, 644; defensive industries, 5:190, 191, 221 delisted companies, 1:607 4:81–82 defensive internal ratio, 3:356, 357 delivery deceit, 1:83 deferred costs, 3:715 of futures, 6:20 decennial pattern, 1:725 deferred coupon bonds, 5:325, 378 of options, 6:26 deciles, 1:423 deferred income, 3:232 and repo rate, 5:387 decision making deferred method of tax recognition, in spot market trading, 5:10 by CFOs, 4:108–109 3:576n.3 Dell Inc. ethical framework for, 1:20–27, 41–42 deferred revenue (unearned revenue) business strategy and financial group, 1:157 accrual accounting, 3:72 performance, 3:329–330 in hypothesis testing, 1:633 analysis of, 3:232–234 cash flow analysis of comparables, ineffective, 4:29 balance sheet, 3:60 3:312–313 time frame for dissemination and, as current liability, 3:232 cash flow and inventory management, 1:112–113 on income statements, 3:156 4:184n.8 decision rule, 1:630–632 deferred tax, 3:582–585 common-size cash flow statement, decisions IFRS vs. US GAAP on, 3:591–594 3:308–310 capital budgeting, investment decision and taxable vs. accounting profit,3: 580 cross-sectional common-size analysis, criteria for, 4:52–68 tax charged to equity, 3:583–585 3:258–260 average accounting rate of return, and valuation allowance, 3:583 evaluation of liquidity measures, 3:358 4:57–58 deferred tax assets two-factor analysis of, 5:209 internal rate of return, 4:53–54 accounting choices about, 3:700–701 delta, 4:272 net present value, 4:52–53 accounting profit vs. taxable income Delta Air Lines, 2:88 payback period, 4:54–57 for, 3:568–571 demand popularity and use of capital changes in tax rates, 3:575–576 aggregate (see aggregate demand [AD]) budgeting methods, 4:66–68 current assets as, 3:230 for commodities, 6:171 profitability index,4: 58 defined, 3:567 in company analysis, 5:230 risk management, 4:243–244 and timing, 3:566 concepts, 2:6–8 decision-useful information, in financial unused tax losses/credits, 3:581–582 derived, 2:355 reports, 3:668–670 deferred tax liabilities elastic, 2:10, 12–14, 71 declaration date, 5:249 accounting profit vs. taxable income elasticity of demand, 2:8–18 decline stage (industry life-cycle), 5:215 for, 3:568–571 calculating, from demand function, declining balance depreciation method, on balance sheets, 3:247 2:16–18 3:494 changes in tax rates, 3:575–576 cross-price elasticity of demand, decomposition defined, 3:567 2:15–18 of ROE, 3:370–375 deficit defined, 2:8 of total risk, 4:378 budget (fiscal),2: 304 income elasticity of demand, 2:14–16 decreasing returns to scale, 2:46 and business cycles, 2:129 own-price elasticity of demand, dedicated short bias strategies, 4:236 and fiscal policy,2: 317–318 2:9–14 deductible temporary differences, and foreign capital, 2:138 excess, 2:339 in taxable/accounting profit, and national debt, 2:307–309 for fixed- vs. floating-rate debt,5: 352 3:577–580 and Ricardian equivalence, 2:316 inelastic, 2:10, 11, 13–14, 71 deeds, trust, 5:305, 626 in current account, 2:377–381 law of demand, 2:6, 18–19, 21, 75 Deepwater Horizon oil spill, 4:37 trade, 2:130, 338 long-run vs. short-run, 2:12 default(s) defined-benefit (DB) pension plans for money, 2:271–274 cross-default provisions, 5:604 accounting for, 3:640 in monopolistic competition, 2:84–85 in forward contracts, 6:15 defined, 3:641 in monopoly, 2:36–37, 98–99 loss given, 5:592 effective duration in,5: 546–547 in oligopoly, 2:88–94 price reaction to, 5:118–119 as investment clients, 4:217 in perfect competition, 2:36–37, recovery rates for, 5:597–600 Monte Carlo simulations for, 1:559 69–76 sovereign debt, 5:645–646 defined-contribution (DC) pension perfectly elastic, 2:12 strategic, 5:488 plans, 3:640–641; 4:216 perfectly inelastic, 2:11 in swaps, 6:23 deflation under perfect vs. imperfect default bonds defined, 2:226 competition, 2:36 binomial model for, 1:539–540 and inflation targeting,2: 290 and spreads on corporate bonds, 5:631 recovery rates on, 1:644–646 and liquidity traps, 2:298 unit elastic, 2:10 default interest rate, 5:505 and quantitative easing, 2:298–299 demand and supply analysis, 2:5–61 default probability, 5:592 degree of confidence,1: 595 consumers, 2:6–23 default rates degree of financial leverage (DFL) demand concepts, 2:6–8 for collateral, 5:503 defined, 4:137 elasticity of demand, 2:9–18 by credit rating, 5:605–606 and degree of total leverage, 4:142–143 substitution and income effects, and credit risk/return, 5:635–636 degree of operating leverage (DOL) 2:18–23 default risk. see also credit risk calculating, 4:135 firms, 2:23–48 attributes and safety measures, 4:171 defined, 4:130 marginal returns, 2:23–28 in credit risk, 5:592, 593 and degree of total leverage, 4:142–143 scale and profit maximization, defined, 4:261 and financial risk,4: 140–142 2:43–48 governance and, 4:29, 30 and operating risk, 4:130–135 shutdown analysis, 2:28–43 shareholder vs. creditor interests, 4:13 degree of total leverage (DTL), in microeconomics, 2:5–6 default risk premium, 1:307, 496–497 4:141–143 for money, 2:272–274 defeasance, 5:505 degrees of freedom (df), 1:598, 599, 644 practice problems, 2:51–57 defensive companies, 2:165 Delafield Fund,1: 435 solutions to problems, 2:58–61

bind 24 June 17, 2017 4:16 PM Index I-25

demand curves defined, 3:24, 59, 177 solutions to problems, 6:114–117 aggregate diminishing balance, 3:178–180 storage in, 6:46–47 example, 2:147–148 double-declining balance, 3:179, valuation vs. pricing, 6:72–73 features of, 2:145 494–498, 702–705 purposes of, 6:39–41, 44–45 interest rates and income effects, and economic vs. accounting costs, risk shifting with, 4:279–281 2:146–147 2:28 solutions to problems, 6:56–58 investment strategies based on, in elasticities approach, 2:445–449 types of, 6:14–39 2:171–172 and expense recognition on income underlyings for, 6:36–39 defined, 2:8 statements, 3:178–180 uses of, 6:7–9 effect of income elasticity on,2: 15 of long-lived assets, 3:493–501 valuation of, 6:45–52 elasticity of linear, 2:11 calculation of depreciation expense, binomial valuation of options, kinked, 2:89–90, 95 3:499–501 6:100–104 and law of demand, 2:18 financial reporting quality issues, forward commitments, 6:73–85 of leaders in oligopoly, 2:95 3:701–705, 711 pricing vs. valuation, 6:72–73 as marginal value curve, 2:75 methods, 3:493–499 derivatives market, 6:9–14 in monopolies, 2:98–99 plant, property, and equipment, exchange-traded, 6:10–11, 13–14 in monopolistic competition, 2:84–85 3:236, 761–762 over-the-counter, 6:11–14 negatively sloped, under imperfect and quality of financial reporting, size of, 6:38–39 competition, 2:40–41 3:715–716 derivatives pricing rule, 5:57 in oligopolies, 2:88–90, 95 straight-line derived demand, 2:355 in perfect competition, 2:77–78 and balance sheet, 3:702–705 descending triangle pattern, 1:704–705 demand functions bond premium/discount descriptions of securities, 1:169–170 defined, 2:6–7 amortisation, 3:609 descriptive statistics, 1:391 elasticities from, 2:16–18 calculation, 3:494 destabilization, economic, 6:43–44 inverse, 2:8 defined, 3:493 detection demand-pull inflation,2: 233, 235–236 depreciation/amortisation, 3:177–178 of financial reporting issues,3: 690–718 demand schedules, 2:71–73 double-declining and units-of- accounting choices and estimates, demand shock to inflation rate,2: 297 production methods vs., 3:494–498 3:696–713 demographic influences units-of-production, 3:493–498, areas of choice/estimate and analyst on housing sector, 2:211 702–705 concerns, 3:710–713 in industry analysis, 5:203, 223–224 useful life and residual value in, presentation choices, 3:691–696 and industry life-cycle, 5:217 3:177–180 warning signs, 3:713–718 in sovereign credit analysis, 5:647 depreciation expenses, 3:499–501, 512 as part of supervision, 1:147–148 in strategic analysis, 5:220 depressions, 2:201 Detroit “Big Three” automakers,2: 100 de Moivre, Abraham, 1:545 derecognition Deutsche Bank, 1:426; 2:412, 414; 5:166 Denmark of debt, 3:615–617 Deutsche Börse, 5:29, 152, 209, 333; 6:9 domestic and international debt of long-lived assets, 3:509–511 Deutsche Bundesbank, 2:278, 435 securities, 5:315 derivative contracts, 5:15 Deutsche Securities, 5:30 equity risk premiums, 4:91 derivative expiration days, 1:655–656 Deutsche Telekom AG, 1:425; 5:272–273 exchange rate regime, 2:436, 441 derivatives, 3:242; 6:5–58 Deutsche Vereinigung für Finanzanalyse GIPS sponsor, 1:232 benefits of,6: 41–42 und Asset Management, 1:233 MSCI multi-market index, 5:96 beta for, 4:272 developed countries real equity returns, 1:400 characteristics of, 6:8–9 bond markets, 5:355 residential mortgage loans, 5:486–488 contingent claims, 6:25–35 business investment by, 2:177 returns on bonds, bills, and equities, asset-backed securities, 6:33–35 foreign exchange reserves, 2:414 5:153 credit derivatives, 6:30–33 international trade and unemployment, total returns, 1:408, 412, 424 forward commitments vs., 6:35–36 2:344 Department of Labor, U.S. (DOL), 4:37 options, 6:25–30, 33 developing countries departments, physical separation of, 1:89 criticisms of, 6:42–45 business investment by, 2:177 dependent events, 1:485 defined, 6:6, 60–62 exchange rate targeting, 2:293–296 dependent samples, hypothesis tests for, forward commitments, 6:14–25 foreign exchange reserves, 2:414 1:646–650 contingent claims vs., 6:35–36 labor supply, 2:176 depletion (term), 3:493n.12 forward contracts, 6:14–17, 24, monetary policy of, 2:292–293 depositary receipts (DRs), 5:18, 166–169 73–80 reserve requirements, 2:285 depositories, 5:19, 37 futures contracts, 6:17–21, 24, 80–82 terms of trade for, 2:337–338 depositors, in securitization process, pricing, 6:73–85 trade-to-GDP ratio, 2:340 5:478 swaps, 6:21–25, 82–85 development capital, 6:148–149 depository banks, 5:166 hedging with, 6:67–68 development costs depository institutions, 5:32–33 hybrid, 6:35 internal, 3:489–493 deposits, retail, 5:385 markets for, 6:9–14, 38–39 and taxable/deductible temporary depreciation practice problems, 6:54–55 differences, 3:579 in absorption approach, 2:450 pricing, 6:45–52, 59–117 and tax bases of assets, 3:572–573 accelerated, 3:178–180, 493 about, 6:60 development phase (intangible assets), accumulated, 3:46 arbitrage and, 6:47–52, 66–72 3:238 average age of depreciable assets, definition of derivatives,6: 60–62 deviation. see also standard deviation 3:520–522 forward commitments, 6:73–85 from intrinsic value, 1:682 component method, 3:499–501 options, 6:85–100, 104–107 mean absolute deviation, 1:431–433 currency, 2:420 practice problems, 6:109–113 semideviation, 1:439, 440 declining balance, 3:494 pricing underlying assets, 6:62–66 de Villiers, Victor, 1:688

bind 25 June 17, 2017 4:16 PM I-26 Index

DeVry University, 5:210 direct method for cash flow from of leases, 3:628–635 de Wolff, Samuel,1: 724 operating activities, 3:706 level of service, 1:114 df. see degrees of freedom direct method for overall statement of of LIFO liquidations, 3:422–424 DFL. see degree of financial leverage cash flows,3: 297–298 of long-term debt, 3:619–622 DHL International, 5:209 adjustments to net income, 3:297–298 and market efficiency,5: 122 Diageo, 5:209 converting indirect and, 3:301–302 market regulators’ requirements of, differentiation strategy, for companies, defined, 3:23, 278 3:686 5:228 directors, conflicts of interest for, of material information, 1:88–89, 92 diffuse priors,1: 510 1:179–180, 182–183. see also board and monitoring of financial reporting diffusion index,2: 242n.a, 244 members standards, 3:135–138 diligence, 1:155, 163 direct ownership, of real estate, in notes to financial statements,3: 127 Diligence and Reasonable Basis 6:160,161 of pension plans, 3:642–643 [Standard V(A)], 1:154–165 direct taxes, 2:311, 314 of performance calculation application of the standard, 1:158–165 direct write-off method,3: 176 methodology, 1:128–129 compliance procedures, 1:158 dirty floating,2: 440 of personal investing policies, 1:188 guidance, 1:154–157 disbursement float,4: 186 of personal trading, 1:188, 189 diligence and reasonable basis Disciplinary Review Committee (DRC), of possible illegal activity, 1:132 defined, 1:155 1:37–38 and presentation of long-lived assets, group research and decision making, disciplining mechanisms for financial 3:511–524 1:157 reporting quality, 3:684–690 Daejan Holdings PLC, 3:523–524 quantitatively oriented research, auditors, 3:687–688 fixed asset turnover and average age 1:156–157 market regulatory authorities, of depreciable assets, 3:520–522 quantitatively oriented techniques, 3:685–687 Vodafone Group Plc, 3:513–518 1:157 and motivation for manipulation, of referral arrangements, 1:190–192 secondary or third-party research, 3:689–690 of revaluation model for long-lived 1:155–156 private contracts, 3:688 assets, 3:505–506 selecting external advisers and disclaimer of opinion, 3:28 of revenue recognition, 3:171 subadvisers, 1:157 Disclosure (GIPS Section I.4), 1:239–242 selective, 1:92, 114, 116 text of, 1:46, 154 about, 1:234 on social media, 1:117 Dillards, Inc., 1:414 recommendations standards for exchanges, 5:29 diluted earnings per share, 3:190–196 general, 1:242 trade allocation procedures, 1:114 with antidilutive securities, 3:195–196 for private equity, 1:252 disclosure management, 3:676n.7 defined, 3:188 for real estate, 1:248 Disclosure of Conflicts [Standard VI(A)], if-converted method, 3:190–192 requirements 1:177–184 for stock options, 3:195 general, 1:239–242 application of the standard, treasury stock method, 3:193–195 for private equity, 1:250 1:180–184 in valuation ratios, 3:377–379 for real estate, 1:246 compliance procedures, 1:180 diluted shares, 3:18 for real estate closed-end fund guidance, 1:177–180 diminishing balance depreciation, composites, 1:247 conflicts as a director,1: 179–180 3:178–180 for wrap fee/SMA portfolios, 1:253 cross-departmental conflicts,1: 179 diminishing marginal productivity, disclosure(s) disclosure to clients, 1:178–179 2:174–175 of bonds with warrants, 3:621–622 disclosure to employers, 1:178 diminishing returns, law of, 2:79 of confidential information,1: 132–133 stock ownership conflicts,1: 179 Dimson, Elroy, 4:90 of conflicts of interest,1: 105 text of, 1:46, 177 direct capitalization approach to real control deficiency,1: 639–641 discontinued operations, on income estate valuation, 6:165 of debt and financial instruments, statements, 3:182 direct currency quote, 2:418 3:613–615 discount(s) direct debit programs, 4:178 of debt covenants, 3:618–619 bonds issued at, 3:607–611 directed brokerage, 1:104 of debt extinguishment, 3:616–617 bonds trading at, 5:403–406 direct exchange rate, 2:418 and financial reporting quality,3: 717 closed-end investment fund, direct financing leases and financial reporting standards, 5:133–134 defined, 3:542, 636 3:135–138 forward, 2:425 and financial statements,3: 538–543, disclosures relating to accounting and T-bills, 1:377 640 policies, 3:135–137 and time value of money, 1:306 initial recognition and measurement disclosures relating to changes in trade, 4:187–188 of, 3:636–638 accounting policies, 3:137–138 discount bonds, 5:531, 551 US GAAP on, 3:635, 636 at General Electric, 3:138 discounted cash flows (DCFs),1: 361– direct-format statements at Volkswagen, 3:136–137 388. see also present value models benefits of,3: 279 by hedge funds, 6:147 in equity valuation, 5:246–247 defined, 3:68 of income tax information, 3:586–591 internal rate of return, 1:364–369; under IFRS, 3:282–284 and financial analysis,3: 590–591 4:67n.5 for Telefónica Group, 3:282–284 Micron Technology, Inc., 3:586–591 evaluating R&D programs with IRR direct investment(s) of interdepartmental referral rule, 1:365–366 defined, 1:266 arrangements, 1:191 NPV and IRR rules, 1:366–367 in infrastructure assets, 6:174 interim period, 3:171n.25 problems with IRR rule, 1:367–369 in non-domestic equity securities, of inventory information, 3:434 money market yields, 1:376–381 5:165–166 of investment property, 3:524–525 bank discount yield, 1:377–378 Private Equity (GIPS Section I.7), 1:252 of investment system, 1:169, 171 discount rate, 1:380–381 in real assets, 5:26 of issuer-paid research, 1:76 net present value, 1:362–364

bind 26 June 17, 2017 4:16 PM Index I-27

portfolio return measurement, disposable income and portfolio risk, 4:326, 330–335 1:369–376 and balance of payments, 2:378 with private equity, 6:155–156 money-weighted rate of return, defined, 2:209 with real estate, 6:158, 163–165 1:370–371, 374–376 and MPC, 2:315 as risk modification method,4: 277 time-weighted rate of return, personal, 2:134 and Suitability [Standard III(C)], 1:371–376 disposal, of long-lived assets, 3:510–511 1:120 practice problems, 1:383–385 dissemination of information, 1:88, diversification ratio,4: 212 in private equity valuation, 6:157 112–113, 189–190 divest (term), 5:8 in real estate valuation, 6:166 dissociation, 1:54–56 dividend discount model (DDM) solutions to problems, 1:386–388 distinct business entities, 1:236, 267 for cost of common equity, 4:93 and time value of money, 1:361 distressed debt, valuation of, 6:146 for cost of equity, 4:92; 5:178 discounted payback period, 4:56–57 distressed investing (private equity), in decision-making by CFOs’, 4:108 discounted receivables, 4:190 6:149, 153 defined, 5:246 discounted securities, yields of, distressed property investments, 6:167 description, 5:251–254 4:169–170 distressed/restructuring strategy, for dividends and, 5:248–250 discounting, 5:16, 246–247 hedge funds, 6:136 Gordon growth model vs., 5:260 discount interest, 4:169 distributional characteristics of assets, as present value model for equity discount margin, 5:426–429 4:312–314 valuation, 5:248–264 discount rate(s) kurtosis, 4:313–314 three-stage, 5:262 and federal funds rate, 2:284 skewness, 4:312–313 two-stage, 5:261–264 for money market yields, 1:380–381; distribution area laws, 1:54 dividend income, taxes on, 4:302 5:429–430 distribution-free tests, 1:656n.27 dividend-payout ratio, 3:377, 379 discount securities, return for, distributions, 1:249, 267 dividend per share (DPS), 3:377; 1:379 F-distribution, 1:746–749 5:278–280 discount yield, bank, 1:377–378, 380 frequency, 1:393–401 dividend reinvestment plans (DRPs), 5:52 discouraged worker, 2:223 construction of, 1:394–396, 400–401 dividends discrete random variables, 1:529–541 cumulative, 1:404–405 calculating, from DDM, 5:261 binomial distribution, 1:532–541 defined, 1:393 on cash flow statement,3: 297 evaluating block brokers with, and holding period formula, 1:394 and DDM, 5:248–250 1:533–534, 536–537 and relative frequency, 1:396–400 defined, 5:248 and expected defaults in bond normal FCF after dividends/debt ratio, 5:617 portfolio, 1:539–540 confidence intervals for population and free cash flow,5: 616 and one-period stock price as mean with, 1:596 and Gordon growth model, 5:257, 260 Bernoulli random variable, cumulative probabilities for, payments-in-lieu of, 5:40 1:532–533 1:742–743 on preference shares, 5:159–160 and tracking objectives, 1:538 hypothesis tests of normally- reinvested, 5:169–170 discrete uniform distribution, distributed populations, 1:635–638, at Viacom Corporation, 5:157 1:530–532 642–650, 653 dividends receivable, 3:572, 579 discretionary cash flow to debt,3: 383 reliability factors for confidence divisor, price return index, 5:79 discretionary goods, 2:12 intervals based on, 1:596–597, DJIA. see Dow Jones Industrial Average discretionary portfolios, 1:262 600–601 “The Doctrine of No Surprises,”4: 246 discriminatory pricing rule, 5:56 skewed vs., 1:448–451 documentary credit accounts, 4:176 diseconomies of scale, 2:44–47 standard, 1:742–743 documentation, of trade allocation disinflation, 2:226, 227 Student’s t-distribution vs., procedures, 1:113 disintermediation, 5:475 1:598–599 documents, former employers’, 1:138 dispersion, 1:430–448 probability (see probability Dodd–Frank Act. see Wall Street Reform absolute, 1:430 distributions) and Consumer Protection Act Chebyshev’s inequality, 1:441–443 sampling, 1:586, 594 (2010) coefficient of variation,1: 443–445 t-distribution Dogs of the Dow Strategy, 1:605n.25 internal and confidence interval for DOH. see days of inventory on hand defined, 1:268 population mean, 1:599–600 doji, 1:687–688 Disclosure (GIPS Section I.4), 1:240 defined, 1:634–635 DOL. see degree of operating leverage Presentation and Reporting (GIPS and estimation of normal sampling dollar, Australian Section I.5), 1:243 distribution, 1:597 AUD/HKD exchange rate, 2:404–406, Real Estate (GIPS Section I.6), 1:247 normal distribution vs., 1:598–599 410–412 Verification (GIPS Section IV), table, 1:744 currency code, 2:401 1:263 divergence, 1:698, 710 exchange rate quotes with, 2:418, mean absolute deviation, 1:431–433 diversification 419n.4 population variance and standard with alternative investments, 6:125, international bonds outstanding in, deviation, 1:433–436 127, 132 5:351 range, 1:431–433 with commodities, 6:170–171 trade balance and exchange rate for, relative, 1:443 as credit analysis factor, 3:749 2:450–453 sample variance and standard and employee stock options, 4:208– USD/AUD currency pair, 2:416 deviation, 1:436–439 210, 334, 427 dollar, Canadian, 2:401 semivariance and semideviation, with hedge funds, 6:138–139 CAD/USD currency pair, 2:416 1:439–440 and investing in portfolios vs. single in cross-rate calculations, 2:421–422 Sharpe ratio, 1:445–448 equities, 4:208–210 exchange rate quotes with, 2:419 displayed orders, 5:47–48 and Loyalty, Prudence, and Care international bonds outstanding in, display size, of orders, 5:47 [Standard III(A)], 1:105 5:351

bind 27 June 17, 2017 4:16 PM I-28 Index

dollar, Hong Kong, 2:401 as gauge of market sentiment, 5:93 curve, 5:538, 545, 548, 562 AUD/HKD exchange rate, 2:404–406, with inverse head and shoulders defined, 4:272; 5:538 410–412 patterns, 1:701 dollar, 5:557 exchange rate regime for, 2:438–439 on linear vs. logarithmic scale, effective international bonds outstanding in, 1:690–691 calculating, 5:545–548 5:351 presidential cycle, 1:725 of callable bonds, 5:553–554 dollar, New Zealand, 2:401, 418, 419n.4 price weighting of, 5:83 of putable bonds, 5:554 dollar, Singapore, 2:401 quadruple witching days, 1:655–656 inflation, 5:574 dollar, US, 2:401 support and resistance, 1:695–696 key rate, 5:549 CAD/USD currency pair, 2:416 Dow Jones Railroad Average, 1:683 liquidity, 5:574 CNY/USD exchange rate, 2:403–404 Dow Jones Transportation Average, 5:78 Macaulay cross-rate calculations with, 2:421–422 downgrade risk, 5:593 calculating, 5:538–542 as currency anchor, 2:436–437, 439, downside risk and interest rate risk/investment 440 and diversification in portfolios, horizon, 5:569–574 exchange rate quotes with, 2:418–421 4:213–215 and modified duration,5: 549–551 as exchange rate target, 2:294 measures of, 6:178–179 of portfolio, 5:555–557 foreign exchange gains, 5:169 and returns, 6:131 modified foreign exchange reserves, 2:413–414 and Sharpe ratios, 6:130–131 annual, 5:542–544 forward calculations with, 2:425–426 down transition probability, 1:540 approximate, 5:543–545 gold standard for, 2:434 downtrends, 1:694 calculating, 5:542–543 international bonds outstanding in, downturn, 2:203–204 and credit risk/return, 5:633–635 5:351 capital spending in, 2:206 and effective duration,5: 547–548 JPY/USD currency pair, 2:416 housing sector in, 2:210 and Macaulay duration, 5:549–551 as reserve currency, 5:19 inventory–sales ratio in, 2:207 of portfolio, 5:555–557 spot market trading of, 5:10 resource use in, 2:204–206 money, 5:557–559, 572 USD/AUD currency pair, 2:416 Dow Theory,1: 725, 728 OAS, 5:548 USD/EUR currency pair, 2:416 DPI. see realization multiple partial, 5:549 USD/EUR exchange rate, 2:409 DPS. see dividend per share properties of, 5:549–554 USD/GBP currency pair, 2:416 drag on liquidity, 4:158–159 real rate, 5:574 dollar–Canada exchange rate, 2:418, DRAM & Flash Product, 5:209 and return, 5:530 421–422 drawdown, hedge funds, 6:144–145 yield, 5:538, 545, 548, 562 dollar duration, 5:557 DRC. see Disciplinary Review DURATION financial function,5: 541n.2 dollarization, 2:437–438 Committee duration gap, 5:573 dollar-weighted return, 1:370n.9 Dreyer’s Grand Ice Cream Holdings, Durbin-Watson statistic, 1:750 dollar–yen exchange rate, 1:465; 2:418, Inc., 5:159 Dutch Book Theorem,1: 480 422–423 DRPs. see dividend reinvestment plans Duties to Clients [Standard of domestic bonds, 5:313, 314, 354 DRs. see depositary receipts Professional Conduct III], domestic content provisions, 2:356 dry-bulk shipping industry, 5:211–212 1:101–133 Dominion Bond Rating Service (DBRS), DSCR. see debt service coverage ratio Fair Dealing [Standard III(B)], 5:602 DSO. see days of sales outstanding 1:110–118 donations, 3:574, 579, 580 DTL. see degree of total leverage application of the standard, double bottoms, 1:702, 703 dual-class share structure 1:114–118 double coincidence of wants, 2:265 and controlling–minority shareholder compliance procedures, 1:112–114 double-declining balance depreciation relationships, 4:12–13 guidance, 1:110–112 acceleration factor in, 3:179 and voting control, 4:31–32 text of, 1:45, 110 on financial statements,3: 702–705 dual-currency bonds, 5:301–302 Loyalty, Prudence, and Care [Standard of long-lived assets, 3:494–498 dual listing, of shares, 5:164–165 III(A)], 1:101–109 other depreciation methods vs., Dubai International Financial Exchange, application of the standard, 3:494–498, 702–705 5:167 1:106–109 double-entry accounting, 3:51 due diligence compliance procedures, 1:105–106 double tops, 1:701–703 and failed investments, 1:163 guidance, 1:101–105 doubtful accounts, 3:176, 711 in financial research and analysis,1: 61 text of, 1:45, 101 Douglas, Roger, 2:287 for hedge fund investing, 6:146–148 Performance Presentation [Standard Dow, Charles, 1:681–683, 725; 5:78, 83 for private equity investments, 6:158 III(D)], 1:125–129 Dow Chemical, 1:546n.17 and risk management for alternative application of the standard, Dow Dividend Strategy, 1:605n.25 investments, 6:178–180 1:126–129 Dow Jones 30 Index, 4:380 in submanager selection, 1:160–161 compliance procedures, 1:126 Dow Jones Average, 5:78 sufficient, 1:158, 161–162 guidance, 1:125–126 Dow Jones & Company Dun & Bradstreet, 3:338 text of, 1:45, 125 company classifications,5: 192 duopoly markets, 2:90–93 Preservation of Confidentiality formulation of Nikkei Stock Average, DuPont, 2:73 [Standard III(E)], 1:129–133 5:103 DuPont analysis, 3:370–375 application of the standard, ICB development, 5:192 durable goods, 2:209 1:131–133 Dow Jones Industrial Average (DJIA), Duracell, 2:64 compliance procedures, 1:131 1:681, 683 duration guidance, 1:129–130 and correlations, 4:332 approximate modified,5: 543–545 text of, 1:45, 129 creation of, 5:78 of bond portfolio, 5:555–557 Suitability [Standard III(C)], 1:118–125 decennial pattern, 1:725 credit, 5:546, 574 application of the standard, features of, 5:103 and credit risk/return, 5:634–635 1:122–125

bind 28 June 17, 2017 4:16 PM Index I-29

compliance procedures, 1:121–122 in credit analysis, 5:615 economic growth, 2:173–185 guidance, 1:118–121 EBIT/interest expense ratio, 5:617 and aggregate demand, 2:155 text of, 1:45, 118 and operating profit,3: 18, 155 in China, 2:179 Duties to Employers [Standard earnings management, 3:676–677 in Mexico, 2:182 of Professional Conduct IV], earnings per share (EPS), 1:391 production function and potential 1:133–154 basic, 3:188–190, 377, 378 GDP, 2:174–175 Additional Compensation changes in, 3:196–197 and real GDP, 2:173 Arrangements [Standard IV(B)], defined, 3:18 RTAs and spillovers of, 2:364 1:144–145 diluted, 3:190–196 sources of, 2:176–179 application of the standard, with antidilutive securities, sustainable, 2:173, 179–185 1:144–145 3:195–196 and trade, 2:340–341 compliance procedures, 1:144 defined, 3:188 economic indicators, 2:239–246 guidance, 1:144 if-converted method, 3:190–192 cyclical measures as, 2:244–245 text of, 1:46, 144 for stock options, 3:195 defined, 2:239 Loyalty [Standard IV(A)], 1:133–143 treasury stock method, 3:193–195 diffusion index of,2: 244 application of the standard, in valuation ratios, 3:377–379 leading, lagging, and coincident, 1:137–143 EBITDA per share, 3:377 2:239–243 compliance procedures, 1:137 equity valuation with, 5:278–280 economic infrastructure assets, 6:174 guidance, 1:133–137 forecasting, 1:485–486, 488–496 economic loss, 2:40 text of, 1:45–46, 133 on income statements, 3:151n.5, economic moat, 2:68 Responsibilities of Supervisors 187–197 economic order quantity–reorder point [Standard IV(C)], 1:146–154 interpretation of, 3:378–379 (EOQ-ROP) approach, 4:183 application of the standard, mean and median, 1:412–413 economic profit(s) 1:150–154 and simple vs. complex capital defined, 2:28, 77 compliance procedures, 1:148–150 structure, 3:188 marginal revenue and maximization eleventh edition revision, 1:36 earnings reports, 3:717 of, 2:29 guidance, 1:146–148 earnings smoothing, 3:670 in monopolistically competitive text of, 1:46, 146 earnings statements, 3:50–51, 70, 152 markets, 2:85, 86 duty of care, 4:22 earnings surprises, 5:134–135 in strategic analysis, 5:204 duty of loyalty, 4:22 East Asian Financial Crisis (1990s), economics, 2:5 dynamic random access memory, 5:210 2:384 economic sectors Dynegy Inc., 3:708 Eastern Europe. see also specific business/corporate, 2:128; 5:349 countries defined, 5:189 E current account imbalance, 2:380 economic sensitivity of, 5:190–191 EADS. see European Aeronautic Defense debt and equity outstanding, 5:350 energy, 4:39, 40; 5:193 and Space Company trade-to-GDP ratio, 2:340 external trade, 2:130–131, 211–213 EAFE Index. see MSCI Europe, East Timor, 2:437 financial and financial services,2: 383; Australasia, and Far East Index easy fiscal policy,2: 321 5:193, 349 EAR. see effective annual rate easy monetary policy, 2:321 in GDP, 2:127–131 early amortization provisions, 5:512 EAY. see effective annual yield government and government-related, early exercise, of American options, eBay, 2:98 2:129–130; 5:348–349 6:104–106 EBIT. see earnings before interest and household, 2:119–120, 128 early expansion phase (business cycle), taxes housing, 2:210–211 2:201–203 EBITDA. see earnings before ICB definition,5: 192 early repayment option, 5:488 interest, taxes, depreciation, and information technology, 2:178 earnings amortization mortgage, 5:491n.9 accounting choices/estimates and, EBITDA interest coverage, 3:383 private, 5:647 3:697–706 EBITDA/interest expense ratio, 5:617 public, 2:263; 5:647 announcements of, 3:8–11 EBITDA per share, 3:377 representative, 5:193–194 price to earnings ratio, 3:376, 377 EBIT interest coverage, 3:383 sector specific strategies, for hedge quality of, 3:666, 667, 676 EBIT/interest expense ratio, 5:617 funds, 6:138 retained, 3:50–51, 70, 248 ECB. see European Central Bank Economic sentiment index, 2:242 sustainability of, 3:668–670 Echo Boomers, 5:224 economic stabilization, fiscal policy and, earnings announcements, 5:134–135 ECNs. see electronic communications 2:304 earnings before interest, taxes, networks economic structure, in sovereign credit depreciation, and amortization e-commerce, 4:186–187 analysis, 5:647 (EBITDA) econometric approach, in market economic unions, 2:362–366 adjusted, 3:692 structure identification,2: 106 economies of scale in credit analysis, 5:615 economic activity from international trade, 2:343, 344 debt/EBITDA ratio, 5:616 in business cycle, 2:200–202 and monopolies, 2:97 EBITDA/interest expense ratio, 1:544; risk and, 4:243 for profit maximization,2: 44–47 5:617 economic conditions, yield spread and, economy enterprise value/EBITDA ratio, 5:645 5:631 aggregate output and income in, in enterprise value multiples, 5:274 economic costs, 2:28, 38, 77 2:119–120 on financial reports,3: 672 Economic Cycle Research Institute barter, 2:123, 265 for leveraged buyouts, 6:150 (ECRI), 2:239 business cycles as short-term for private equity, 6:156–157 economic depreciation. see depreciation movements, 2:199–200 earnings before interest and taxes economic destabilization, 6:43–44 closed, 2:338, 377–378 (EBIT) economic goodwill, 3:240 and government debt, 2:262

bind 29 June 17, 2017 4:16 PM I-30 Index

economy (continued) and budget constraints, 2:71 employer(s). see also Duties to IMF monitoring of, 2:382 calculating, from demand function, Employers [Standard of Professional influence of fiscal and monetary policy 2:16–18 Conduct IV] on, 2:262–264 cross-price, 2:15–18, 73 competing with current, 1:140 open, 2:338, 343, 377, 378 defined, 2:8 disclosure of conflicts to,1: 178, 184 and securitization, 5:474–476 income, 2:14–16, 72–73 former, 1:127, 138 underground, 2:123–124 in oligopolies, 2:88 leaving, 1:134–135, 143 E C P. see Eurocommercial paper market own-price, 2:9–14 misrepresentation of work for, 1:74 ECRI. see Economic Cycle Research in perfect competition, 2:70–74 responsibilities of, 1:134 Institute and trade balance, 2:445–449 Employers’ Accounting for Defined Ecuador, 2:436, 437; 3:116 of linear demand curve, 2:11 Benefit Pension and Other EDGAR. see Electronic Data Gathering, of supply, 2:8 Postretirement Plans (SFAS 158), Analysis, and Retrieval System and trade balance, 2:445–449 3:737 EDI. see electronic data interchange electric utilities, 2:66, 97 employment EDRs. see European Depositary Receipts electronic communications networks business cycle and, 2:202, 204–205 education (ECNs), 5:29–30 nature of, 1:136–137 compliance, 1:149 Electronic Data Gathering, Analysis, and employment contracts, 4:19 and human capital, 2:176 Retrieval System (EDGAR), 3:110 EMU. see European Economic and effective annual rate (EAR),1: 315; electronic data interchange (EDI), Monetary Union 5:420 4:186–187 ending inventory effective annual yield (EAY),1: 379–381 electronic funds transfer (EFT), and inflation,3: 413–414 effective convexity,5: 566–567 4:178–180 and inventory valuation method, 3:404, effective date, GIPS,1: 231 electronic information, confidentiality 408–410 effective duration of, 1:130 in periodic vs. perpetual inventory calculating, 5:545–548 Elliott, R. N., 1:725–727 systems, 3:410–412 of callable bonds, 5:553–554 Elliott Wave Theory,1: 725–728 endogeneity, problem of, 2:106 of putable bonds, 5:554 El Salvador, 2:436, 437; 3:116 endowments, 4:218–220; 6:127 effective interest rate,3: 605, 609 embedded options, 5:329, 424. see also Enel, 1:425 efficiency. see also market efficiency callable bonds; putable bonds Energizer, 2:64 of capital allocation, 5:13–14 EMBI Global. see J.P. Morgan Emerging energy estimator, 1:594 Market Bond Index Global as commodity, 6:167,168 of financial systems,5: 58–59 embryonic stage (industry life-cycle), speculators on, 6:43n.20 of tax policy, 2:311 5:214 energy mutual funds, 6:170 efficient frontier,4: 336–348 EMC, 5:209 energy sector, 4:39, 40; 5:193 indifference curve,4: 342–343 Emerging Market High Yield Fixed energy unit trusts, 6:170 investment opportunity set, Income Composite, 1:294 enforcement, by market regulators, 4:336–337 emerging markets 3:686 investor preferences and optimal bond, 5:355 ENI, 1:426 portfolio, 4:347–348 capitalization level and contributions Enron Corporation Markowitz, 4:339, 367–368 to global GDP, 5:151 credit ratings of, 5:608 minimum-variance portfolios, fixed-income securities for,6: 146 departures from GAAP at, 3:677 4:337–339 hedge funds in, 4:236 employees’ stock holdings in, portfolio selection example, 4:342–347 securitization in, 5:475 4:208–209 for risk-free assets, 4:339–342 sovereign debt of, 5:646 ethical lapses, 1:6 and strategic asset allocation, technical analysis for, 5:125 interactions between risks at, 4:436–437 World Bank definition of,5: 646n.42 4:268 efficient market(s) empirical probability, 1:478 low-quality financial reports issued by, arbitrage opportunities in, 6:50, 138 employed (term), 2:222 3:684 derivatives market at, 6:42 employee benefit plans,4: 23 poor governance and stakeholder description of, 5:117–119 Employee Benefits (IAS 19), 3:641n.15 management at, 4:28 intrinsic value in, 5:119–120 employee representatives, 4:21 situational influences on ethics, semi-strong-form, 5:125–128 Employee Retirement Income Security 1:13–14 strong-form, 5:128 Act of 1974 (ERISA), 4:37 and technical analysis, 1:684 weak-form, 5:125, 128, 129 employee rights, 4:19–20 enterprise, NAICS definition,5: 197 efficient market hypothesis,5: 124, employees enterprise risk management, 4:22 128–129 cash to, 3:293–294 defined, 4:247 EFSF. see European Financial Stability checking references of, 1:82 process for, 4:249–251 Facility classifications of,1: 137 risk governance in, 4:253–255 EFT. see electronic funds transfer as company stakeholders, 4:9 risk tolerance in, 4:256 Egypt, 2:437; 3:117; 5:96 independent contractors vs., 1:136 enterprise value (EV), 5:645 Egyptian Financial Supervisory material nonpublic information for, enterprise value multiples, 5:247 Authority, 3:109n.9 1:91 enterprise value/EBITDA ratio, Ehrhardt, Michael C., 4:95n.25 net income/revenue per employee, 5:645 EIB. see European Investment Bank 3:380 in models for equity valuation, 18-year cycle, 1:724 on non-agricultural payrolls, 2:241 5:273–276 elastic demand, 2:10, 12–14, 71 employee stock options, diversification entertainment elasticity(-ies) and, 4:208–210, 334, 427 with clients, 1:67 defined, 2:9; 4:130 employee stock ownership plans with related parties, 1:66–67 of demand, 2:8–18 (ESOPs), 4:19 entry fee, 2:104

bind 30 June 17, 2017 4:16 PM Index I-31

environmental, social, governance (ESG) in equity valuation models, 5:246, and portfolio composition, 4:212–213 considerations, 4:36–40 252–253 and risk–return tradeoff,4: 210–212 about, 4:6 minority equity investing, 6:153 liquidity and issuance of, 5:639 governance (see corporate governance) owners’ non-domestic, 5:164–169 implementation methods, 4:39–40 accounting equation, 3:48–49 depositary receipts, 5:166–169 in investment analysis, 4:38–39 defined, 3:12, 46, 218 direct investing in, 5:165–166 in investment policy statements, statement of, 3:70 practice problems, 5:180–183 4:426–427 in residential properties, 6:161 private vs. public, 5:162–164 market overview, 4:37–38 shareholders’, 3:218, 485; 5:174 return characteristics, 5:169–170 environmental projects, capital statement of changes in equity, returns on budgeting for, 4:49 3:250–252 global comparison of returns, E.ON, 1:425 Apple Inc., 3:251–252 5:152–154 EOQ-ROP approach. see economic and balance sheet, 3:250–252 hedge fund vs. equity returns, 6:139 order quantity–reorder point defined, 3:12 risk characteristics, 5:170–171 approach for financial statement analysis,3: 20, screening, 3:752–756 EPRA. see European Real Estate 21 example, 3:753 Association tax charged to, 3:583–585 ratio-based, 3:755–756 EPS. see earnings per share total debt to total debt plus equity solutions to problems, 5:184–185 equal cash flows ratio, 3:384 types of, 5:155–161 future value of series with, 1:317–318 total liabilities-to-equity ratio, 3:421 common shares, 5:156–159 future value of series without, 1:318 equity analysis, of corporate debt preference shares, 5:159–161 infinite series of,1: 327–328 securities, 5:610–611 as underlying, 6:5, 36 present value of series with, 1:322–327 equity analysts, 3:30 volatility of, 5:153–154 present value of series without, 1:330 equity capital, raising, 5:9 equity swaps, 5:24; 6:36 equality equity derivatives, 5:15 equity tranches, 5:504; 6:34 point of, 1:627 Equity Funding Corp., 3:677 equity valuation, 5:243–292 of two variances, 1:652–656 equity hedge strategies, 6:135, 137–138 asset-based, 5:276–280 equal weighting, of security market equity indexes, 5:95–97 for airline, 5:278 indexes, 5:85–86 equity IPOs, 1:186–187 for family-owned laundry, 5:277 Equatorial Guinea, 3:117 equity-like approach to high-yield other models vs., 5:246–248, 278–280 equilibrium analysis, 5:644–645 for restaurant, 5:277–278 Cournot, 2:91, 93, 94 equity markets estimated value and market price in, long-run efficiency of,6: 42 5:245–246 macroeconomic, 2:163 global, 5:349–350 multiplier models, 5:265–276 in monopolistic competition, 2:86–87 hedge fund strategies with neutrality enterprise values in, 5:273–276 in monopoly, 2:104–105 in, 4:236 example, 5:272–273 in oligopoly, 2:96 OTC derivatives market vs., 6:9–10 fundamentals in, 5:266–267 in perfect competition, 2:81–82 equity-only funds, 6:137 method of comparables, 5:269–272 in money market, 2:144–145 equity options, 6:36n.15 other models vs., 5:246–248, Nash, 2:92–93, 96 equity real estate investment trusts, 6:162 278–280 equilibrium GDP, 2:163–173 equity-related bonds, 5:334 price multiples in, 5:266–269 inflationary gap,2: 167–168 equity returns, frequency distribution of, practice problems, 5:283–288 long-run equilibrium, 2:163 1:400–401 present value models, 5:248–264 recessionary gap, 2:163–167 equity risk premium (ERP), 4:89–92 examples, 5:253 stagflation, 2:169–170 equity securities (equities), 5:17–18, Gordon growth model, 5:256–261 equilibrium interest rate, 5:12–13 149–185. see also stock multistage, 5:261–264 equilibrium prices analysis, 3:376–381 other models vs., 5:246–248, 278–280 for money, 2:272–273 actions based on, 3:33 preferred stock valuation with, in perfectly competitive markets, industry-specific ratios,3: 379–381 5:254–256 2:77–78 research on ratios in, 3:381 share value for three-year investment equipment trust certificates,5: 307–308 valuation ratios, 3:376–379 horizon, 5:252 equity. see also return on equity (ROE) and company value, 5:172–178 purpose, 5:244 on balance sheets, 3:218, 247–252 accounting return on equity, solutions to problems, 5:289–292 components of, 3:248–250 5:172–177 equivalence, 1:338–339 statement of changes in equity, cost of equity and investors’ required Erb, Claude, 4:102n.36 3:250–252 rates of return, 5:177–178 ERM. see European Exchange Rate Conceptual Framework on, 3:121 correlation of, 4:432–433 Mechanism cost of debt securities vs., 5:155 Ernst & Young, 3:666 common equity, 4:88–94 defined, 5:15 errors in private equity valuation, 6:156–157 global assets under management, 6:125 known, 1:76 and required rates of return, 5:177–178 in global finance markets,5: 150–155 notification of,1: 172 debt-to-equity ratio, 3:361, 362, 644 importance of, 5:149–150 sampling, 1:585–586 defined, 3:218 international ownership comparisons standard, 1:590–591, 596, 601, 628 and financial position,3: 9 for, 5:154–155 tracking, 1:538 free cash flow to equity investing in portfolios vs., 4:207–208 Type I and II, 1:629 on cash flow statements,3: 310–311 and diversification,4: 208–210 unintentional, 1:76 defined, 4:84n.7 and downside risk, 4:213–215 ESC. see European Securities Committee in discounted cash flow approach, and modern portfolio theory, ESG considerations. see environmental, 6:157 4:215–216 social, governance considerations

bind 31 June 17, 2017 4:16 PM I-32 Index

ESMA. see European Securities and applying, 1:22–27 IFRS adoption, 3:115 Market Authority phases of process, 1:21–22 industrial comparative ratio analysis, ESOPs. see employee stock ownership ethical vs. legal standards, 1:17–20 5:617 plans firms commitment to,1: 42 institutionally owned real estate, 6:159 Essay on the Principle of Population impact on stakeholders, 1:6–9 labor supply, 2:176 (Malthus), 2:174 importance of, 1:15–17 maturity of mortgages, 5:486 Essilor International, 1:425 and investment industry, 1:39–43 money market funds, 4:230–231 establishment, NAICS definition,5: 197 practice problems, 1:29 mutual fund assets, 4:230 estimates professionalism, 1:9–11 REIT returns, 6:164–165 of alternative investment values, 6:125 and regulations, 1:41 residential mortgage loans, 5:488 defined, 1:593 societal benefit of,1: 40 returns on bonds, bills, and equities, and earnings/balance sheets, solutions to problems, 1:30–31 5:152–153 3:698–699 Ethiopia, 2:166 rights offerings,4: 106 of enterprise value and market value of ETNs. see exchange-traded notes securities ranked lower than debt, 5:274–275 EU. see European Union subordinated debt, 5:596 of equity value and market price, Eurex, 5:29; 6:9 stagflation, 2:236 5:245–246 Euribor. see Euro interbank offered rate terms of trade, 2:338 in financial reporting,3: 103–104 euro trade balance with US, 2:130–131 in financial statements,3: 75–76 creation of, 2:435–436 use of enterprise value, 5:274 of intrinsic value, 5:119 cross-rate calculations with, 2:421–422 European Aeronautic Defense and Space point, 1:596 as currency anchor, 2:436 Company (EADS), 1:425; 5:225– pooled, 1:642 currency code, 2:401 226, 270–271 of population mean, 1:593–603 EUR/GBP exchange rates, 2:418, European call options (calls) confidence intervals,1: 595–600 419n.4 and American call options, 5:331; 6:105 point estimators, 1:593–595 exchange rate quotes with, 2:418–420 binomial option pricing with, sample size, 1:601–603 forward calculations with, 2:425–426 6:101–103 estimation GBP/EUR exchange rate, 2:403, 408 Black-Scholes-Merton model for, 1:565 of beta, 4:94–101 international bonds outstanding in, exercise price of, 6:87, 88 inferring asset beta, 4:98–99 5:351 at expiration, 6:86 market model, 4:380–381 intervention in FX market to support, minimum prices for, 6:91–93 pure-play method, 4:97–99 2:440 payments on underlying and carrying of cost of capital, 4:94–109 as reserve currency, 5:19 costs for, 6:91 with beta and project beta, 4:94–101 spot market trading of, 5:10 and risk-free rate of interest, 6:89 and country risk, 4:101–102 USD/EUR currency pair, 2:416 time to expiration for, 6:88 and decision-making by CFOs, USD/EUR exchange rate, 2:409 and value of underlying, 6:87 4:108–109 Eurobonds volatility of underlying for, 6:90 and flotation costs,4: 106–108 coupon payment structure for, 5:323 European Central Bank (ECB) and marginal cost of capital defined, 5:314 CPI used by, 2:230 structure, 4:102–105 foreign and domestic bonds vs., 5:354 and currency regime of EMU, 2:438 with weighted average cost of capital, in global bond market, 5:313 and European Union, 2:362n.18 4:99–101 in secondary market, 5:365–366 independence of, 2:288 of cost of debt, 4:86–87 settlement of, 5:380 inflation targeting,2: 287, 289 of cost of equity, 4:88–94 euro–Canada exchange rate, 2:419, intervention in FX market, 2:440 of cost of preferred equity, 4:88 421–422 monetary policy of, 2:185 of expected returns, 4:388–389 Euroclear, 5:366, 380 money measures of, 2:270 and statistical inference, 1:593, 625 Euro–Coin statistic, 2:245 objectives of, 2:280 of value by analysts, 4:48 Eurocommercial paper (ECP) market, European Commission, 2:105; 3:106, 113 of weighted average cost of capital, 5:376–377 European Community 4:99–101 Eurocopter, 5:225 currency regimes, 2:436 estimation period, beta, 4:94–95 Eurodollar bonds, 5:314 customs union, 2:362 estimators, 1:593–595, 596n.13 euro–dollar exchange rate, 2:421–422, insider trading laws, 5:122n.11 Estonia, 2:362n.18; 5:96 425–426 European Depositary Receipts (EDRs), ETFs. see exchange-traded funds Eurodollar futures, 1:701–702 1:708n.5 ethical conduct (term), 1:7 Eurodollar rate, 4:190 European Economic and Monetary ethical decision-making framework, Eurodollar time deposits, 4:168 Union (EMU), 2:383–384, 436, 438. 1:20–27 euro exchange rate, 2:418 see also Eurozone applying, 1:22–27, 41–42 Eurofighter consortium,5: 226 European Economic Community, 2:435 phases of process, 1:21–22 Euro interbank offered rate (Euribor), European Exchange Rate Mechanism ethical principles (term), 1:7 5:301, 353; 6:78n.11 (ERM), 2:294, 435 ethical standards, legal standards vs., Europe. see also specific countries; European Financial Reporting Advisory 1:17–20 specific regions and countries Group, 3:113 ethics, 1:5–28. see also Code of Ethics; capitalization level and contributions European Financial Stability Facility codes of ethics; Standards of to global GDP, 5:151 (EFSF), 2:366 Professional Conduct capital markets regulation, 3:113 European Investment Bank (EIB), 5:372 about, 1:5–6 corporate notes and bonds, 5:377 European Model Covenant Initiative, challenges to ethical conduct, 1:11–14 correlation of equities, 4:432–433 5:627 defined, 1:7 economic indicators, 2:245 European options (European-style options) ethical decision-making framework, Giro system, 4:178 call options (see European call options 1:20–27 hybrid/balanced funds, 4:232–233 [calls])

bind 32 June 17, 2017 4:16 PM Index I-33

defined, 6:26, 85 euro–yen exchange rate, 2:419 execution instructions, 5:44–48 Monte Carlo simulation for valuing, Eurozone execution mechanisms, secondary 1:560 economic indicators, 2:239, 242 market, 5:54–57 pricing, 6:85–100 and EU, 2:362n.18 execution-only responsibilities, 1:109 and exercise price, 6:87–88 inflation-linked bonds,5: 370 execution step (portfolio management), at expiration, 6:86 money measures, 2:270 4:223–225 minimum prices of calls and puts, Eurozone countries asset allocation, 4:223 6:91–93 panel vs. longitudinal data on, 1:589n.3 portfolio construction, 4:223–225 and payments on underlying/cost of Eurozone Manufacturing Purchasing security analysis, 4:223 carry, 6:90–91 Managers Index, 2:242 executive (management) board, 4:10 put–call–forward parity, 6:98–99 Eurozone Service Sector Future Business executive (internal) directors, 4:9, 21 put–call parity, 6:94–98, 100 Activity Expectations Index, 2:242 exercise price and risk-free rate of interest, 6:89 EV. see enterprise value of options, 6:26, 87–88 and time to expiration, 6:88–89 evaluation of warrants, 5:18 and value of underlying, 6:87 of fiscal policy,2: 319–320 exercise value, of European options, 6:86 and volatility of underlying, 6:89–90 of monetary policy, 2:301–302 exhaustive (term), 1:477 put options (see European put options Evaluation and Review, IPS, 4:415 exit strategies, for private equity [puts]) event-driven strategies, 4:236; investments, 6:154 European Parliament, 3:113 6:135–136 exogenous policy tools, aggregate European Public Real Estate Association, event risk, 5:608 demand and, 2:140 6:164 events expansionary fiscal policy,2: 302–304, European put options (puts), 1:568 complement of, 1:488 317 and American put options, 6:105 defined, 1:477 expansionary monetary policy, 2:154, binomial option pricing with, 6:103 dependent, 1:485 296–297 exercise price of, 6:87–88 independent, 1:485–488 expansion phase (business cycle), at expiration, 6:86 mutually exclusive, 1:477 2:200–203. see also recovery minimum prices for, 6:91–93 event studies, in semi-strong efficient housing sector in, 2:210 payments on underlying and carrying markets, 5:126 inventory–sales ratio in, 2:208 costs for, 6:91 Everbright Securities, 1:6 investor preferences, 2:203 putable bonds with, 5:332 evergreen funds, 1:249, 267 resource use in, 2:205 and risk-free rate of interest, 6:89 Evian, 3:387 expansion projects, capital budgeting time to expiration for, 6:88, 89 ex-ante (term), 1:239, 267 for, 4:49 and value of underlying, 6:87 ex ante models, 4:400 expansion risk, 5:492 volatility of underlying for, 6:90 ex ante Sharpe ratio, 1:445n.37 expansion venture capital, 6:153 European Real Estate Association excess demand, 2:339 expectations (EPRA), 5:101,102 excess interest cash flow,5: 509 about future prices, 2:158, 160 European Securities and Market excessive trading, 1:108, 117 about inflation,2: 236–237 Authority (ESMA), 3:113, 685 excess kurtosis, 1:455–458 and aggregate demand, 2:153 European Securities Committee (ESC), excess spread, 5:309, 509 capital market, 4:431 3:113 excess spread accounts, 5:309 in economic indicators, 2:241 European-style contracts, 5:24 excess supply, 2:339 homogeneity of expectations European Union (EU) exchange, money as medium of, 2:265 assumption, 4:365–366, 384–385, 400 capitalization level and contributions exchange rate quotations, 2:418–421 in probability, 1:476 to global GDP, 5:151 exchange rate regimes, 2:432–443. see expected defaults, in bond portfolio, capital market regulation, 3:113 also currency regimes 1:539–540 and convergence of GAAP, 3:131 exchange rates, 2:401. see also currency expected inflation,2: 281, 283 economic indicators for, 2:239 exchange rates expected inflation rate,4: 307 EFSF of, 2:366 and aggregate demand, 2:155 expected loss, credit risk and, 5:593 employee rights, 4:19 and short-run aggregate supply, 2:158, expected return(s) ERM of, 2:294 160 and beta, 4:381–383 export subsidies, 2:359 exchange rate targeting, 2:293–296 calculation of, 1:499 fixed-income indexes with bonds from, exchanges, 5:29 CAPM estimation of, 4:388–389 5:357 exchange-traded derivatives market, and historical mean return, 4:307–308 hedge fund regulations, 6:144 6:10–11 and SML, 4:386–387 imports in, 2:337 OTC vs., 6:13–14 and strategic asset allocation, inflation targeting,2: 289 size of, 6:38 4:436–437 loans to governments, 5:646 exchange-traded funds (ETFs) and variance of return, 1:504 price index, 2:230 as alternative investments, 6:124 expected risk premium, 4:307 quotas from, 2:359 and basket of listed depositary expected value, 1:490–494 RTAs for, 2:362 receipts, 5:169 of bonds and T-bills, 1:496–497 securitization in, 5:484n.5 and beta exposure, 6:129 conditional, 1:492 sell-out rights, 4:16 for commodities investing, 6:169 defined, 1:489–491 European Works Councils, 4:19 derivatives vs., 6:6 of product of uncorrelated random Eurostat, 2:230 indexes for, 5:95 variables, 1:506 euro–Sterling exchange rate, 2:419 as pooled investments, 4:233–235; 5:19 properties of, 1:498–499 EURO STOXX 50 Index, 1:425–427; exchange-traded notes (ETNs), 5:19 standard deviation, 1:491–492 2:242 exchange-traded options, 6:25 total probability rule for, 1:492–494 euro–Swiss exchange rate, 2:419, 420 exclusionary screening, 4:39 tree diagrams, 1:493–494 Euroyen bonds, 5:314 ex-dividend date (ex-date), 5:249 and weighted mean, 1:418

bind 33 June 17, 2017 4:16 PM I-34 Index

expenditure(s) export subsidies, 2:356, 359–361 FactSet, 3:337 aggregate, 2:119 ex-post (term), 1:243, 267 factual presentations, misrepresentation capital ex post models, 4:400 and, 1:74–75 committed, 5:618 ex post Sharpe ratio, 1:445n.37 failed investments, due diligence and, financing for,5: 8, 9 ex-post standard deviation, 1:242–244 1:163 and fiscal policy,2: 311 exposure, risk, 4:245–246 fair dealing, 1:114–116, 118 net cash flow to,3: 383 exposure instructions, for orders, 5:47 Fair Dealing [Standard III(B)], property, plant, and equipment as, eXtensible Business Reporting Language 1:110–118 3:475, 476 (XBRL), 3:338 application of the standard, 1:114–118 and consumer surplus, 2:74–76 external advisers, selecting, 1:157 compliance procedures, 1:112–114 government, 2:221, 303–306 external auditors, 4:17 developing firm policies,1: 112–114 personal consumption, 2:229 external cash flows disclosure of level of service, 1:114 and price elasticity of demand, Calculation Methodology (GIPS disclosure of trade allocation 2:445–448 Section I.2), 1:237, 238 procedures, 1:114 R&D, 2:178 defined, 1:267 systematic account reviews, 1:114 total Input Data (GIPS Section I.1), 1:237 guidance, 1:110–112 and aggregate income, 2:137–144 external competition, price collusion investment action, 1:111–112 and consumer surplus, 2:75–76 and, 2:93 investment recommendations, and own-price elasticity of demand, external credit enhancements, 5:309– 1:110–111 2:13–14 310, 479 text of, 1:45, 110 and trade balance, 2:444–445 external debt, 5:647 fairly valued (term), 5:245 expenditure approach to GDP, 2:120– external (non-executive) directors, 4:10, fairness, of tax policy, 2:312 122, 127, 128, 131–133 21 fair value expense recognition on income external influences on industry analysis, in asset-based valuation, 6:157 statements, 3:16, 152–153, 172–181 5:222–228 of bonds payable, 3:612–615 and amortisation, 3:180 demographic, 5:223–224 Conceptual Framework on, 3:123 applications, 3:176–180 governmental, 5:224–226 defined, 1:267; 3:218n.1, 225, 475n.2 for doubtful accounts, 3:176 macroeconomic, 5:222 financial assets at,3: 243 and financial analysis,3: 181 social, 5:226–227 of financial liabilities,3: 612–613 general principles, 3:172–176 technological, 5:222–223 Fundamentals of Compliance (GIPS and inventory costs, 3:172–174 externality, 4:51 Section I.0), 1:236 for warranties, 3:176 external liquidity, in sovereign credit GIPS Valuation Principles (GIPS expenses analysis, 5:647 Section II), 1:254–255 accrued, 3:72–73, 232 externally compensated assignments, Input Data (GIPS Section I.1), 1:237 amortisation, 3:502 1:141 and long-term asset acquisition, 3:475 Conceptual Framework on, 3:122 external manager, travel expenses from, Private Equity (GIPS Section I.7), 1:249 defined, 3:46 1:67–68 Real Estate (GIPS Section I.6), 1:245 depreciation, 3:499–501, 512 external sources of information, for Fair Value Measurement (IFRS 13), income tax, 3:426 financial statement analysis, 3:475n.2 interest, 3:529n.32, 608–612; 5:617, 648 3:29–30 Fair Value Measurements and other operating, 3:294 external trade sector Disclosures (ASC 820), 3:475n.2 prepaid, 3:72, 229–230 cyclical behavior of, 2:211–212 fair value reporting, for bonds payable, tax, 3:426, 567 in GDP, 2:130–131 3:612–615 trading, 1:238, 240, 272 external valuation fallibility, of rating agencies, 5:608 transaction, 1:245, 246, 249, 250, 273 defined, 1:267 Fama, Eugene, 4:90n.15, 90n.16, 377; travel, 1:64–65, 67–68 GIPS Valuation Principles (GIPS 5:124, 133 and warranties, 3:176 Section II), 1:255–256 Fama and French three-factor model, Expenses: Compensation–Retirement Real Estate (GIPS Section I.6), 5:133 Benefits (ASC 715),3: 737 1:245–247 family accounts, 1:108, 186, 188–189 expensing of costs extractive industries, 3:679–680 Fannie Mae. see Federal National capitalisation of costs vs., 3:481–486 extra dividend (special dividend), Mortgage Association on financial statements,3: 481–486 5:248–249 farmland, investing in, 6:158–159, 163 for ongoing purchases, 3:485 extraordinary items, on income FASB. see Financial Accounting experience curve, 5:203 statements, 3:182–183 Standards Board expert networks, 1:95 extreme value theory, 4:273 Fastenal, 5:210 experts, 1:87–88 ExxonMobil, 1:716–717; 2:107; 5:209 “fast” money, 6:142 expiration Ezzell, John R., 4:83n.3, 107n.41 Fastow, Andrew, 1:13–14; 3:684 of forward contracts, 6:73–74 favors, requested, 1:183 of options, 6:26–30, 86 F FCA. see Financial Conduct Authority time to, 6:88–89 Fabozzi, Frank, 4:86n.10, 88n.13 FCF after dividends/debt ratio, 5:617 expiration days, derivative, 1:655–656 Facebook, 2:98; 4:13, 32 FCFE. see free cash flow to equity exports face value, 1:377, 497; 3:604–607. see FCFF. see free cash flow to the firm in balance of trade, 2:374 also par value FCMs. see futures commission in business cycles, 2:212 factorials, 1:511 merchants defined, 2:337 factoring, 4:190, 192 F&C Stewardship Growth Fund, exchange rate and prices of, 2:155 factor markets, 2:128 4:426–427 net, 2:140, 338 factor-proportions theory, 2:354–355 FDI. see foreign direct investment terms of trade for, 2:337–338 factors of production (inputs), 2:23–24 F-distribution, 1:746–749 voluntary export restraints, 2:356, 359 facts, opinions and, 1:168, 169 federal agency securities, 4:168

bind 34 June 17, 2017 4:16 PM Index I-35

Federal Banking Supervisory Office, performance, 6:133, 177 Financial Accounting Standards 2:278 performance-based, 1:240, 269 Advisory Council, 3:107 Federal Commission, 2:279 with private equity investments, Financial Accounting Standards Board Federal Deposit Insurance Corporation, 6:149–150 (FASB), 3:107–108 2:279, 437–438 for REITs and real estate partnerships, benefits of common reporting Federal Financial Supervisory Authority, 6:161 standards from, 5:61 3:105 service, 1:68 and convergence of global reporting federal funds rate (fed funds rate), 2:241, 2 and 20 fee structure, 6:139,140 standards, 3:114 284 unearned, 3:60 development of standards, 3:103, 104 Federal Home Loan Banks (FHLB), fee schedule, 1:240, 267 disclosure requirements of, 3:686 5:323, 372 Ferrellgas, 5:210 evolving standards, 3:134 Federal Home Loan Mortgage FFO. see funds from operations and GIPS Valuation Principles, 1:254 Corporation (Freddie Mac), 2:299; FFO interest coverage. see funds from revenue recognition standards, 5:323, 372, 490, 503 operations interest coverage 3:155–156, 168 Federal National Mortgage Association FFO to debt. see funds from operations as standard-setting body, 3:105 (Fannie Mae), 2:299; 5:323, 372, to debt financial analysis,3: 325–399 490, 503 FHLB. see Federal Home Loan Banks about, 3:325–326 Federal Open Market Committee Fiat, 2:100 for business/geographic segments, (FOMC), 2:284 fiat money,2: 277 3:385–387 Federal Reserve. see US Federal Reserve Fibonacci, Leonardo, 1:726 reporting requirements, 3:385–386 Federal Reserve Act, 2:292 Fibonacci sequence, 1:726 segment ratios, 3:386–387 Federal Reserve Bank of Chicago, 2:244 fictitious name,1: 204 common ratios, 3:347–375 Federal Reserve Bank of New York, Fideicomiso Financiero Autos VI, 5:509 activity ratios, 3:349–355 5:364 Fidelity, 4:389–390; 5:210 categories, 3:348 FedEx, 5:209 fiduciary calls,6: 95–96, 99 integrated analysis with, 3:368–375 Fed funds, 5:385 FIFO method. see first-in, first-out method interpretation and context, Fed funds rate, 5:385 files 3:348–349 feedback current, maintaining, 1:54 liquidity ratios, 3:355–360 in portfolio management, 4:225–226 of former employers, 1:138 profitability ratios,3: 364–368 performance measurement and fill or kill orders,5: 48 solvency ratios, 3:360–364 reporting, 4:226 final goods,2: 121 computations vs., 3:328–330 portfolio monitoring and rebalancing, final liquidation date credit analysis, 3:382–384 4:225 defined, 1:267 credit rating process, 3:382–384 in risk management framework, 4:251 Private Equity (GIPS Section I.7), research on ratios in, 3:384 fees. see also Referral Fees [Standard 1:250, 251 disclosure of income tax information, VI(C)] Real Estate (GIPS Section I.6), 1:247 3:590–591 all-in, 1:265 final sales,2: 207 equity analysis, 3:376–381 bundled fees finance charges,5: 511 industry-specific ratios,3: 379–381 Calculation Methodology (GIPS finance leases research on ratios in, 3:381 Section I.2), 1:238 accounting/reporting by lessee, valuation ratios, 3:376–379 defined, 1:265 3:624–635 and expense recognition on income Disclosure (GIPS Section I.4), 1:241 accounting/reporting by lessor, statements, 3:181 Presentation and Reporting (GIPS 3:635–640 framework for, 3:327–328 Section I.5), 1:243 defined, 3:526 inventory management in, 3:435–446 Wrap Fee/SMA Portfolios (GIPS direct financing leases model building and forecasting with, Section I.8), 1:252 defined, 3:542, 636 3:388 and conflicts of interest,1: 179 and financial statements,3: 538–543, objectives of, 3:327–328 custody, 1:266 640 practice problems, 3:391–396 fund, 6:133 initial recognition and measurement process, 3:326–330 gross-of-fees, 1:268 of, 3:636–638 solutions to problems, 3:397–399 for hedge funds, 6:133, 134n.16, US GAAP on, 3:635, 636 strategy and financial performance, 139–143 financial statement impact of, 3:328–330 incentive 3:638–640 tools and techniques, 3:330–347 for fund investments, 6:133 operating leases vs., 4:87n.11 graphs, 3:345–347 hedge funds, 6:139–140 for lessees, 3:529–538, 624–635, 640 regression analysis, 3:347 private equity, 6:150 for lessors, 3:538–543, 635–640 financial analysts investment management fees on long-lived assets, 3:526–543 decisions of, 5:6 defined, 1:268 on non-current liabilities, 3:623–640 industry analysis by, 5:202–203 Disclosure (GIPS Section I.4), 1:240 recognition and measurement of, market efficiency and number of, Input Data (GIPS Section I.1), 1:237 3:625–627, 636–638 5:121 Private Equity (GIPS Section I.7), sales-type leases financial assets,5: 14 1:249–252 defined, 3:542, 636 financial assets, on balance sheets, Real Estate (GIPS Section I.6), 1:246 financial statement impact of,3: 543, 3:242–245 management 638–640 financial assets abroad sub-account, for fund investments, 6:133 US GAAP on, 3:635, 636 BOP, 2:372 hedge funds, 6:139–140, 143 treating operating leases as, financial capital private equity, 6:149–150 3:534–538 in Heckscher–Ohlin model, 2:354–355 net-of-fees returns, 6:142 financial account, BOP,2: 372 and international trade, 2:336 1 and 10 fee structure, 6:139 Financial Accounting Foundation, 3:107 in long-term economic growth, 2:175

bind 35 June 17, 2017 4:16 PM I-36 Index

financial condition, statements of,3: 218. issues with, 3:742–745 market regulatory authorities, see also balance sheets with market-based valuation, 3:685–687 Financial Conduct Authority (FCA), 3:740–745 and motivation for manipulation, 2:278n.6; 3:685, 686; 4:414; for multiple periods, 3:745–748 3:689–690 5:353n.3 financial position, statements of,3: 12, private contracts, 3:688 financial corporations, as intermediaries, 218. see also balance sheets and earnings quality, 3:667, 676 5:32–33 financial projections, in high-yield credit practice problems, 3:721–724 financial crisis (2008-2009) analysis, 5:639–640 solutions to problems, 3:725–728 appreciation of extreme negative financial ratios spectrum of quality for financial events, 4:313–314 in company analysis, 5:230–232 reports, 3:667–678 bond defaults, 5:601n.11 financial analysis with,3: 334–338 and aggressive presentation, 3:670, and credit enhancement, 5:503 and inventory write-downs, 3:428–433 672–673 credit ratings agencies contribution, financial reporting,3: 43–99 and biased accounting choices, 5:602 accounting process, 3:53–70 3:670–677 liquidity issues, 5:594, 639 financial statements in,3: 68–70 departures from GAAP, 3:677–678 putable bonds, 5:332 Investment Advisers Ltd. case study, “GAAP, decision-useful, but and risk-free rate, 5:645–646 3:53–70 sustainable?” level, 3:669–670 securities ranked lower than records in, 3:55–67 “GAAP, decision-useful, sustainable, subordinated debt, 5:596 accounting systems for, 3:73–75 and adequate returns” level, and securitization, 5:475, 479 debits and credits, 3:74–75, 78–94 3:668–669 solvency risk, 4:265 flow of information in accounting presentation of non-GAAP financial sovereign ratings, 5:368–369 systems, 3:74 measures, 3:672–676 speculation in derivatives, 6:43–44 Investment Advisers Ltd. case study, “Within GAAP, but biased choices” and yield spread, 5:631 3:78–94 level, 3:670–676 financial disclosure, market efficiency accounts on financial statements “Within GAAP, but ‘earnings and, 5:122 equations for, 3:48–53 management’” level, 3:676–677 financial flexibility,3: 20 as financial statement elements, financial reporting standards,3: 101–145 financial industry, governmental 3:46–48 about, 3:102 influences on,5: 225 types of, 3:47 Conceptual Framework for Financial financial institutions,5: 32–33 of accruals, 3:71–73 Reporting 2010, 3:117–129 Financial Instruments (IFRS 9), 3:202 for business segments, 3:385–386 and barriers to single standards financial intermediaries,5: 28–38 classifying business activities for, framework, 3:130–131 arbitrageurs, 5:34–36 3:44–45 constraints on financial reports, brokers, exchanges, and alternative and financial statements in security 3:120–121 trading systems, 5:28–30 analysis, 3:75–76 convergence of US GAAP and, dealers, 5:30–31, 34–36 estimates and analyst judgment about 3:127–129 defined, 5:6 entries, 3:75–76 and effective standards frameworks, depository institutions and financial manipulation of data, 3:75–76 3:129–130 corporations, 5:32–33 misrepresentation of data, 3:76 elements of financial reports, insurance companies, 5:33–34 practice problems, 3:95–97 3:121–123 securitization of real assets by, 5:26 and purpose of financial statements, objective of financial reports, securitizers, 5:31–32 3:44 3:118–119 for settlement and custodial services, regulations on, 5:61 qualitative characteristics of financial 5:36–37 solutions to problems, 3:98–99 reports, 3:119–120 transactions facilitated by, 5:38 of valuation adjustments, 3:73 requirements for financial in well-functioning financial systems, Financial Reporting Council, 3:686; 4:7 statements, 3:123–127 5:58–59 financial reporting quality,3: 665–728 global, 3:113–117 financial leverage,4: 136–140 about, 3:665–666 of IFRS vs. US GAAP, 3:131–133 degree of, 4:137–138, 142–143 assessing, 3:683–690 monitoring developments in, leveraged positions in markets, conditions conducive to low-quality 3:133–138 5:41–44 reports, 3:684 by CFA Institute, 3:134–135 leveraging role of debt, 4:139–140 disciplining mechanism, 3:684–690 with company disclosures, 3:135–138 and solvency ratio, 3:360–361 motivations for issuing low-quality for new products/types of financial leverage ratio,3: 361, 362, reports, 3:683–684 transactions, 3:133 644–645 conservative vs. aggressive accounting, and objectives of financial reporting, financial markets. see markets 3:678–683 3:102–104 financial performance bias in application of accounting practice problems, 3:141–143 evaluating, 3:731–739 standards, 3:682–683 reports based on, 3:665–666 accounting standards and ROE, in extractive industries, 3:679–680 solutions to problems, 3:144–145 3:736–738 detection of issues, 3:690–718 standard-setting bodies, 3:105–113 and changes in business strategy, accounting choices and estimates, accounting standards boards, 3:731–735 3:696–713 3:106–108 and war chests, 3:735 areas of choice/estimate and analyst for industry-specific regulation, integrated analysis of, 3:369–370 concerns, 3:710–713 3:105–106 projecting, 3:739–749 presentation choices, 3:691–696 regulatory authorities, 3:108–113 consistency of forecasts, 3:748 warning signs, 3:713–718 financial reports example, 3:746–747 disciplining mechanisms, constraints, 3:120–121 forecasting operating profit, 3:684–690 elements, 3:121–123 3:741–742 auditors, 3:687–688 high-quality, 3:667–670

bind 36 June 17, 2017 4:16 PM Index I-37

low-quality supplementary information, 3:11–12 on cash flow statements,3: 275–276, conditions conducive to, 3:684 supplementary schedules, 3:24–25 296 and earnings quality, 3:667, 676 practice problems, 3:37–39 defined, 3:22, 44 motivations for, 3:683–684 scope of, 3:6–11 financing cash flow,3: 277 on spectrum of quality, 3:677–678 and earnings announcements, 3:8–11 financing costs,4: 50 manipulation of and profit vs. cash flow,3: 7–8 finished goods inventory,3: 404, 435 motivation for, 3:689–690 solutions to problems, 3:40–41 finite lives, intangible assets with,3: 508 prevalence of, 3:666 financial statements. see also specific Finland objectives, 3:118–119 statements disinflation, 2:227 qualitative characteristics, 3:119–120 in accounting process, 3:68–70 EU membership, 2:362n.18 spectrum of quality, 3:667–678 business activities on, 3:45 exchange rate regime, 2:436 and aggressive presentation, 3:670, capitalisation vs. expensing of costs on, IFRS adoption, 3:115 672–673 3:481–486 inflation targeting,2: 287 and biased accounting choices, and direct financing leases,3: 538–543 MSCI multi-market index, 5:96 3:670–677 elements of, 3:46–48 real equity returns, 1:400 departures from GAAP, 3:677–678 finance vs. operating leases on, residential mortgage loans, 5:487 “GAAP, decision-useful, but 3:529–542 returns on bonds, bills, and equities, sustainable?” level, 3:669–670 leases on, 3:638–640 5:153 “GAAP, decision-useful, sustainable, LIFO liquidation on, 3:422–424 total returns, 1:408, 411 and adequate returns” level, long-lived assets on, 3:512–513 two-tier boards, 4:10 3:668–669 notes to financial statements firearms industry, governmental presentation of non-GAAP financial Alcatel-Lucent, 3:443–444 influences on,5: 225 measures, 3:672–676 Caterpillar Inc., 3:418 firewalls, 1:60, 89 “Within GAAP, but biased choices” disclosures, 3:127 firm commitment offerings. see level, 3:670–676 financial statement analysis,3: 24–25 underwritten offerings “Within GAAP, but ‘earnings LIFO liquidation, 3:423 firm policies management’” level, 3:676–677 PACCAR, 3:671 for fair dealing, 1:112–114 financial risk(s),4: 95 Volvo Group, 3:430–431 on loyalty, prudence, and care, defined, 1:553n.27; 4:260 purpose of, 3:44 1:105–106 drivers of, 4:270–271 relationships of, 3:344 firms and leverage, 4:136–140 requirements of IFRS framework, benefits of GIPS compliance for, non-financial vs.,4: 268–269 3:123–127 1:224–225 types of, 4:260–262 for disclosures in notes, 3:127 commitment to ethics by, 1:42 financial risk management, normal from IAS No. 1, 3:125–127 compliance with Code of Standards, distribution in, 1:553 required statements, 3:124 1:38 financial sector, IMF analysis of,2: 383 statement features, 3:124–125 defined, 1:267 Financial Services Agency, 2:279; 3:105, for structure and content, 3:125–127 demand and supply analysis, 2:23–48 106, 115 and revenue recognition on income marginal returns, 2:23–28 Financial Services Authority (FSA), statements, 3:167–168 scale and profit maximization, 2:277–279; 5:353 and sales-type leases, 3:543 2:43–48 financial services sector,5: 193 in security analysis, 3:75–76 shutdown analysis, 2:28–43 Financial Stability Board (FSB), 5:476 estimates and analyst judgment about informing, of referral arrangements, financial statement analysis,3: 5–41. entries, 3:75–76 1:191 see also applications of financial manipulation of data, 3:75–76 knowledge of the law, 1:54–55 statement analysis misrepresentation of data, 3:76 and market structure, 2:66–67 about, 3:6 financial statistics, in company analysis, in microeconomics, 2:5 asset revaluations in, 3:503–504 5:231–232 monopolist, 2:100–101 framework, 3:30–34 financial system overemphasis of results from, 1:81 conclusions and recommendations, efficiency of,5: 58–59 records as property of, 1:175, 176 3:34 functions of, 5:6–14 starting new, 1:140 data analysis and interpretation, 3:33 capital allocation efficiency,5: 13–14 theory of the firm,2: 5 data collection, 3:32 determining rates of return, 5:12–13 first-degree price discrimination, data processing, 3:33 for individuals, 5:7–12 2:102–103 follow-up, 3:34 well-functioning, 5:58–60 first-in, first-out (FIFO) method purpose and context of analysis, Financial Times Stock Exchange (FTSE), analyst adjustments related to, 3:31–32 5:192; 6:164. see also entries 3:757–760 information sources, 3:11–30 beginning with FTSE and earnings/balance sheets, auditor’s reports, 3:27–29 financing 3:697–698 balance sheet, 3:12–16 of leveraged buyouts, 6:150–151 of inventory valuation cash flow statement,3: 20, 22–23 of real estate investments, 6:161,162 assigning costs in, 3:407 financial notes,3: 24–25 (see also mortgages) conversion from LIFO to FIFO, financial statements,3: 11–30 short-term, 4:189–194 3:416–421 internal and external sources of asset-based loans, 4:192 and cost of goods sold, 3:228 information, 3:29–30 borrowing approaches, 4:191–192 defined, 3:174 management commentary/MD&A, costs of borrowing for, 4:193–194 inflation and LIFO vs.,3: 412–414 3:26 sources of, 4:189–191 other valuation methods vs., statement of changes in equity, 3:20, 21 venture capital, 6:152–153 3:407–410 statement of comprehensive income, financing activities in periodic vs. perpetual inventory 3:16–20 cash flow from,3: 277 systems, 3:410

bind 37 June 17, 2017 4:16 PM I-38 Index

first lien debt,5: 596 fixed-income derivatives,5: 15 bond convexity, 5:559–567 first loss piece,5: 504 fixed income general strategies, for duration of bond portfolio, first mortgage debt,5: 596 hedge funds, 6:137 5:555–557 first-order risk,4: 272n.28 fixed-income indexes,5: 98–100, effective duration,5: 545–548 First Section, in TOPIX, 5:82–83 357–358 and investment horizon, 5:569–574 fiscal deficit. see budget deficit fixed-income instruments,5: 15, 17 key rate duration, 5:549 fiscal multiplier,2: 314–315 fixed-income investments. see also Macaulay duration, 5:538–542, fiscal performance, in sovereign credit bonds 569–574 analysis, 5:647–648 as assets under management, 6:125 modified duration,5: 542–543 fiscal policy,2: 302–320 and GDP forecasts, 2:184–185 money duration, 5:557–559 and aggregate demand, 2:153, 302–303 as underlying, 6:5, 36–37 price value of a basis point, 5:558 balanced budget multipliers, 2:315–316 fixed-income market,5: 347–400 properties of bond duration, and deficits/national debt,2: 307–309 classification of,5: 348–357 5:549–554 defined, 2:263 corporate debt, 5:373–381 yield volatility, 5:568–569 evaluating, 2:319–320 bank and syndicated loans, 5:373–374 investing in, 5:298 fiscal multiplier,2: 314–315 commercial paper, 5:374–377 issuers of, 5:299–300 and government receipts/expenditures, corporate notes and bonds, legal and regulatory considerations, 2:303–306 5:377–380 5:313–316 implementation of, 2:316–319 function of, 5:347–348 liquidity risk with, 5:574–575 and inflation,2: 168 indexes, 5:357–358 maturity, 5:300 influence on economy,2: 262–264 investors in, 5:357–359 par value, 5:300 of Keynesian school, 2:215 non-sovereign bonds, 5:371–373 in portfolio management, 5:298 and monetary policy, 2:320–324 practice problems, 5:393–396 practice problems, 5:339–342 and Ricardian equivalence, 2:316 primary, 5:359–365 return on, 5:530–537 roles and objectives, 2:302–310 private placements, 5:364–365 solutions to problems, 5:343–346 and tax policy, 2:312 public offerings,5: 360–364 tax considerations, 5:316–318 tools, 2:310–316 quasi-government bonds, 5:372–373 yield measures, 5:304 types of, 2:310 secondary, 5:365–367 fixed-income valuation,5: 401–471 Fisher, Irving, 2:274; 4:82n.2 short-term funding for banks, about, 5:401–402 Fisher effect,2: 274–275 5:384–390 accrued interest, 5:413–417 Fisher index, 2:228–229 repurchase and reverse repurchase flat price,5: 413–417 Fitch Ratings agreements, 5:386–389 full price, 5:413–417 commercial paper ratings, 5:375 retail deposits, 5:385 matrix pricing, 5:417–420 investment-grade ratings, 5:299n.2, 350 wholesale funds, 5:385–386 maturity structure of interest rates, long-term ratings matrix, 5:602–603 solutions to problems, 5:397–400 5:433–441 municipal debt ratings, 5:651 sovereign bonds, 5:367–371 practice problems, 5:449–457 outsourcing credit analysis to, 4:274 credit quality, 5:368–369 solutions to problems, 5:458–471 role in credit markets, 5:601, 602 names of, 5:367–368 and time value of money, 5:402–413 sovereign ratings, 5:368 types, 5:369–370 market discount rate, 5:402–411 five forces framework for strategic structured financial instruments, spot rates, 5:411–413 industry analysis, 5:205–206 5:381–384 yield to maturity, 5:406–407 five-way decomposition of ROE, capital protected instruments, 5:382 yield measures, 5:420–433 3:373–375 leveraged instruments, 5:383 for fixed-rate bonds,5: 420–425 fixed asset turnover ratio participation instruments, 5:382–383 for floating-rate notes,5: 425–429 and average age of depreciable assets, yield enhancement instruments, for money market instruments, 3:520–522 5:382 5:429–433 calculating, 3:350 supranational bonds, 5:372–373 yield spreads, 5:441–445 interpreting, 3:354, 518 fixed-income securities,5: 297–346 fixed parity currency regimes,2: 436, 439 fixed charge coverage ratio,3: 362–363, bond indenture, 5:305–313 fixed-rate bonds,5: 369, 420–425 644, 645 collateral backing, 5:307–308 fixed-rate debt,4: 86; 5:352 fixed costs covenants, 5:310–311 fixed-rate mortgages,1: 334–335; 5:486 average, 2:31–35 credit enhancements, 5:308–310 fixed rate perpetual preferred stock,4: 87 and breakeven points, 4:145 legal identity of issuer/legal form of flag patterns,1: 706–707 and capacity, 5:612 bond, 5:305–306 Flaherty, James, 5:225 and degree of operating leverage, repayment proceeds, 5:306–307 flash reports,1: 113 4:133–135 cash flow structures,5: 318–329 flat price,5: 413–417 and degree of total leverage, 4:142–143 coupon payment, 5:323–329 flexibility fixed production costs,3: 405n.7 principal repayment, 5:318–323 of short-term borrowing strategy, and leverage, 3:360–361; 4:125–128 with contingency provisions, 5:298, 4:191 quasi-, 2:33 329–335 in sovereign debt credit analysis, total, 2:31–35, 41–42 callable bonds, 5:330–331 5:647–648 fixed-for-floating interest rate swaps, convertible bonds, 5:332–334 flexible exchange rates,2: 435 6:22–23 putable bonds, 5:332 float, 4:179 fixed income analysts,5: 6 coupon rate, 5:300–301 float-adjusted market-capitalization fixed-income arbitrage,4: 236 credit risk with, 5:299–300, 574–575 weighting, 5:87, 89, 90 fixed income asset backed strategies, for currency denomination for, 5:301–302 floaters. see floating-rate notes (FRNs) hedge funds, 6:137 interest rate risk with, 5:537–574 float factor,4: 179 fixed income convertible arbitrage approximate modified duration, floating exchange rates,2: 433 strategy, for hedge funds, 6:136 5:543–545 floating interest rates, capped,5: 511

bind 38 June 17, 2017 4:16 PM Index I-39

floating-rate bonds (floaters) direct, 2:341–342 swaps and, 6:24, 82–83 inverse, 5:383 income from, 2:376 time horizon of, 6:74 outstanding, 5:334 portfolio, 2:341 forward yields, 5:438 as participation instruments, foreign-owned financial assets sub- fossil fuels, 4:39 5:382–383 account, BOP, 2:372 foundations, portfolio management for, sovereign, 5:369 foreign portfolio investment (FPI), 2:341 4:218–220 floating-rate debt,4: 86; 5:352 ForgeHouse, Inc., 3:183 401(k) plans, 4:208–210 floating-rate notes (FRNs) Form 3 (SEC), 3:112 four Cs framework for corporate debt cash flows from,5: 323–324 Form 4 (SEC), 3:112 securities, 5:610–628 as corporate debt, 5:378 Form 5 (SEC), 3:112 capacity, 5:611–625 coupon rate for, 5:301 Form 6-K (SEC), 3:111 character, 5:627 inverse, 5:324 Form 8-K (SEC), 3:112 collateral, 5:625–626 yield measures for, 5:425–429 Form 10-K (SEC), 3:110–111, 422–423 covenants, 5:626–627 floating-rate tranches,5: 501 Form 10-Q (SEC), 3:111 four-factor models for beta, 4:377, floors, floating-rate note,5: 324 Form 11-K (SEC), 3:112 401–402 flotation costs,4: 106–108 Form 20-F (SEC), 3:110–111 fourth-quarter surprises, 3:716 flow-of-funds indicators,1: 720–724 Form 40-F (SEC), 3:110–111 FPI. see foreign portfolio investment Arms index, 1:720–722 Form 144 (SEC), 3:112 fractile, 1:423 margin debt, 1:722 format fractional reserve banking, 2:266–268 and market indicators, 1:723 of balance sheets, 3:221–223 fragile information cascades, 5:138 mutual fund cash position, 1:722–723 of cash flow statements,3: 275–288 Framework for the Preparation new equity issuance, 1:723–724 cash flows and non-cash activities, and Presentation of Financial secondary offerings,1: 724 3:275–277 Statements (IASB), 3:103, 172 FOB shipping. see free on board cash flows from operating activities, franc, Swiss shipping 3:278–288 currency code, 2:401 FOFs. see funds of funds and IFRS vs. US GAAP, 3:277–278 exchange rate quotes with, 2:418, 420 follow-up, financial statement analysis, of income statements, 3:151–155 international bonds outstanding in, 3:34 formative-stage financing (venture 5:351 FOMC. see Federal Open Market capital), 6:152 as reserve currency, 5:19 Committee Form DEF-14A (SEC), 3:111 France Foolish Four investment strategy, former clients, soliciting, 1:137–142 banking supervision, 2:278 1:604–605 former employers bonds outstanding, 5:354, 360 Forbes, 1:434–436 documents and files of,1: 138 business investment, 2:177 Ford Foundation, 4:219 in performance presentation, 1:127 civil law system, 4:27 Ford Motor Company Fortune magazine, 6:133 consumption expenditures, 2:139 credit ratings, 5:607 forward commitments, 6:14–25, 73–85 corporate governance systems, 4:14 EPS and P/E for, 1:412, 413 contingent claims vs., 4:280; 6:35–36 disinflation, 2:227 P/S value of, 5:269 defined, 6:7, 61 domestic and international debt revenue recognition, 3:159 forward contracts, 6:14–17, 24, 73–80 securities, 5:315 RSI of, 1:712–714 futures contracts, 6:17–21, 24, 80–82 equity risk premiums, 4:91 share class arrangements, 5:157–158 options vs., 6:30 EU membership, 2:362n.18 similar companies to, 5:189 pricing of, 6:73–85 exchange rate regime, 2:436 forecasts swaps, 6:21–25, 82–85 expected inflation,2: 282 consistency of, 3:748 valuation of, 6:73–85 exports of goods, 2:337 and financial analysis,3: 388 forward curves, 5:438–441 frequency of capital budgeting, 4:67 of financial performance,3: 739–749 forward discounts, 2:425 GIPS sponsor, 1:232 of operating profit,3: 741–742 forward exchange rates, 2:408, 425–432 government debt, 2:262 and quality of financial reports,3: 683 and spot rates, 2:410–412, 428–430 government spending, 2:129 of short-term cash flows,4: 165–166 and swap/interest rates, 2:426–430 inflation-linked bonds,5: 326, 370 foreclosures, 5:485, 488–489 forward markets, 5:437 labor productivity, 2:181 foreign bonds, 5:313–314, 354 forward points, 2:425, 429–430 maturity of mortgages, 5:486 foreign countries, diversification of forward premiums, 2:425 MSCI multi-market index, 5:96 investment in, 4:334 forward price, 6:14, 26 overconfidence and mispricing in foreign currency reserves, at central forward rate agreements (FRAs), markets, 5:137 banks, 2:279, 294 6:77–78 public sector spending, 2:263 foreign direct investment (FDI), forward rates, 5:436–440 real equity returns, 1:400 2:341–342 forwards (forward contracts), 6:14–17 residential mortgage loans, 5:487 foreign exchange gains, 5:169 arbitrage with, 6:49–50 returns on bonds, bills, and equities, foreign exchange market (FX market), for commodities, 5:25; 6:168 5:153 2:399–418 in contract markets, 5:21–22 say on pay, 4:18 about, 2:399–400 defined, 6:14–15, 61 sovereign bonds, 5:367 currency conventions, 2:401–402 futures vs., 5:23; 6:21, 24, 80–81 total returns, 1:408, 412, 424 functions, 2:406–412 in FX market, 2:408 trade balance with US, 2:130 nominal vs. real exchange rates, on interest rates, 6:77–78 Treasury bills, 1:307n.3, 379n.16 2:402–406 off-market, 6:83–84 underground economy, 2:124 participants in, 2:412–415 options vs., 5:25 France Telecom, 1:425 size and composition of, 2:415–418 pricing and valuation of, 6:73–80 Frankfurt Stock Exchange, 1:708; 5:165 foreign exchange risk, 4:171 put–call parity for, 6:98–99 FRAs. see forward rate agreements foreign investments swap contracts vs., 5:24 fraud, 1:83, 684; 5:34, 61

bind 39 June 17, 2017 4:16 PM I-40 Index

FRC. see UK Financial Reporting relative strength analysis, 1:692 future cash flows, geometric and Council target market for, 5:82 arithmetic mean of, 1:459 Freddie Mac. see Federal Home Loan FTSE All Share Index, 1:608–609 future prices, short-run aggregate supply Mortgage Corporation FTSE EPRA/NAREIT Global Real Estate and, 2:158, 160 free cash flow after dividends,5: 616 Index Series, 5:101,102, 103 futures (futures contracts), 6:17–21 free cash flow before dividends,5: 616 FTSE Eurotop 100, 1:407–408 commodities, 5:25, 26; 6:37, 168, free cash flow to equity (FCFE) FTSE Global All Cap Index, 1:649 171–173 on cash flow statements,3: 310–311 FTSE Global Bond Index Series, 5:357 in contracts market, 5:22–23 defined, 4:84n.7 FTSE Global Small Cap Index, 5:94 defined, 6:17, 61 in discounted cash flow approach, FTSE infrastructure index, 6:175 forwards vs., 5:23; 6:21, 24 6:157 Fujifilm, 5:223 in FX market, 2:408 in equity valuation models, 5:246, full employment, 2:164 price discovery with, 6:40–41 252–253 full employment equilibrium GDP, pricing and valuation of, 6:80–82 free cash flow to the firm (FCFF), 2:163–164 rollover of, 5:102 3:310–311; 4:84n.6; 5:616n.25 full employment level of output, 2:150 swaps vs., 6:24 free float,5: 165n.24 full price, 1:379n.14; 5:413–417 futures commission merchants (FCMs), free float adjusted,1: 408n.13 full-replication approach, 1:586 1:151 free-float-adjusted market- fully amortized bonds, 5:318–320 futures markets, regulation of, 6:21 capitalization-weighted indexes, fully amortizing loans, 5:487 futures price, 6:18, 40–41 5:87 function of expense method, 3:512–513 future value (FV) free-floating currency regimes, functions, defined,2: 6 defined, 1:308 2:440–441 fundamental analysis, 1:680n.1, 682– future value of series of cash flows, Freeman Spogli & Co., 5:163 684; 5:128–129 1:316–318 free on board (FOB) shipping, 3:696 fundamental factor models, 4:377 with equal cash flows,1: 317–318 free operating cash flow to debt,3: 383 fundamental growth strategies, for with unequal cash flows,1: 318 Freeport-McMoRan Copper & Gold, hedge funds, 6:137 future value of single cash flow, 5:276 fundamentals 1:308–316 Freescale Semiconductor, 5:640–642 company, 5:613–617 with continuous compounding, free trade, 2:338, 343–344 industry, 5:613 1:314–315 free trade areas (FTAs), 2:362 in multiplier models, 5:266–267 frequency of compounding, French, Kenneth, 4:90n.15, 90n.16, 377; Fundamentals of Compliance (GIPS 1:312–314 5:133 Section I.0), 1:235–236 with interim cash reinvested at same French consumer price index (CPI), about, 1:234 rate, 1:309–310 5:370 recommendations, 1:236 for lump sum, 1:311–312 frequency requirements, 1:235–236 stated and effective rates for, absolute, 1:395 fundamental value, 5:119, 244. see also 1:315–316 of compounding, 1:312–314, 321–322 intrinsic value without interim cash, 1:310 cumulative, 1:396–400 fundamental value strategies, for hedge present and, 1:309, 338–339 relative, 1:396–400 funds, 6:137 F V. see future value frequency distributions, 1:393–401 fundamental weighting FX market. see foreign exchange market construction of, 1:394–396, 400–401 in multi-market equity indexes, 5:96 FX swaps, 2:409–410 cumulative, 1:404–405 of security market indexes, 5:89, 91 defined, 1:393 funding G and holding period formula, 1:394 short-term, 5:384–390 G–7, 2:239, 344 and relative frequency, 1:396–400 swap, 2:409–410 G-10, 2:278–279 frequency polygons, 1:403–404 travel, 1:63 G-20. see Group of Twenty frictionally unemployed (term), 2:222 fund manager relationships, 1:60, 70 GAAP. see generally accepted accounting frictionless markets, 4:384 fund mandate, change in, 1:170 principles Friedman, Milton, 2:217, 234, 435 funds “GAAP, decision-useful, but Friedman, Thomas,2: 64 for commodities investing, 6:169, 170 sustainable?” financial reports, FRNs. see floating-rate notes fair dealing between, 1:114–115 3:669–670 Frontier Airlines, 4:274n.30 structure of, 6:132–133 “GAAP, decision-useful, sustainable, and Frontiers of Finance Survey, 5:136 funds from operations (FFO), 5:615; adequate returns” financial reports, Frontline, 5:210 6:166 3:668–669 front-running, 1:187 funds from operations (FFO) interest gains FSA. see Financial Services Authority coverage, 3:383 capital, 5:316, 533, 569 FSB. see Financial Stability Board funds from operations (FFO) to debt, on debt forgiveness, 3:183 FTAs. see free trade areas 3:383; 5:617 extraordinary, 3:183 FTC. see US Federal Trade Commission funds of funds (FOFs) foreign exchange, 5:169 F-test benefits of,6: 146 on income statement, 3:153 for differences between variances, composites for, 1:251, 252 on marketable securities, 3:244 1:653 defined, 1:268; 6:134 from market timing, 1:562–564 F-distribution, 1:746–749 fee structures for, 6:139–140, 142 from trade, 2:349–352 FTSE 100 Index multi-strategy hedge funds vs., 6:138 from voluntary exchange, 2:343 line chart, 1:684–685 performance of, 6:134–135 Galileo space program, 5:225 as relative return objective benchmark, Private Equity (GIPS Section I.7), gambling, speculation vs., 6:43 4:421 1:249–251 game theory, 2:92–94 as relative risk objective benchmark, returns on, 6:139, 142, 143 gamma, 4:272 4:416 sample presentations of, 1:281–284 Gary, Elbert, 2:96

bind 40 June 17, 2017 4:16 PM Index I-41

Gascon, Henri (case study), 4:419–420, and arithmetic, 1:420–422 Treasury paper, 1:307n.3, 379n.16 422, 428–430 formula, 1:418–419 two-tier boards, 4:10 Gascon, Jacques (case study), 4:420–421 using, 1:458–459 underground economy, 2:124 gasoline market, concentration in, 2:107 geometric mean return, 1:419–422; Ghana, 2:287; 3:117; 5:96 GATS. see General Agreement on Trade 4:294–295 GICs. see Guaranteed Investment in Services Georgia, 3:115 Contracts GATT. see General Agreement on Tariffs German Asset Management Standards GICS. see Global Industry Classification and Trade Committee, 1:233 Standard Gazprom SP European Depositary German CFA Society, 1:233 Giffen, Robert,2: 21 Receipts (EDRs), 1:708, 709 Germany Giffen goods,2: 21 GB 250 Stamp Index, 6:175–176 auctions, 5:362 gifts GDF Suez, 1:425 automobile industry, 2:86 from clients, 1:67 GDP. see gross domestic product banking supervision, 2:278 limiting, 1:64 GDP deflator,2: 125–127 bank regulation, 3:105 from related parties, 1:66–67 GDRs. see global depository receipts bonds outstanding, 5:354, 360 Gillette, 5:176 GE. see General Electric BOP paired transactions, 2:374–376 gilts, 2:298–299; 5:367, 368 GE Capital Bank, 5:512 business investment, 2:177 Ginnie Mae. see Government National GE Capital Corporation, 5:512 civil law system, 4:27 Mortgage Association GE Capital Credit Card Master Note conservatism in, 3:682 GIPS. see Global Investment Trust Series 2013-1, 5:512 consumption expenditures, 2:139 Performance Standards General Agreement on Tariffs and Trade corporate governance systems, 4:14 GIPS Advertising Guidelines (GIPS (GATT), 2:382, 385 CPI, 2:229 Section III), 1:258–259 General Agreement on Trade in Services cumulative voting rules, 4:16 purpose, 1:258 (GATS), 2:385 currency regime, 2:435 advertisement defined,1: 258 General Dynamics, 1:412; 5:209 current account imbalance, 2:377, 380 and GIPS regulatory requirements, General Electric (GE), 2:105; 3:138, cyclically adjusted budget deficit,2: 317 1:258 717–718 disinflation, 2:227 information included in generally accepted accounting principles domestic and international debt advertisement, 1:258 (GAAP). see also entries for specific securities, 5:315 requirements, 1:258–259 countries, e.g.: US GAAP effects of global recession,2: 166 sample advertisements, 1:291–293 convergence of IFRS and, 3:115–117 employee representation on boards, with annualized returns, 1:291–292 financial reports with departures from, 4:19 with five years of annual returns, 3:677–678 equity risk premiums, 4:91 1:292–293 “GAAP, decision-useful, but EU membership, 2:362n.18 with period-to-date and annualized sustainable?” financial reports, exchange rate regime, 2:436, 440 returns, 1:292 3:669–670 fixed-income indexes,5: 357 GIPS Council, 1:228, 232 “GAAP, decision-useful, sustainable, flotation costs,4: 106 GIPS Executive Committee, 1:228 and adequate returns” financial foreign direct investment, 2:341, 342 clarifications by,1: 230, 235, 236, 261 reports, 3:668–669 frequency of capital budgeting, 4:67 implementation recommendations of, non-GAAP measures in financial GIPS sponsor, 1:233 1:231–232 reports, 3:672–676, 691–696 government liabilities/debt, 2:308 objectives of, 1:229 on REIT investing, 6:162 government revenues/expenditures, GIPS Handbook, 1:230, 235, 236, 261 “Within GAAP, but biased choices” 2:303, 304 GIPS Valuation Principles (GIPS Section financial reports,3: 670–676 government spending, 2:129 II), 1:254–257 “Within GAAP, but ‘earnings gross domestic product, 2:183–185 fair value, 1:254–255 management’” financial reports, hyperinflation, 2:226 and input data, 1:234, 237 3:676–677 IFRS adoption, 3:115 Private Equity (GIPS Section I.7), general meetings, 4:15–16 inflation-linked bonds,5: 326 1:249, 250 General Motors (GM) investments in BASF, 5:165 for private equity, 1:256, 257 diseconomies of scale for, 2:46 investment spending, 2:140 for real estate, 1:255–257 in method of comparables valuation, labor productivity, 2:181 recommendations, 1:256–257 5:269, 270 leading economic indicator, 2:243 requirements, 1:255–256 similar companies to, 5:189 management reporting requirements, Giro system, 4:178 two-factor analysis of, 5:209 3:26 Gitman, Lawrence, 4:108n.43 general obligation (GO) bonds, 5:650 MSCI multi-market index, 5:96 GlaxoSmithKline plc general partners (GPs) net borrowing/lending, 2:305 audit opinions on, 3:687 defined, 1:268 non-sovereign government bonds, capital budgeting at, 4:388–389 funds as, 6:132 5:371 in pharmaceutical industry, 5:189 in private equity investments, overconfidence and mispricing in ROE for, 5:173–175 6:149,150, 150, 158 markets, 5:137 stakeholder management at, 4:18 Genomic Solutions, 5:158–159 residential mortgage loans, 5:486, 487 strategic analysis, 5:219–221 Genzyme, 5:209 returns global bond mutual funds, 4:231 geographic classifications for fixed- on bonds, bills, and equities, 5:153 global bonds, 5:314 income markets, 5:354–355 real equity returns, 1:400 Global Commodity Composite, 1:295 geographic segments, financial analysis total returns, 1:408, 412 global debt markets, 5:349–350 for, 3:385–387 risk tolerance and equity ownership, global depository receipts (GDRs), 5:167 geometric average of forward rates, 5:154–155 global economic developments, IMF 5:441 sovereign bonds, 5:367–369 analysis of, 2:383 geometric mean, 1:418–422 trade balance with US, 2:130 Global Equity Composite, 1:225

bind 41 June 17, 2017 4:16 PM I-42 Index

global equity markets, 5:349–350 overview, 1:233–235 industry concentration and pricing global ETFs, 4:234 Presentation and Reporting (Section power, 5:209 global finance markets I.5), 1:242–244 QUIDS at, 5:300 and depository receipts, 5:166–169 Private Equity (Section I.7), short interest ratio, 1:720 direct investing, 5:165–166 1:249–252 Goldman Sachs Commodity Index. see equity securities in, 5:150–155 Real Estate (Section I.6), 1:244–248 S&P GSCI integration and growth in, 5:164–165 Wrap Fee/SMA Portfolios (Section gold standard, 2:277, 434 global financial crisis (2007-2009) I.8), 1:252–254 good-on-close orders, 5:48 corporate governance and, 4:6 purpose, 1:227 good-on-open orders, 5:48 deflation in,2: 226 sample advertisements, 1:291–293 goods ethical dimensions of, 1:15 with five years of annual returns, capital, 2:128 housing sector behavior in, 2:211 1:292–293 cost of goods sold, 3:63, 228, 351 IMF operations after, 2:383 with one-, three-, and five-year discretionary, 2:12 media’s effect on regulation following, annualized returns, 1:291 durable, 2:209 4:27 with period-to-date and one-, three-, elasticity of demand for, 2:12 political pressure to amend standards and five-year annualized returns, final, 2:121 in, 3:114 1:292 Giffen, 2:21 velocity of money in, 2:236 sample presentations, 1:274–290 inferior, 2:15, 19–23 volatility and, 1:654–655 asset management company, intermediate, 2:121 global financial reporting standards, 1:275–276 manufacturers’ new orders for, 2:240 3:113–117. see also International investment firm balanced growth non-discretionary, 2:12 Financial Reporting Standards composite, 1:274–275 nondurable, 2:209 (IFRS) large-cap SMA composite, 1:288–290 normal, 2:15, 19–23 Global Industry Classification Standard private equity with fund of funds by substitution and income effects on, (GICS), 5:189 strategy, 1:281–284 2:19–23 common-size analysis using, 3:198– private equity with fund of funds by value of, 2:123–124 199, 255 vintage year, 1:284–286 Veblen, 2:21 identifying similar companies with, private equity with primary fund goods markets, 2:128 5:190 vehicle, 1:286–288 good-till-cancelled orders (GTCs), 5:48 levels of, 5:192 real estate with closed-end funds, goodwill Global Integrated Monetary and Fiscal 1:279–281 accounting, 3:240 Model, 2:322 real estate with open-end funds, analyst adjustments for, 3:762–764 Global Investment Performance 1:277–279 on balance sheets, 3:239–242 Standards (GIPS), 1:126, 157, solutions to problems, 1:299 from business combinations, 223–299; 5:61 sponsors, 1:232–233 3:480–481 compliance structure, 1:226 defined, 3:48n.3, 478 benefits of,1: 224–225 Verification (GIPS Section IV), economic, 3:240 claiming, 1:224, 231 1:225–226, 260–264 and financial reporting issues,3: 706 GIPS-compliant historical and performance examinations, financial reporting issues with,3: 712 performance, 1:230–231 1:264 on income statements, 3:180 composites, 1:225 required procedures, 1:261–264 ratio comparisons for, 3:763–764 effective date,1: 231 scope and purpose, 1:260–261 valuation of, 3:237–238 GIPS Advertising Guidelines (GIPS website, 1:230, 235, 236, 261 goodwill impairment, 3:241–242 Section III), 1:258–259 Global Investment Performance Google, 2:64; 3:111–112; 4:13, 292 purpose, 1:258 Standards Committee, 1:228 Gootkind, Christopher L., 5:608n.21 requirements, 1:258–259 globalization, 2:338–339, 342–343 Gordon, Myron J., 4:93n.22 GIPS Valuation Principles (GIPS global macro strategies, 4:236 Gordon growth model, 5:256–261 Section II), 1:254–257 global minimum-variance portfolios, applying, 5:258–259 fair value, 1:254–255 4:338 and dividend discount model based recommendations, 1:256–257 global registered shares (GRSs), 5:168 approach, 4:92 requirements, 1:255–256 Global Reporting Initiative (GRI), 4:38 justified value of price multiple from, glossary of terms, 1:264–273 Global S&P REIT index, 6:126 5:266 historical background, 1:228 global supply chains, 2:343 with no current dividend, 5:260–261 implementation of, 1:231–232 Global Sustainable Investing Alliance Gosset, W. S., 1:597n.16 List of Composite Descriptions (GSIA), 4:38 governance (Section V.0.1), 1:294–297 GM. see General Motors corporate (see corporate governance) need for, 1:223–224, 229 GNP. see gross national product risk, 4:253–260 objectives, 1:229 GO bonds. see general obligation bonds defined, 4:247 overview, 1:230 gold for enterprises, 4:253–255 practice problems, 1:298 correlation with other asset classes, establishing risk tolerance level, provisions, 1:233–254 4:432 4:255–257 Calculation Methodology (Section forward contracts on, 5:21–22 example, 4:259–260 I.2), 1:237–238 Goldcorp, 5:276 with risk budgeting, 4:257–259 Composite Construction (Section golden cross pattern, 1:708 governance codes, 4:34 I.3), 1:238–239 Goldman Sachs governance committee, 4:23 Disclosure (Section I.4), 1:239–242 accounting for financial liabilities, government(s) Fundamentals of Compliance 3:613 ethical principles and laws by, 1:7–8 (Section I.0), 1:235–236 callable preference shares, 5:160 in FX market, 2:413 Input Data (Section I.1), 1:237 as dealers, 5:30 and industry analysis, 5:203, 224–226

bind 42 June 17, 2017 4:16 PM Index I-43

regulation of monopolies, 2:105–106 public sector spending, 2:263 Calculation Methodology (GIPS revenue from alternative trade policies, residential mortgage loans, 5:487 Section I.2), 1:238 2:360 total returns, 1:408, 411 defined, 1:268 shareholder conflicts with,4: 13 underground economy, 2:124 Disclosure (GIPS Section I.4), 1:240 as stakeholders, 4:10 the “Greeks,” 4:272 GIPS Advertising Guidelines (GIPS and strategic analysis, 5:220 green bonds, 4:40 Section III), 1:259 governmental industry classification greenfields, constructing,5: 211 Presentation and Reporting (GIPS systems, 5:196–197 Green Mountain Coffee Roasters,1: 412 Section I.5), 1:243, 244 ANZSIC system, 5:196 Greenspan, Alan, 2:216 Private Equity (GIPS Section I.7), 1:250 ISIC system, 5:196 grey market, 5:361 Real Estate (GIPS Section I.6), 1:246, NACE system, 5:196 GRI. see Global Reporting Initiative 248 NAICS system, 5:197 gross domestic product (GDP), gross-of-fees SI-IRR, 1:247, 251 governmental infrastructure, 4:14 2:120–136 gross profit,3: 154 government bond mutual funds, 4:231 in business cycles, 2:212 and inflation,3: 413–414 government bonds, 4:432 components of, 2:127–131 and inventory valuation method, government-controlled authorization, contributions to global, 5:150–151 3:408–410 2:97, 104 and cyclically adjusted budget deficit, and LIFO liquidation, 3:422, 424–425 government debt, 2:262, 316. see also 2:317 in periodic vs. perpetual inventory national debt; sovereign debt equilibrium, 2:163–173 systems, 3:410–412 government equivalent yield, 5:423 inflationary gap,2: 167–168 gross profit margin,3: 364, 365 government expenditures long-run equilibrium, 2:163 calculating, 3:414 and business cycle theories, 2:221 recessionary gap, 2:163–167 and conversion from LIFO to FIFO, and fiscal policy,2: 303–306 stagflation, 2:169–170 3:420–421 Government National Mortgage external sector, 2:130–131 defined, 3:365 Association (Ginnie Mae), 5:490, and foreign direct investment, and income statement ratios, 3:200 503 2:341–342 on income statements, 3:154 Government of Singapore Investment GNP vs., 2:336–337 inventory management with, 3:434, Corporation, 4:221 and government liabilities/debt, 2:308– 435 government policies, as risk drivers, 309; 5:648 and inventory write-downs, 3:433 4:270 and government revenues/ in ratio analysis, 3:333 government receipts, fiscal policy and, expenditures, 2:303–304 gross reporting of revenue, 3:165–166 2:303–306 government sector, 2:129–130 gross return, 4:301–302 government-related sector, 5:348–349 household and business sectors, 2:128 group decision making, 1:157 government sector, 2:129–130; long-run growth rate vs. fluctuations Groupe Danone (Danone) 5:348–349 in, 2:150–151 cash flow statement,3: 304–305 government services, in GDP, 2:123 measuring, 2:120–123 income statement, 3:151–154, 187 government spending, 2:129–130 and net borrowing/lending, 2:305 market capitalization, 1:426 and aggregate demand, 2:137–138, 155 nominal, 2:124–127 segment ratio evaluation, 3:386–387 current, 2:311 and other income measures, 2:131–136 grouping by function (term), 3:154 and fiscal policy,2: 153 in performance projections, 3:740 grouping by nature (term), 3:154 and taxes, 2:314–315 potential, 2:159 Group of Twenty (G-20), 5:476 government-sponsored enterprises and demand-pull inflation,2: 235 Groupon, 3:693–696 (GSEs), 5:371, 490 and long-run equilibrium GDP, 2:163 group research, 1:157, 160 GPs. see general partners (GPs) measuring growth of, 2:179–181, growth Graham, Benjamin, 1:683 183–184 economic, 2:173–185 Graham, John, 4:108 production function of, 2:174–175 and aggregate demand, 2:155 grand supercycle, Elliott wave, 1:726 and price indexes, 2:231 in China, 2:179 graphic presentations of data, 1:401–405 and production function, 2:174–175 in Mexico, 2:182 for financial analysis,3: 345–347 real, 2:124–127 production function and potential frequency polygons and cumulative and economic growth, 2:173 GDP, 2:174–175 frequency distributions, 1:403–405 identifying recession with, and real GDP, 2:173 histograms, 1:402–403 2:203–204 RTAs and spillovers of, 2:364 Great Depression, 2:213, 226, 381–382 and international trade, 2:344 sources of, 2:176–179 “greater than” alternative hypothesis, in Japan, 2:172–173 sustainable, 2:173, 179–185 1:626, 627, 653–654 and shifts in aggregate supply/ and trade, 2:340–341 GreatWall Information Industry Co., demand, 2:170–173 industry, 5:613 Ltd., 1:734, 738 in sovereign credit analysis, 5:647 growth cyclical companies, 5:191n.3 Greece sustainable growth in, 2:183–184 growth industries, 5:190, 191, 221 EU membership, 2:362n.18 trade-to-GDP ratio, 2:339–342 growth investors, 3:754 exchange rate regime, 2:436 values of goods and services, growth rate(s) exports of service, 2:337 2:123–124 solving TMV problems for, 1:331–333 fiscal crisis (2010),2: 365–366, gross investment, aggregate demand sustainable, 4:93 383–384, 386–388 and, 2:139 growth stage (industry life-cycle), as GIPS country sponsor, 1:233 gross margin, financial reporting quality 5:214–215 government debt, 2:262 and, 3:716 growth stocks, 5:97 government spending, 2:130 gross national product (GNP), 2:120n.2, growth strategies, for hedge funds, 6:138 labor productivity, 2:181 336–337 growth theory, 2:174–175 MSCI multi-market index, 5:96 gross-of-fees, 1:268 GRSs. see global registered shares national debt, 2:307 gross-of-fees returns Grupa Zywiec SA, 5:658, 666

bind 43 June 17, 2017 4:16 PM I-44 Index

GSEs. see government-sponsored macro strategies, 6:137 high water marks enterprises relative value strategies, 6:136–137 for fund investments, 6:133 G-spread, 5:442, 445 and leverage, 6:143–144 hedge funds, 6:140 GTCs. see good-till-cancelled orders performance of, 6:134–135 high-yield bond mutual funds, 4:231 guarantee certificates,5: 382 as pooled investments, 4:235–236; 5:19 high yield bonds. see non-investment- Guaranteed Investment Contracts and redemptions, 6:144–145 grade bonds (GICs), 1:319–322 registration of, 6:144 high-yield credit analysis, 5:638–645 Guatemala, 2:287; 3:116 returns, 6:131, 139–143 corporate structure in, 5:642–643 Guggenheim Mid Cap Value Fund Class risks of, 6:132, 178 covenant analysis, 5:643–644 A, 1:435 sample selection bias for, 1:607 debt structure and leverage in, Guidance Statements, GIPS, 1:230, 235, shareholder activism with, 4:26 5:640–642 236, 261 Sharpe and Sortino ratios, 6:131 equity-like approach to, 5:644–645 Gulf Cooperation Council, 4:24 valuation issues, 6:145–146 financial projections for,5: 639–640 Gulf of Mexico oil spill (2010), 4:37 hedge portfolios, 6:46 liquidity in, 5:638–639 Gupta, Parveen, P., 1:640 hedgers, 5:9–10, 21, 39 and non-investment grade ratings, hedges, risk budgeting with, 4:259 5:638 H hedging high-yield indexes, 5:99 hackers, 4:264 with credit default swaps, 6:32 Hillenbrand, Inc., 5:199 “haircuts,” 5:388; 6:146 with derivatives, 6:67–68 Hirschleifer, John, 4:82n.2 Hall, Martin, 4:176n.6 with forward contracts, 6:17 Hirschman, A. O., 2:107 Halliburton, 5:219–221 with futures, 6:21 histograms, 1:402–403 Hamada, Robert S., 4:96n.28 in FX markets, 2:407 historical cost, 3:123 Hang Seng Index, 1:444; 4:213–215 inflation hedges,6: 158, 170–171 historical equity risk premium approach, hard hurdle rate, 6:139 in OTC derivatives market, 6:12 4:90–92 Harley-Davidson Credit Corp., 5:479, hedging pressure hypothesis, 6:173 historical mean return, 4:307–308 480 held-for-sale assets, impairment of, historical performance, GIPS-compliant, Harley-Davidson Motor Company 3:509 1:230–231 customer loyalty to, 2:84 held for trading (term), 3:243 historical returns, 4:307–312 RSI for, 1:693 held-to-maturity (term), 3:242 of alternative investments, 6:125 securitization by, 5:479–480, 482 Hellenic CFA Society, 1:233 of commodities, 6:170 Harley-Davidson Motorcycle Trust herding behavior, 5:137 estimating cost of equity with, 4:90–92 2005-2, 5:479, 480 HERE, 3:674 historical mean return and expected harmonic mean, 1:422–423 Herfindahl, O. C.,2: 107 return, 4:307–308 harmonic series, 1:422n.25 Herfindahl–Hirschman Index (HHI), of investment classes, 6:126 Harmonized Index of Consumer Prices 2:107–108 nominal and real returns of asset (HICP), 2:230; 5:370 Hershey, 5:219–221 classes in other countries, Harvard University, 4:218 Herstatt risk, 4:262n.19 4:310–311 Harvey, Campbell R., 4:101n.32, heterogeneous beliefs assumption, 4:395, nominal returns of major US asset 102n.36, 108 398–399 classes, 4:308–309 HBOS, 5:324 heuristics, 6:157n.30 of private equity investments, head and shoulders patterns, 1:697–701 Hewlett-Packard Company 6:155–156 about, 1:697–698 cash flow analysis of comparables, of real estate investments, 6:164–165 determining price targets from, 1:700 3:312–313 real returns of major US asset classes, inverse, 1:699–701 cross-sectional common-size analysis, 4:309–310 setting price targets with, 1:698–701 3:258–260 risk–return tradeoff for,4: 311–312 headline inflation,2: 230–231 evaluation of liquidity measures, 3:358 historical risk Health Care sector, 5:193 peer groups for, 5:200 risk of major asset classes, 4:311 health risk, 4:266 two-factor analysis, 5:209 risk–return tradeoff,4: 311–312 healthy corrections, 1:703 HFRI. see Hedge Fund Research, Inc. historical simulation, 1:564–565 heavy truck industry, similar companies HFRI Fund of Funds Index, 6:134 HKMA. see Hong Kong Monetary in, 5:189 HFRX Equal Weighted Strategies EUR Authority Heckscher–Ohlin model, 2:343, 354–355 Index, 5:104 HKSE. see Hong Kong Stock Exchange hedge fund indexes, 5:102; 6:125, 143 HFRX Global Hedge Fund Index, 5:104 HM Treasury, 5:306 Hedge Fund Research, Inc. (HFRI), hhgregg, 5:162 holder-of-record date, 5:249 6:134, 135 HHI. see Herfindahl–Hirschman Index holding companies, 5:306, 642 hedge funds, 6:133–149 Hibor. see Hong Kong interbank offered holding-period rate of return, 5:571 about, 6:133–135 rate holding period return (HPR), 4:293 as alternative investments, 5:15; 6:124 H I C P. see Harmonized Index of defined, 1:369, 394 classifying, 6:135 Consumer Prices finding ending value of investment defined, 5:102; 6:128 hidden orders, 5:47–48 with, 1:556 diversification benefits,6: 138–139 highest requirement, following, 1:56 formula, 1:394 downside frequencies, 6:131 high net worth investors and time-weighted rate of return, due diligence, 6:146–148, 178 alternative investments of, 6:125, 1:372 fees, 6:139–143 127–128 holding periods global assets under management, 6:125 commercial property investment by, CAPM assumptions about, 4:384 historical returns and volatility, 6:126 6:162 for private equity investments, 5:163 investment strategies for, 6:135–138 high-quality financial reports holding period yield (HPY), 1:378, 380 equity hedge strategies, 6:137–138 and earnings quality, 3:667 holiday effect,5: 132 event-driven strategies, 6:136 on spectrum of quality, 3:668–670 Home Depot, 4:274; 5:208, 216–217

bind 44 June 17, 2017 4:16 PM Index I-45

Homestead Small Company Stock Fund, housing sector, cyclical behavior of, IBRD. see International Bank for 1:435 2:210–211 Reconstruction and Development homogeneity of expectations assumption, HPR. see holding period return ICB. see Industry Classification 4:365–366, 384–385, 400 HPY. see holding period yield Benchmark Honda Motor Company, 2:86; 5:189, 270 H&R Block, Inc., 5:199 iceberg orders, 5:47 Honduras, 3:116 HSBC Holdings, 2:414; 4:365–366 Iceland, 2:287, 437 Honeywell, 2:105 human capital ICMA. see International Capital Market Hong Kong collateral of companies based on, 5:626 Association Asian financial crisis,2: 343 defined, 4:255n.12 IDA. see International Development common law system, 4:27 and economic growth, 2:176 Association effects of global recession,2: 166 and long-run aggregate supply, 2:159, ideal currency regime, 2:433 exchange rate regime, 2:436, 438–439 160 identifiable intangible assets,3: 238–239 exchange rate targeting, 2:294 human rights, 4:37, 39 if-converted method for diluted earnings external trade sector, 2:211 Hungary per share, 3:190–192 GIPS country sponsor, 1:233 exchange rate regime, 2:437 IFRS. see International Financial and IFRS, 3:116 GIPS country sponsor, 1:233 Reporting Standards margin requirements of, 5:41 government debt, 2:262 IFRS Foundation, 3:106–107 mean and standard deviation of stock hyperinflation, 2:226 IG Group plc, 5:30 returns, 1:444, 445 inflation targeting,2: 287 IID returns. see independently and in MSCI EAFE, 1:408 MSCI multi-market index, 5:96 identically distributed returns MSCI multi-market index, 5:96 public sector spending, 2:263 IKEA, 5:164 regulatory authorities, 3:685 hurdle rate, 1:365; 6:139 illegal activity, disclosure of, 1:132 risk tolerance and equity ownership, Hurricane Katrina, 5:212 illiquid asset investments 5:155 Hutchison Whampoa, 4:210–213 due diligence with, 6:178 Hong Kong dollar hybrid derivatives, 6:35 and historical returns, 6:126–127 AUD/HKD exchange rate, 2:404–406, hybrid ETFs, 4:234 risk issues with, 6:177 410–412 hybrid funds, 4:229–230, 232–233 valuation of, 6:146 currency code, 2:401 hybrid mortgages, 5:487 ILO. see International Labour exchange rate regime for, 2:438–439 hybrid securities, 5:596n.4 Organization international bonds outstanding in, 5:351 Hynix, 5:209 IMF. see International Monetary Fund Hong Kong interbank offered rate hyperinflation, 2:226–227 IMM. see International Monetary (Hibor), 5:301, 353 hypothesis(-es) Market Hong Kong Monetary Authority alternative, 1:626–627, 653–654 immediate or cancel orders (IOCs), (HKMA), 2:438–439 defined, 1:625 5:48 Hong Kong Monetary Authority formulations of, 1:626–627 impact investing, 4:40 Investment Portfolio, 4:221 null, 1:626–627 impact lag, 2:318 Hong Kong Securities and Futures hypothesis testing, 1:593, 623–678 Impairment of Assets (IAS 36), 3:506 Commission, 5:29 with correlation, 1:657–660 impairments Hong Kong Society of Financial in data mining, 1:603–604 financial reporting quality and,3: 718 Analysts, 1:233 nonparametric inference, 1:656–660 of goodwill, 3:241–242 Hong Kong Stock Exchange (HKSE) and parametric tests, 1:656–657, 660 of intangible assets, 3:237, 508–509 GDRs on, 5:167 and tests with correlation, 1:657–660 of long-lived assets, 3:506–509, 681 HSBC Holdings on, 4:365–366 use of, 1:656–657 of PPE, 3:236, 507 total market capitalization in, 5:152 practice problems, 1:664–671 imperfect competition. see also volatility of returns, 4:210–213 p-value approach, 1:633–634 monopolistic competition warrants on, 5:333 solutions to problems, 1:672–678 breakeven analysis in, 2:40–41 Honus Wagner baseball card, 6:176n.39 steps in, 1:625–633 marginal revenue in, 2:29–30 Hopkins, Sheila, 1:724 tests with means, 1:634–650 revenue in perfect vs., 2:35–36 horizontal common-size analysis, mean differences,1: 641–650 implementation 3:197n.50, 339, 342–344 single mean, 1:634–641 compliance education and training, horizontal demand schedule, 2:71–72 tests with variance, 1:650–656 1:149 horizontal equity, 2:312 equality of two variances, 1:652–656 ESG considerations, 4:39–40 horizon yield, 5:532–536, 571 single variance, 1:650–652 fiscal policy,2: 316–319 host country, for FDI, 2:341 uses of, 1:624 GIPS, 1:231–232 Hostess, 4:274n.30 Hyundai, 5:189 investment strategy, 4:439–443 hostile takeovers, 4:26 Hyundai Steel, 1:331 implicit interest rate, 3:536–537 Hotchkis and Wiley Mid Cap Value A implicit price deflator for GDP, Fund, 1:435 I 2:125–127 Hotchkis and Wiley Small Cap Value A IAS. see International Accounting implied forward rates, 5:438 Fund, 1:435 Standards implied volatility, 6:41 hot issue securities, 1:112 IASB. see International Accounting import license, 2:359 hours worked, 2:224 Standards Board imports household saving rate, 2:134, 152, 209 Ibbotson, Roger G., 1:428–430; 4:95n.27 in balance of trade, 2:374 household sector, 2:119–120, 128 Iberdrola, 1:425 in business cycles, 2:211, 212 household wealth, aggregate demand IBM (International Business Machines) defined, 2:337 and, 2:151–152 and Logitech, 2:344 exchange rate and prices of, 2:155 housing industry, demographic presentation choices by, 3:691 terms of trade for, 2:337–338 influences in,5: 224 security selection example, 4:440 import-substitution policy, 2:352n.10 housing prices, 2:152, 155 yield spread, 5:443, 444 impulse wave, 1:725–727

bind 45 June 17, 2017 4:16 PM I-46 Index

inadequate compliance procedures, and portfolio management, 4:222 discontinued operations, 3:182 1:147, 152 real, 2:18–19 extraordinary items, 3:182–183 inadequate supervision, 1:152–153 taxable, 3:566–571 unusual and infrequent items, “in arrears” payment structure, 5:426 total comprehensive, 3:201 3:183–184 InBev USA LLC, 3:481, 743, 744 income approach to GDP, 2:120, 131–133 practice problems, 3:207–211 incentive fees income approach to real estate valuation, revenue recognition, 3:155–171 for fund investments, 6:133 6:165–166 accounting standards issued May for hedge funds, 6:139–140 income effects 2014, 3:168–171 for private equity, 6:150 on elasticity of demand, 2:12 for barter transactions, 3:165 incentives on Giffen and Veblen goods,2: 21 and financial statements,3: 167–168 establishing appropriate structures for, and law of demand, 2:18–19 general principles, 3:156–159 1:150 on normal and inferior goods, 2:19–23 and gross vs. net reporting of for low-quality financial reports, in perfectly competitive markets, 2:69 revenues, 3:165–166 3:683–684 with price decrease, 2:20–23 for installment sales, 3:164–165 for monopolist firms,2: 100–101 income elasticity of demand for long-term contracts, 3:160–163 in stakeholder management, 4:18 calculating, 2:16 in special cases, 3:159–166 in tax policy, 2:312 for consumers, 2:14–15 solutions to problems, 3:212–215 incident-reporting procedures, 1:137 in perfect competition, 2:72–73 vertical common-size, 3:340–341 income income inequality, 2:344 income sub-account, BOP, 2:371 adjusted CSOI, 3:693–696 income per capita measure, 5:647 income taxes, 3:565–602 aggregate, 2:119–136 income returns and accounting profit vs. taxable in economy, 2:119–120 defined, 1:268 income, 3:566–571 and expenditures, 2:137–144 Real Estate (GIPS Section I.6), 1:246 cash for, 3:295 in gross domestic product, 2:120–136 income statement method of tax current and deferred tax, 3:582–585 real personal, 2:241 recognition, 3:576n.3 disclosure of tax information, comprehensive income statement ratios, 3:199–201 3:586–591 defined, 3:49n.4, 249n.21 income statements, 3:149–215 IFRS vs. US GAAP, 3:566, 591–594 IFRS on, 3:201, 204 accounts on, 3:49–51 and inventory method changes, 3:426 on income statements, 3:201–204 analysis of, 3:16–19, 197–201 practice problems, 3:596–600 on statement of comprehensive common-size, 3:197–199, 340–341 presentation, 3:586–591 income, 3:19–20 income statement ratios, 3:199–201 solutions to problems, 3:601–602 US GAAP on, 3:201, 204 and cash flow statements,3: 288–289 and taxable vs. accounting profit, Conceptual Framework on, 3:122 common-size analysis of, 3:197–199, 3:576–581 and consumer installment debt, 2:242 340–341 tax bases, 3:571–576 and consumer spending, 2:209 components and format, 3:151–155 of assets, 3:571–573 convergence of, 2:175 for CRA International Inc., 3:155 and changes in tax rates, 3:575–576 deferred, 3:232 for Groupe Danone, 3:151–154 of liabilities, 3:573–575 disposable, 2:134, 209, 315, 378 for Kraft Foods, 3:152–153 unused tax losses and credits, from foreign investments, 2:376 comprehensive income on, 3:201–204 3:581–582 and GDP, 2:131–136 consolidated Income Taxes (ASC 740), 3:566 on income statements, 3:156 of Alcatel-Lucent, 3:441–442 Income Taxes (IAS 12), 3:566, 573, interest, 5:536 of Volvo Group, 3:429 576n.3, 578, 580, 581 national, 2:133, 377 defined, 3:49 income tax paid, 3:567 net, 3:298–301 disclosures about long-lived assets in, income tax payable, 3:230, 233, 567 and asset revaluations, 3:503–504 3:512–513 income trusts, 5:224–225 coefficient of variation of,3: 380 earnings per share, 3:151n.5, 187–197 increasing marginal returns, 2:23 defined, 3:49, 154 basic, 3:188–190 increasing returns to scale, 2:45 and direct method for overall changes in, 3:196–197 incremental cash flow,4: 51 statement of cash flows,3: 297–298 diluted, 3:190–196 incremental cash flows,1: 362n.1 on income statement, 3:154 and simple vs. complex capital incremental costs, 3:171 and indirect method for overall structure, 3:188 indefinite lives, intangible assets with, statement of cash flows,3: 298–301 expense recognition, 3:172–181 3:509 per employee, 3:380 and amortisation, 3:180 indenture. see bond indenture relationship of cash flow and,3: 715 applications, 3:176–180 independence in ROE, 5:172–174 and depreciation/amortisation, of central banks, 2:288, 323 net operating, 5:504; 6:165 3:177–180 of directors, 4:21 operating for doubtful accounts, 3:176 in probability, 1:476 adjusted consolidated segment, and financial analysis,3: 181 for random variables, 1:506 3:693–696 general principles, 3:172–176 Independence and Objectivity [Standard coefficient of variation for,3: 380 for warranties, 3:176 I(B)], 1:58–70 and enterprise value, 5:275–276 function, 3:150–151 application of the standard, 1:64–70 and operating leverage, 4:140 information provided by, 3:70 compliance procedures, 1:63–64 other comprehensive interest costs on, 3:486 guidance, 1:58–63 accumulated, 3:248–249 leases on, 3:529 buy-side clients, 1:59 defined, 3:49n.4, 201 LIFO liquidation on, 3:423 credit rating agency opinions, 1:61–62 on income statements, 3:203–204 non-operating items, 3:186–187 fund manager and custodial on statement of comprehensive non-recurring items, 3:181–187 relationships, 1:60 income, 3:19–20 and changes in accounting policies, influence in manager selection/ personal, 2:133–134 3:184–186 procurement process, 1:62

bind 46 June 17, 2017 4:16 PM Index I-47

investment banking relationships, business investment, 2:177 information-motivated trading by, 1:60–61 capital goods expenditures, 2:128 5:10–12 issuer-paid research, 1:62–63 common law system, 4:27 raising of equity capital by, 5:9 performance measurement and comparative advantage, 2:348–352, rationality of markets vs., 5:137 attribution, 1:61 354, 355 risk management by, 5:9–10 public companies, 1:61 coupon payment structures, 5:323 savings of, 5:7–8 travel funding, 1:63 CPI, 2:229 spot market trading by, 5:10 text of, 1:44, 58 debt and equity outstanding, 5:350 Indonesia independence policies, 1:64 demand for commodities, 6:167–168 Asian financial crisis,2: 343 independent analysis, 1:97 domestic and international debt business investment, 2:177 independent contractors, 1:136–137 securities, 5:315 exchange rate regime, 2:437 independent events, 1:485–488 effects of global recession,2: 166 floating-rate bonds,5: 369 independent float currency regimes,2: 437 exchange rate regime, 2:437 foreign investment, 5:164 independently and identically exports from, 2:337, 354 IFRS adoption, 3:116 distributed (IID) returns, 1:556 foreign direct investment, 2:341, 342 inflation targeting,2: 287 independent practice, 1:134 globalization of production, 2:342 MSCI multi-market index, 5:96 independent projects, 4:51 as growth country, 5:190n.2 industrial countries, terms of trade for, independent samples, hypothesis tests IFRS adoption, 3:116 2:337 for, 1:641–646 labor supply, 2:176 industrial loans, 2:241 indexed-annuity bonds, 5:327 MSCI multi-market index, 5:96 Industrial/Producer Durables sector, indexed-referenced ARM, 5:487 one-tier boards, 4:10 5:193 indexes, 5:78. see also security market pension fund investment restrictions, Industrial Production Index, 2:241 indexes; specific indexes 4:426 industry(-ies) appraisal, 6:163 regulatory authorities, 3:685 in company analysis, 5:229–230 bond, 1:586–587 reserve requirements, 2:285 defined, 5:189 calculated statistical, 1:717–720 trade balance with US, 2:131 describing, 5:202–203 for collectibles investments, 6:175–176 underground economy, 2:124 diversification according to,4: 427 commodity, 5:101; 6:126, 168–169 Indian rupee, 2:401 fundamentals of, 5:613 diffusion, 2:242n.a, 244 indicators, economic. see economic ICB definition,5: 192 fixed-income, 5:98–100, 357–358 indicators peer group vs., 5:200 hedge fund, 5:102; 6:125, 143 indifference curves performance of, 5:202–203 managing to, 1:121 of optimal investor portfolio, recovery rate variation by, 5:598 price return, 5:79–81 4:342–343 as risk drivers, 4:270 of real estate returns, 6:163–165 in portfolio selection, 4:322–324 statistics on fundamentals for, 5:613 relative strength, 1:712–714 and risk aversion, 4:317–319 structure of, 5:612 security market, 5:77–114 and strategic asset allocation, 4:437 industry analysis, 5:187–242 for alternative investments, 5:101–104 indirect currency quote, 2:418 and company analysis, 5:228–232 construction of, 5:82–91 indirect exchange rate, 2:418 in credit analysis, 5:614–615 defined, 5:78 indirect-format statements, 3:68, elements of, 5:229–232 equity indexes, 5:95–97 279–282 spreadsheet modeling in, 5:232 fixed-income indexes,5: 98–100, 357 indirect investment defined, 5:188 index values over multiple time in commercial real estate, 6:162 describing industries for, 5:202–203 periods, 5:81–82 in infrastructure assets, 6:174 external influences,5: 222–228 management, 5:91–93 in real assets, 5:26 in airline industry, 5:227–228 origins of, 5:78 indirect method for cash flow from demographic, 5:223–224 practice problems, 5:106–111 operating activities, 3:706–707 governmental, 5:224–226 representative, 5:103–104 indirect method for overall statement of macroeconomic, 5:222 single-period returns for, 5:79–81 cash flows,3: 298–301 social, 5:226–227 solutions to problems, 5:112–114 adjustments to net income, 3:298–301 technological, 5:222–223 uses of, 5:93–95 converting direct method and, industry classification systems, short-term trading, 1:720–722 3:301–302 5:192–202 total return, 5:79–82 defined, 3:23, 278–279 commercial, 5:192–196 index funds indirect taxes, 2:311, 313 governmental, 5:196–197 actively managed funds vs., 4:232 Inditex, 1:425 and peer groups construction, diversification with,4: 334 individual investors 5:198–202 ETFs vs., 4:233, 235 and enterprise risk management, strengths and weakness, 5:197 indexing, 1:586 4:254–255 practice problems, 5:237–240 index-linked bonds, 5:325–328 operational risks for, 4:266 with similar companies, 5:189–191 Index of Leading Economic Indicators portfolio management for, 4:216 solutions to problems, 5:241–242 (LEI), 1:682; 2:239, 242 risk drivers for, 4:271 strategic, 5:204–222 index swaps, 6:36 risk interactions for, 4:267–268 barriers to entry in, 5:206–208 index weighting of security market risk management as concern of, 4:244 capacity in, 5:211–212 indexes, 5:83–91 risk management process for, 4:251 example, 5:219–222 equal weighting, 5:85–86 risk tolerance of, 4:256n.14 five forces framework,5: 205–206 fundamental weighting, 5:89, 91 individually managed accounts, 4:235; industry concentration in, 5:208–211 market-capitalization weighting, 6:170 industry life-cycle model in, 5:213–218 5:87–90 individuals market share stability in, 5:212–213 price weighting, 5:83–85 borrowing by, 5:8 price competition in, 5:218–219 India financial system functions for,5: 7–12 uses, 5:188–189

bind 47 June 17, 2017 4:16 PM I-48 Index

industry capacity. see capacity price indexes, 2:227–231 nonpublic Industry Classification Benchmark in stagflation,2: 169–170 acting on, 1:91, 94 (ICB), 5:189–190, 192–193 targets for, 2:289–290 analyst recommendations as, 1:93–94 industry classification systems, types of, 2:233–236 controlling, 1:92 5:192–202 and unemployment, 2:221–222 defined, 1:86 commercial, 5:192–196 unexpected, 2:281–283 standards for priority of transactions example, 5:194–196 inflationary gap,2: 167–168 with, 1:186 GICS standard, 5:192 inflation duration,5: 574 in strong-form efficient markets,5: 128 ICB system, 5:192–193 inflation hedges,6: 158, 170–171 out-of-date, 1:80–81 representative sectors in, 5:193–194 inflation-linked bonds (linkers),5: 325– outside, 1:75 RGS system, 5:192 328, 370 potential misrepresentation of, 1:77 governmental, 5:196–197 inflation premium,1: 307 public, 5:125–128 ANZSIC system, 5:196 inflation-protected bond mutual funds, retention of, on new media, 1:175 ISIC system, 5:196 4:231 from SEC forms, 3:110–113 NACE system, 5:196 inflation rate,2: 167n.18, 225–226, 297 supplementary, 1:272; 3:11–12 NAICS system, 5:197 Inflation Reports,2: 289 verification of outside,1: 75 and peer group construction, inflation targeting,2: 287–293 information-acquisition costs, 5:123–124 5:198–202 credibility of, 2:288–289 informationally efficient financial for Brink’s Home Security, 5:199–200 exceptions to, 2:291–292 systems, 5:58–59 for semiconductor industry, and independence of central banks, informationally efficient markets,4: 366; 5:200–202 2:288 5:58–59, 117. see also efficient strengths and weakness, 5:197 and monetary policy in developing market(s) industry concentration, 5:208–211, 219 countries, 2:292–293 information asymmetry, 4:12 industry experts, 1:87–88 transparency of, 2:289–291 information-based manipulation, 1:96 industry life-cycle model, 5:213–218 by US Federal Reserve system, 2:292 information cascades, 5:138 airline industry in, 5:227 inflation uncertainty,2: 282–283 information discovery, 6:40–41 example, 5:217–218 inflows, 1:364, 601–603 information-motivated trading, 5:10–12, industry classifications based on,5: 203 information 26 limitations of, 5:217 account, 1:105 information ratio, 4:398 stages of industry life cycle, 5:213–216 in accounting systems, 3:74 information technology (IT) sector, in strategic analysis, 5:220 additional, 1:264 2:178 using, 5:216–217 in advertisements, 1:258 infrastructure, risk, 4:248 industry-specific ratios, for equity on applicable laws, 1:55 infrastructure assets, 6:129, 173–174 analysis, 3:379–381 comparative growth, 3:344–345 infrastructure exchange traded funds, industry-specific regulation, of financial confidential, 1:131–133, 143, 193–194 6:129 statements, 3:105–106 considering, before taking action, infrastructure investments, 6:173–175 inefficient markets, intrinsic value in, 1:105 assets for, 6:129 5:119 decision-useful, 3:668–670 categories of, 6:174 inelastic demand, 2:71 dissemination of, 1:88, 112–113, forms of, 6:174 defined, 2:10 189–190 risks and returns with, 6:175 perfectly inelastic demand, 2:11 electronic, 1:130 infrequent items, 3:183–184 price changes and total expenditure for financial statement analysis, ING, 1:426 with, 2:13–14 3:11–30 initial margin requirements, 5:22, 41; infant industry argument, 2:356 auditor’s reports, 3:27–29 6:18 inferior goods balance sheet, 3:12–16 initial PAC collar (initial PAC band), defined, 2:15, 19 cash flow statement,3: 20, 22–23 5:499 substitution and income effects on, financial notes,3: 24–25 initial period fixed-rate mortgages,5: 487 2:19–23 internal and external sources of initial public offerings (IPOs),6: 154 infinite divisibility assumption,4: 385 information, 3:29–30 and conflicts of interest,1: 186–187 inflation management commentary/MD&A, defined, 5:50 and business cycles, 2:205, 225–239 3:26 duties to clients, 1:115 core, 2:230–231 statement of changes in equity, 3:20, ethical decision-making framework for, cost-push (wage-push), 2:233–235 21 1:22–25 costs of, 2:281–283 statement of comprehensive income, in markets, 5:51–52 defined, 2:167, 225 3:16–20 and pricing anomalies, 5:135 deflation, hyperinflation, disinflation, supplementary information, 3:11–12 and technical analysis, 1:724 2:226–227 supplementary schedules, 3:24–25 and venture capital, 5:162 demand-pull, 2:235–236 from financial statements,3: 69–70 initial recognition, taxable and expectations about, 2:236–237 flow of, in accounting systems,3: 74 accounting profit at,3: 580 expected, 2:281, 283 income tax, 3:586–591 initiation date, forward contracts at, expected rate of, 4:307 manipulation of, 1:100–101 6:74–76 and GDP deflator,2: 125–127 market anomalies and prior, 5:135–136 innovation headline, 2:230–231 market efficiency and availability of, and international trade, 2:344 and LIFO vs. FIFO, 3:412–414 5:122 and perfect competition, 2:83 monetary policy and inflation rate, material, 1:85, 92–94 input(s) 2:297 material nonpublic (see material model, 1:100 and New Classical school, 2:219 nonpublic information) productivity in terms of, 2:23–24 and nominal interest rates, 2:274–276 misrepresentation of (see and short-run aggregate supply, 2:158, in phases of business cycle, 2:202 misrepresentation) 160

bind 48 June 17, 2017 4:16 PM Index I-49

Input Data (GIPS Section I.1), 1:237 integrated analysis with ratios, interest rate(s) about, 1:234 3:368–375 and AD curve, 2:146–147 recommendations DuPont analysis, 3:370–375 capped floating,5: 511 general, 1:237 liquidity of company, 3:368–369 default, 5:505 for private equity, 1:252 performance of company, 3:369–370 effective, 3:605, 609 for real estate, 1:248 ROE decomposition, 3:370–375 equilibrium, 5:12–13 requirements integrity, 1:20, 83, 197 and equilibrium price for money, general, 1:237 Integrity of Capital Markets [Standard of 2:272–273 for private equity, 1:249 Professional Conduct II], 1:44–45, forwards on, 6:77–78 for real estate, 1:245 84–101 and housing sector behavior, 2:210 input productivity, 2:23 Market Manipulation [Standard II(B)], implicit, 3:536–537 INSEAD, 6:127 1:96–101 market, 3:605 insider trading, 1:681; 5:61, 122 application of the standard, 1:97–101 maturity structure of, 5:433–441 Insider Trading Directive, 5:122n.11 guidance, 1:96–97 in monetary policy, 2:153–154 installment credit accounts, 4:176 text of, 1:45, 96 and monetary transmission installment method of revenue Material Nonpublic Information mechanism, 2:285–287 recognition, 3:164–165 [Standard II(A)], 1:84–95 and money, 2:275 installment sales, revenue recognition application of the standard, 1:91–95 and money duration, 5:572 for, 3:164–165 compliance procedures, 1:88–91 and mutual fund cash position Institute of Supply Management (ISM), guidance, 1:84–88 indicator, 1:723 2:244 text of, 1:44–45, 84 net interest pass-through rates, 5:491 institutional investors Intel Corporation neutral, 2:296 alternative investments of, 6:125 industry concentration and pricing nominal, 1:307; 2:274–276 commercial property investment by, power, 5:209 official, 2:284 6:162 as multinational corporation, 2:342 and private equity valuation, 6:158 fixed-income securities for,5: 358 share price and FTC investigation, quoted, 1:312 portfolio management for, 5:127, 128n.21 real, 1:307; 2:140 4:216–222 sub-industry classification,5: 200, 201 and repo rate, 5:387 banks, 4:220 technological influences,5: 223 of residential mortgage loans, defined-benefit pension plans,4: 217 intellectual-capital based companies, 5:486–487 endowments and foundations, collateral of, 5:626 and returns on fixed-income securities, 4:218–220 interbank funds, 5:385–386 5:531–536 insurance companies, 4:220 interbank market, 2:415–416; 5:352, risk-free investment companies, 4:221 385–386 and equity risk premium, 4:94n.23 sovereign wealth funds, 4:221 interbank money market, 5:352 and expected return, 4:307 qualified, 5:362 Intercontinental Exchange, 5:209 nominal, 1:307 relative risk objectives of, 4:416 interdepartmental communications, 1:89 and option pricing/valuation, 6:89 insurance interdepartmental referral arrangements, real, 1:307; 4:307 credit, 4:176 disclosure of, 1:191 and sovereign debt, 5:645–646 and credit default swaps, 6:31, 32 interest term structure of, 5:419 and derivatives, 6:7 accrued, 1:378–379; 5:413–417 solving TMV problems for, risk transfer with, 4:277–279 and amortisation of bonds, 3:608–612 1:331–333 for risky portfolios, 4:335 capitalization of, 3:477, 486–489, stated annual, 1:312 insurance companies, 4:220, 276 708–709 and swap rates/foreign exchange rates, as financial intermediaries,5: 33–34 carried, 1:249, 265 2:426–430 monoline, 5:479 cash for, 3:294–295 term structure of, 5:568; 6:78 regulation of, 5:62 discount, 4:169 and time value of money, 1:306–307 insurance contracts, 5:25 as form of payment, 2:119 as underlying, 6:36–37 Insurance Medical Group, Ltd., 3:183 neutral rate of, 2:296 interest rate risk, 5:537–574 insurance recoverables, 3:681 open, 6:20 approximate modified duration, intangible assets shifting interest mechanism, 5:503 5:543–545 acquisition of, 3:478–481 short, 1:719–720 bond convexity, 5:559–567 as alternative investments, 6:129 simple, 1:308 defined, 5:531 in asset-based valuation, 5:276–278 in USCP vs. ECP markets, 5:376–377 duration of bond portfolio, 5:555–557 on balance sheets, 3:237–242 Interest (ASC 835), 3:486n.11 effective duration,5: 545–548 from business combinations, interest coverage ratio, 3:362, 383, 644, and floating-rate notes,5: 323 3:480–481 645 and investment horizon, 5:569–574 capitalization of, 3:705–706, 711 interest expenses key rate duration, 5:549 depreciation/amortisation of, 3:177, accounting for, 3:608–612 Macaulay duration, 5:538–542, 237 classification of,3: 529n.32 569–574 and ethical conduct, 1:16 EBITDA/interest expenses, 5:617 modified duration,5: 542–543 identifiable, 3:238–239 EBIT/interest expenses, 5:617 money duration, 5:557–559 impairment of, 3:237, 508–509 and revenue, 5:648 price value of a basis point, 5:558 on income statements, 3:180 interest income, 5:536 properties of bond duration, internally-developed, 3:478–480 interest-indexed bonds, 5:327 5:549–554 long-lived, 3:474 interest-only mortgages, 5:487–488 safety measures for, 4:171 not from business combinations, 3:478 interest-only tranches, structured, yield volatility, 5:568–569 and research, 3:238, 479 5:497n.11 interest rate sensitivity, 1:586 Intangible Assets (IAS 38), 3:502 interest payments, 3:608–612 interest rate swaps, 5:23–24; 6:22–23

bind 49 June 17, 2017 4:16 PM I-50 Index

interest received in advance, 3:574–575, International Accounting Standards disclosure requirements, 3:135–137, 579, 580 Board (IASB), 3:106–107 511–512; 5:200 interests (client), 1:106 benefits of common financial standards for EU capital markets, 3:113 interests (in businesses) from, 5:61 fair value definition,3: 475n.2 as investments, 3:581 development of standards, 3:103, 104, on financial statement ratios, minority/noncontrolling, 3:17, 249 134 3:735–736 intergenerational data mining, 1:604 disclosure requirements, 3:686 and global reporting standards, interim cash, 1:309–310 Framework for the Preparation 3:113–117 interim period disclosures, 3:171n.25 and Presentation of Financial on impairments, 3:236, 237, 506–509, intermarket analysis, 1:728–730 Statements, 3:103, 172 512 Intermarket Technical Analysis and GAAP, 3:127–129 income definition,3: 45n.1, 156 (Murphy), 1:728 and GIPS valuation principles, 1:254 for income statements, 3:150, 154 intermediate goods, 2:121 and global reporting standards, 3:113, on income taxes, 3:566 internal control systems, 3:29 114 for indirect-format statements, internal credit enhancements, 5:308– on income, 3:156 3:279–282 309, 479 income statement standards, 3:150n.1 for intangible assets, 3:478–480 internal development costs, 3:489–493 management reporting framework of, on interest, 3:294, 477, 529n.32, 612 internal (executive) directors, 4:9, 21 3:26 on inventory valuation, 3:404–406, internal dispersion on objective of financial reporting, 425–427, 435 defined, 1:268 3:102 on investment property, 3:522 Disclosure (GIPS Section I.4), 1:240 revenue recognition standards, and IOSCO, 3:109 Presentation and Reporting (GIPS 3:155–156, 168 on leases, 3:526, 534, 542n.36, 623, Section I.5), 1:243 as standard-setting body, 3:105 627, 629–630, 635–636, 640 Real Estate (GIPS Section I.6), 1:247 International Bank for Reconstruction non-IFRS measures in financial Verification (GIPS Section IV),1: 263 and Development (IBRD; World reports, 3:692 internally-developed intangible assets, Bank) on pension plans, 3:641 3:478–480 bonds issued by, 5:349 on percentage-of-completion method, internal rate of return (IRR) definition of emerging markets, 3:160 for capital budgeting, 4:53–54 5:646n.42 on residual value, 3:177 multiple IRR problem, 4:64–66 supranational bonds from, 5:372 on revaluation, 3:493, 502, 503, no IRR problem, 4:64–66 use of ISIC system, 5:196 505–506 defined, 4:296 in World Bank Group, 2:384–385 on revenue recognition, 3:156, 157, discounted cash flows,1: 364–369 International Business Machines. see 168, 169, 680 evaluating R&D programs with IRR IBM on ROE, 5:173n.29 rule, 1:365–366 International Capital Market Association SEC’s adoption of, 3:415 NPV and IRR rules, 1:366–367 (ICMA), 5:365 on segment reporting, 3:385 problems with IRR rule, 1:367–369 International Development Association and Swiss financial statements,3: 108 ranking conflicts of NPV and IRR, (IDA), 2:384–385 on taxable profit vs. accounting profit, 4:60–63 international ETFs, 4:234 3:576–578 due to cash flow patterns,4: 60–61 International Federation of Accountants, on tax issues, 3:573 due to project scale, 4:62–63 3:27 and US GAAP SI-IRR International Federation of Technical conservatism in, 3:680–682 defined, 1:271 Analysts, 1:683 on financial reporting standards, gross-of-fees, 1:247, 251 International Financial Reporting 3:131–133 net-of-fees, 1:247, 251 Standards (IFRS). see also frameworks of, 3:127–129 Private Equity (GIPS Section I.7), Conceptual Framework for on income taxes, 3:566, 591–594 1:249, 252 Financial Reporting 2010 International Labour Organization Real Estate (GIPS Section I.6), 1:247 adoption of, 3:115–117 (ILO), 2:223 internal sources of information, for on amortisation, 3:177, 608, 609 International Monetary Fund (IMF) financial statement analysis, on available-for-sale classification, bailouts by, 2:383–384 3:29–30 3:202–203 capital restrictions study, 2:368 internal valuation for balance sheets, 3:14–15 exchange rate regime classification, defined, 1:268 on barter transactions, 3:165 2:436 Real Estate (GIPS Section I.6), 1:246, on bond cost reporting, 3:613 founding of, 2:382 256 on borrowed funds, 3:477 and globalization, 2:339 International Accounting Standards business segments in, 5:189n.1 Greek bailout, 2:366, 386–388 (IAS), 3:123–127 on capitalisation of interest costs, and ISIC, 5:196 Borrowing Costs (IAS 23), 3:486n.11 3:486n.11, 488 loans to governments from, 5:646 Employee Benefits (IAS 19), 3:641n.15 for cash flow statements,3: 22, 276 mandates of, 2:383 Impairment of Assets (IAS 36), 3:506 on comprehensive income, 3:201, 204 monetary and fiscal policy model, Income Taxes (IAS 12), 3:566, 573, on debt issuance costs, 3:615 2:322 576n.3, 578, 580, 581 on decision-useful information, as supranational agency, 5:372 Intangible Assets (IAS 38), 3:502 3:668n.2 International Monetary Market (IMM), Inventories, 3:427 on deferred tax assets/liabilities, 3:568, 2:408 Leases (IAS 17), 3:526n.29, 526n.30 569, 583 International Organization for Presentation of Financial Statements on depreciation, 3:177, 499 Standardization (ISO), 2:401 (IAS 1), 3:125–127, 150n.1 on diluted earnings per share, 3:195 International Organization of Securities Statement of Cash Flows (IAS 7), on direct-format statements, Commissions (IOSCO), 3:26, 106, 3:529n.32 3:282–284 108–109, 685–686

bind 50 June 17, 2017 4:16 PM Index I-51

International Paper Company, 3:520–522 Introduction, IPS, 4:415 inventory blanket liens, 4:192 International Private Equity and Venture introductory paragraph, audit report, inventory management, 3:433–446; Capital Valuation Guidelines, 6:156 3:27 4:182–185 International Standard Industrial Inventories (IAS 2), 3:427 and accounts payable management, Classification of All Economic inventory(-ies), 3:403–472 4:186 Activities (ISIC), 5:196 adjustments to, 3:426–433 approaches, 4:183–184 international standards for auditing declines and recoveries of inventory comparisons of companies, 3:436–439 (ISAs), 3:27 value, 3:427–428 evaluating, 4:184–185 International Swaps and Derivatives inventory write-downs and financial in financial analysis,3: 435–446 Association (ISDA), 6:11 ratios, 3:428–433 financial impact of inventory methods, international trade, 2:335–398 with LIFO reserve, 3:415 4:185 and aggregate demand, 2:155 alternative costing methods, 3:174– and inventory costs, 4:184 balance of payments, 2:369–381 175, 712 inventory ratios, 3:434–435 BOP accounts, 2:370–371, 377–379 analyst adjustments for, 3:757–760 in MD&A of annual report, 3:439–440 components of, 2:371–373 anticipation stock, 4:183 presentation and disclosure of imbalances since 1996, 2:379–381 average inventory period, 4:161 inventories, 3:434 paired transactions, 2:374–376 on balance sheets, 3:227–229 for single company, 3:441–446 for United States, 2:372–373 and business cycle, 2:204, 205 inventory ratios, 3:434–435 benefits and costs,2: 343–347 commodity, 3:681 inventory revenues, 3:172–174 and capital flows,2: 356–369 cost of, 3:172–174, 404–406; 4:184 inventory–sales ratio, 2:207–208, 241 comparative advantage, 2:347–355 cyclical levels of, 2:207–208 inventory turnover ratio, 3:350–352 absolute vs., 2:347–354 days of inventory on hand and activity ratio, 3:350–351 Ricardian and Heckscher–Ohlin and activity ratios, 3:349–351 activity ratio definition,3: 349 models, 2:354–355 and conversion from LIFO to FIFO, calculating, 3:414; 4:160 and currency exchange rates, 2:443–453 3:420 and conversion from LIFO to FIFO, absorption approach to trade balance, inventory management with, 3:420 2:449–450 3:434–435 and DOH, 3:351–352 elasticities approach to trade balance, and inventory turnover, 3:351–352 inventory management with, 3:434– 2:445–449 and inventory write-downs, 435; 4:184–185 global investors’ concerns, 2:335–336 3:432–433 inventory ratios, 3:715 patterns and trends, 2:339–343 defined, 3:48 and inventory write-downs, 3:432 practice problems, 2:392–395 as drag on liquidity, 4:158 inventory value, 3:427–428 solutions to problems, 2:396–398 ending, 3:404, 408–414 inventory write-downs terminology, 2:336–339 and financial reporting issues, in financial analysis,3: 436 trade organizations, 2:381–388 3:714–715 and financial ratios,3: 428–433 function and objectives, 2:386–388 finished goods,3: 404, 435 US GAAP vs. IFRS on, 3:426–427 International Monetary Fund, and GDP, 2:127 inverse demand function, 2:8 2:382–384 growth in, 3:714–715 inverse effect,5: 407, 408 World Bank Group, 2:384–385 of manufacturing and merchandising inverse floating-rate bonds (inverse World Trade Organization, 2:385–386 companies, 3:404 floaters), 5:383 trade restrictions/agreements, number of days of, 4:161, 185 inverse floating-rate notes,5: 324 2:356–369 practice problems, 3:449–464 inverse head and shoulders patterns, capital restrictions, 2:366–369 precautionary stocks, 4:182 1:697, 699–701 export subsidies, 2:359–361 presentation and disclosure of, 3:434 inverted yield curve, 5:434 quotas, 2:359 purchasing–inventory–payables invest (term), 5:8 tariffs, 2:356–361 process, 4:186–187 investing activities trading blocs, common markets, and raw materials, 3:404, 435 on cash flow statement,3: 275, 295–296 economic unions, 2:362–366 safety stock, 4:183 defined, 3:20, 22, 44 International Trade Organization (ITO), solutions to problems, 3:465–472 net cash flow from,3: 276 2:382 valuation, 3:174–176, 228, 406–426 investment(s) interpolated spread (I-spread), 5:443 changes in, 3:425–426 analyst adjustments for, 3:756–757 interquartile range (IQR), 1:431n.27 comparison of, 3:412–414 in business subsidiaries, branches, inter-temporal trade, 2:377, 378 cost of sales, gross profit, and ending associates, or interests, 3:581 intervals, 1:395–396. see also confidence inventory, 3:408–410 and economic growth, 2:176–177 intervals first-in, first-out,3: 174, 228, 407–410 failed, 1:163 modal, 1:414 last-in, first-out,3: 175, 228, 407–410, net, 2:139–140 time, 1:692 415–425 restricting, 1:64 interval scales, 1:392 LIFO liquidation, 3:421–425 saving–investment differential, Intesa Sanpaolo, 1:425 LIFO reserve, 3:415–421 2:141–143 in the money, 6:27, 87 periodic vs. perpetual inventory short-term funds management, intrafirm pressure,1: 65, 70 systems, 3:410–412 4:168–171 intra-industry trade, 2:343 retail method, 3:227 investment actions. see also Investment intrinsic value specific identification,3: 174, 407–410 Analysis, Recommendations, and book vs., 5:176–177 specific identification methods,3: 228 Actions [Standard of Professional deviations from, 1:682 weighted average cost, 3:228, Conduct V] from dividend discount model, 5:251 407–410 fair dealing in, 1:111–112 in equity valuation, 5:244 weighted average cost method, firm policies on,1: 105–106 of European options, 6:86 3:174–175 impact of, 1:40–41 market vs., 5:119–120 work-in-progress, 3:404, 435 unethical, 1:57

bind 51 June 17, 2017 4:16 PM I-52 Index

Investment Advisers Ltd. case study, and classification of bond market, requirements and limitations of, 3:53–70, 78–94 5:350–351 1:123–124 investment analysis correlations of other asset classes with, return objectives, 4:421–422 due diligence in, 1:61 4:432 reviews of, 1:124 independent, 1:97 credit ratings of, 5:602, 603 risk objectives, 4:416–421 limitations of, 1:167–168 credit risk with, 5:299–300 trades not aligned with, Investment Analysis, Recommendations, yield spreads of, 5:631–632 1:120–121 and Actions [Standard of investment-grade indexes, 5:99 updating, 1:120, 123 Professional Conduct V], 1:154–176 Investment Guidelines, IPS, 4:415 investment pools, 5:18–19, 32 Communication with Clients and investment horizon investment practice, impact of Prospective Clients [Standard V(B)], for fixed-income securities,5: 536–537 misrepresentation on, 1:72 1:165–174 and interest rate risk, 5:569–574 investment process application of the standard, share value for three-year, 5:252 changes to, 1:170–172 1:169–174 investment ideas, in capital budgeting informing clients of, 1:166–167 compliance procedures, 1:168–169 process, 4:48 investment products, applicable laws for, eleventh edition revision, 1:36 investment industry, ethics in, 1:5–28, 1:51–53 guidance, 1:166–168 39–43 investment property, 3:236–237, text of, 1:46, 165–166 Investment Management Association, 522–525 Diligence and Reasonable Basis 1:233 investment risks, short-term funds [Standard V(A)], 1:154–165 Investment Management Association of management and, 4:170–171 application of the standard, Singapore, 1:233 investment spending, aggregate demand 1:158–165 investment management fees and, 2:139–140, 146–147 compliance procedures, 1:158 Calculation Methodology (GIPS investment strategies guidance, 1:154–157 Section I.2), 1:238 AD and AS curves as basis for, text of, 1:46, 154 defined, 1:268 2:171–172 Record Retention [Standard V(C)], Disclosure (GIPS Section I.4), 1:240 during decreases in aggregate demand, 1:174–176 Input Data (GIPS Section I.1), 1:237 2:164–165 application of the standard, 1:176 Private Equity (GIPS Section I.7), for hedge funds, 6:135–138 compliance procedures, 1:175 1:249–252 for inflationary gaps,2: 168 guidance, 1:174–175 Real Estate (GIPS Section I.6), 1:246 for private equity, 6:150–154 text of, 1:46, 174 investment managers, selection of, 4:443 for shifts in aggregate supply, Investment and Financial Services investment multiple (TVPI) 2:169–170 Association Limited–Performance defined, 1:268, 273 investment strategy, in portfolio Analyst Group, 1:232 Private Equity (GIPS Section I.7), 1:251 construction, 4:439–443 investment banks, 1:60–61; 5:29 Real Estate (GIPS Section I.6), 1:247 investment system, disclosure of, 1:169, investment characteristics of assets, investment objectives 171 4:292–315 establishing, 1:105 investor confidence,1: 229 distributional characteristics, in IPSs, 1:121, 176; 4:415 investor pay model, 5:601n.13 4:312–314 investment opportunity schedule (IOS), investor psychology, 1:680, 718 market characteristics, 4:314–315 4:82 investors. see also individual investors return characteristics, 4:292–307 investment opportunity set, 4:336–337 behavioral biases and decision making covariance of return, 4:305 investment performance, standardized, by, 5:139 historical returns, 4:307–312 1:229 beliefs of, 4:384–385, 395, 398–399 types, 4:293 Investment Performance Council (IPC), benefits of securitization for, variance of returns, 4:305 1:228 5:474–475 risk characteristics, 4:306–307 investment personnel. see personnel buy-and-hold, 1:562–564 investment committee, 4:24 investment policies capital market expectations of, 4:431 investment companies, portfolio components, 4:172–173 CAPM assumptions about, 4:384 management for, 4:221 evaluating, 4:173–174 composition of, 4:33–34 Investment Company Act (1940), short-term funds management in, constraints on 4:235–236; 6:133n.14 4:171–174 in investment policy statements, Investment Company Institute, investment policy statements (IPSs), 1:121 4:226–227 4:414–427 legal and regulatory factors, Investment Constraints, IPS, 4:415 in compliance procedures, 1:121 4:425–426 investment decision components of, 4:415 liquidity, 4:422–424 in capital budgeting, 4:52–68 defined, 4:222 and portfolio planning, 4:422–427 average accounting rate of return, developing, 1:119 tax concerns, 4:425 4:57–58 and investor constraints, 4:422–427 time horizon, 4:424–425 internal rate of return, 4:53–54 legal and regulatory factors, unique circumstances, 4:426–427 net present value, 4:52–53 4:425–426 in debt vs. equity securities, 5:155 payback period, 4:54–57 liquidity, 4:422–424 defined, 5:8 popularity and use of capital tax concerns, 4:425 in fixed-income markets,5: 357–359 budgeting methods, 4:66–68 time horizon, 4:424–425 high net worth profitability index,4: 58 unique circumstances, 4:426–427 alternative investments of, 6:125, for CFOs, 4:108–109 in planning step of portfolio 127–128 in hypothesis testing, 1:633 management, 4:222–223 commercial property investment by, investment firm balanced growth and portfolio construction, 4:435–438 6:162 composite, 1:274–275 record retention of objectives/ and information-motivated traders, investment-grade bonds recommendations in, 1:176 5:10–11

bind 52 June 17, 2017 4:16 PM Index I-53

institutional ISIC. see International Standard J alternative investments of, 6:125 Industrial Classification of All J. Paul Getty Trust, 4:219 commercial property investment by, Economic Activities Jamaica, 5:96 6:162 ISM. see Institute of Supply Jankowitsch, Ranier, 1:644–645 fixed-income securities for,5: 358 Management January effect,5: 131 qualified, 5:362 ISM new order index, 2:240 Japan market efficiency and number of,5: 121 ISO. see International Organization for aggregate demand and supply in, objectives of, 4:291–292 Standardization 2:172–173 preferences of, 4:347–348 I-spread. see interpolated spread banking supervision, 2:279 required rates of return for equities, Israel, 1:408 benchmark rate, 5:442 5:177–178 exchange rate regime, 2:437 benefits of conservatism in,3: 682 retail, 5:358 and IFRS, 3:116 bonds risk for, 4:417–419; 6:63–64, 69–70 inflation-linked bonds,5: 326, 370 bonds outstanding, 5:354, 360 vulture, 6:153 inflation targeting,2: 287 foreign bonds, 5:313, 314 Investors Intelligence Advisors MSCI multi-market index, 5:96 inflation-linked bonds,5: 326 Sentiment reports, 1:717 issuance, bond, 3:604–608 returns on, 5:153 IOCs. see immediate or cancel orders issuer-paid research, 1:62–63, 76 sovereign bonds, 5:367, 369 IOS. see investment opportunity issuer pay model, 5:601n.13 tax considerations with, 5:316 schedule issuer relationship pressure, 1:65–66 budget deficit,2: 317 IOSCO. see International Organization issuers business investment, 2:177 of Securities Commissions of commercial paper, 5:374 capitalization level and contributions iPad, 3:732–734 credit ratings of issues vs., 5:603–605 to global GDP, 5:151 IPC. see Investment Performance of fixed-income securities,5: 299–300 civil law system, 4:27 Council and classification of market, companies and derivatives in, 1:657 iPhone, 3:9, 185–186, 329–330, 732–734 5:348–350 comparative advantage, 2:355 iPod, 2:65; 3:9, 732–734 legal identity, 5:305–306 “comply or explain” codes, 4:34 IPOs. see initial public offerings in securitization process, 5:478 consumption expenditures, 2:139 IPSs. see investment policy statements Italian CFA Society, 1:233 corporate governance systems, 4:14 IQR. see interquartile range Italian Investment Performance CPI, 2:229 Iran, 2:436 Committee, 1:233 credit rating services, 5:602 Iraq, 2:436 Italy cumulative voting rules, 4:16 Ireland banking supervision, 2:278 current account imbalance, 2:377, 380 budget deficit,2: 379 bonds outstanding, 5:354, 360 debt business investment, 2:177 business investment, 2:177 and equity outstanding, 5:350 debt burden, 5:646 capital goods expenditures, 2:128 government debt, 2:262, 308; 5:650 effects of Greek fiscal crisis,2: 366 civil law system, 4:27 national debt, 2:309 equity risk premiums, 4:91 consumption expenditures, 2:139 deflation, 2:226, 298 EU membership, 2:362n.18 disinflation, 2:227 demographic influences,5: 224 exchange rate regime, 2:436 domestic and international debt discipline for financial reporting exports from, 2:342 securities, 5:315 quality in, 3:685 GIPS sponsor, 1:233 equity risk premium, 4:91 disinflation, 2:227 IFRS adoption, 3:115 EU membership, 2:362n.18 domestic and international debt international investments in BASF, exchange rate regime, 2:436 securities, 5:315 5:165 expected inflation,2: 282 economic indicators, 2:242–244 labor productivity, 2:181 GIPS sponsor, 1:233 employee involvement with decision MSCI multi-market index, 5:96 globalization of production, 2:342 making, 4:19 residential mortgage loans, 5:486, 487 government debt, 2:262 equity risk premiums, 4:91 returns government spending, 2:129, 130 exchange rate regime, 2:437, 440 on bonds, bills, and equities, 5:153 housing sector, 2:211 fundamental analysis, 1:683 real equity returns, 1:400 inflation-linked bonds,5: 326 GIPS sponsor, 1:233 total returns, 1:408, 411 investment spending, 2:140 globalization of production, 2:342 sovereign bonds, 5:368 labor productivity, 2:181 global recession and, 2:165, 166 wealth effect,2: 152 MSCI multi-market index, 5:96 government Irish Association of Investment national debt, 2:309 debt, 2:262, 308; 5:650 Managers, 1:233 non-sovereign government debt, 5:650 government-sponsored enterprises, IRR. see internal rate of return public sector spending, 2:263 5:490 IRR rule, 1:364–369 returns liabilities, 2:308 evaluating R&D programs with, on bonds, bills, and equities, 5:153 revenues/expenditures, 2:303, 304 1:365–366 real equity returns, 1:401 spending, 2:129 NPV rule and, 1:366–367 total returns, 1:408, 411 gross domestic product, 2:155, problems with, 1:367–369 securitization, 5:475 183–185 Irving, Bryan, 3:183 trade balance with US, 2:130 housing sector, 2:211 ISAs. see international standards for underground economy, 2:124 IFRS vs. GAAP use, 3:116 auditing ITO. see International Trade and inflation targeting,2: 292 IS curve, 2:137–144 Organization labor productivity, 2:181 ISDA. see International Swaps and IT sector. see information technology labor supply, 2:176 Derivatives Association sector maturity of mortgages, 5:486 iShares Morningstar ETFs, 5:104 iTunes, 3:329, 732 monetary policy, 2:299–301 iShares Russell 2000 Index, 1:446 Izumiya, Naoki, 3:735 money measures, 2:270

bind 53 June 17, 2017 4:16 PM I-54 Index

Japan (continued) joint probability function, 1:504–506 Kondratieff, Nikolai,1: 724 in MSCI EAFE, 1:408 Jones, Alfred Winslow, 6:133 Kondratieff Wave,1: 724 MSCI multi-market index, 5:96 Jones, Edward D., 5:78 Koninklijke KPN N.V., 3:505–506 natural resources, 2:178 Jong, Abe de, 4:108 Koninklijke Philips Electronics, 5:209 net borrowing/lending, 2:305 Jordan, 2:294; 5:96 Korea GIPS Committee, 1:233 overconfidence and mispricing in J.P. Morgan Emerging Market Bond Korea interbank offered rate (Koribor), markets, 5:137 Index (EMBI) Global, 5:357 5:353 pension fund investment restrictions, JPMorgan, 5:166 KOSPI Composite Index, 1:444, 654 4:426 junior tranche, 6:34 KPMG SA, 3:688 proxy for market portfolio, 5:94 junk bonds. see non-investment-grade KPS Capital Partners, L.P., 3:743 public sector spending, 2:263 bonds Kraft Foods regulatory body of, 3:105 justified values of price multiples, derecognition of long-lived assets, residential mortgage loans, 5:486, 487 5:266–269 3:511 returns just-in-time (JIT) method, 4:183–184 income statement, 3:153–154 on bonds, bills, and equities, 5:153 income statement ratios, 3:199–201 real equity returns, 1:401 K statement of earnings, 3:152 securities backed by quasi-government %K (stochastic oscillator), 1:714, 715 krona, Swedish, 2:401; 5:351 entities, 5:490 Kahn, Robert L., 1:624 krone, Norwegian, 2:401; 5:351 trade balance with US, 2:131 kangaroo bonds, 5:313 Kunkel, Robert A., 4:95n.25 Treasury bills, 1:307n.3 Kaplan, Paul D., 4:95n.27 kurtosis, 1:454–458 underground economy, 2:124 Kaserer, Christoph, 4:106 calculating, 1:456–458 VERs on exports, 2:359 Kazakhstan defined, 1:454 Japan Airlines Group, 5:166–167 GIPS country sponsor, 1:233 evaluating effect of,4: 313–314 Japan Bank for International and IFRS, 3:116 sample, 1:455–458 Cooperation (JBIC), 5:372 MSCI multi-market index, 5:96 Kuwait, 2:436; 5:96, 351 Japanese Business Accounting Council, steel import quotas, 2:359 Kuwait Investment Authority, 4:221 3:115 Kazakhstan Association of Financial and Kydland, Finn E., 2:217 Japanese Financial Services Agency, 5:29 Investment Analysts, 1:233 Kyrgyz Republic, 3:116 Japanese GAAP, 3:115, 116 Kenya, 2:166; 3:117; 5:96 Japanese government bonds (JGBs), Keynes, John Maynard, 2:215, 216, 274, L 5:367, 368, 423 434 LabCorp, 5:209 Japanese yen Keynesian school, 2:214–215, 303 labeling problems, 1:512 cross-rate calculations with, 2:422–423 key rate duration, 5:549 labor currency code, 2:401 Khaitan, Aditya, 3:735 average product of, 2:25–28 exchange rate quotes with, 2:418–419 Kidder Peabody, 3:717–718 as factor of production, 2:24 foreign exchange gains, 5:169 kimchi bonds, 5:313 in Heckscher–Ohlin model, 2:354 international bonds outstanding in, Kingdom of Saudi Arabia Capital Market in long-term economic growth, 5:351 Authority, 3:109n.9 2:175 JPY/USD currency pair, 2:416 kinked demand curve analysis, 2:89–90, marginal product of (see marginal as reserve currency, 5:19 95 returns) Japan Housing Finance Agency (JHF), Kiwi exchange rate, 2:418 productivity of, 2:160, 180–184 5:490 Knight Securities, 5:30 in Ricardian model, 2:354 Jarque-Bera (JB) statistical test of knowingly (term), 1:71 supply of, 2:159, 160, 176 normality, 1:458n.49 knowledge of the law, failure to maintain total product of, 2:25–28 JBIC. see Japan Bank for International knowledge, 1:57 labor costs Cooperation Knowledge of the Law [Standard I(A)], and aggregate supply, 2:158–160 JC Penney Company, Inc., 1:414 1:49–57 unit, 2:234, 241 J-curve effect,2: 449 application of the standard, 1:55–57 labor force, 2:176, 222 Jensen, Michael C., 4:94n.24 compliance procedures, 1:54–55 labor laws, 4:19 Jensen’s alpha CFA members and candidates, 1:54 labor markets, 2:218 defined, 4:391–392 dissociation, 1:54 labor unions, 4:19 and security characteristic line, 4:394 distribution area laws, 1:54 laddering strategies, 4:172 and security selection, 4:395 firms, 1:54–55 Laffer, Arthur,2: 312 Jensen’s inequality, 1:421n.21 legal counsel, 1:54 lagging economic indicators, 2:239, JetBlue Airways, 1:478 guidance, 1:49–53 241–242 JGBs. see Japanese government bonds Code/Standards and applicable law, Lam Research Corporation, 5:200–202 JHF. see Japan Housing Finance Agency 1:50–53 Large Cap Equity Growth Composite, JIT method. see just-in-time method investment products and applicable 1:295 Jobs, Steve, 3:9 law, 1:51–53 large-cap SMA composite, 1:288–290 John D. and Catherine T. MacArthur violations by others, participation or large cash flows,1: 237, 268 Foundation, 4:219 association with, 1:51 large country (term), 2:356 John Deere, 5:198, 219 text of, 1:44, 49 large-denomination negotiable CDs, Johnson & Johnson known errors, noncorrection of, 1:76 5:386 credit ratios, 5:622, 624–625 Kodak, 5:223 Laspeyres index, 2:228 long-term debt disclosures, 3:619–621 Koedijk, Kees, 4:108 last-in, first-out (LIFO) method market share stability, 5:213 Kohlberg Kravis Roberts & Co. L.P., analyst adjustments related to, operating profit forecasts,3: 741, 742 3:743 3:757–760 joint normal distribution, 1:546 Kohl’s Corporation, 1:414; 4:162–163 financial reporting issues with,3: 712, joint probability, 1:481 Komatsu, 5:209, 219 715

bind 54 June 17, 2017 4:16 PM Index I-55

of inventory valuation, 3:407–425 operating leases vs., 3:526–543, lenders of last resort, 2:277 assigning costs in, 3:408 623–640 lenders’ rights, in foreclosures, conversion from LIFO to FIFO, operating vs., 3:623–640 5:488–489 3:416–421 recognition and measurement of, lending, 5:8–9, 32–33 and cost of goods sold, 3:228 3:625–627, 636–638 lending facilities, 1:544–545; 2:383 defined, 3:175, 408 sales-type, 3:635, 636, 638–640 lending portfolios, 4:370 inflation and FIFO vs.,3: 412–414 sales-type leases, 3:542, 543, 635, lending rates, effects on leveraged and inventory write-downs, 3:428 636, 638–640 portfolios, 4:372–374 LIFO liquidations, 3:421–425 treating operating leases as, Lenovo Group Limited LIFO reserve, 3:415–421 3:534–538 activity ratios, 3:351–353 other valuation methods vs., for long-lived assets, 3:525–543 liquidity measures, 3:358 3:407–410 finance vs. operating leases, ratio analysis, 3:331–333 in periodic vs. perpetual inventory 3:526–543 two-factor analysis, 5:209 systems, 3:410–412 lease versus buy decision, 3:525–528 leptokurtic, 1:454, 455 late buying, in housing sector, 2:211 multiple-year, 6:158 lessees late expansion phase (business cycle), operating defined, 3:525, 622 2:201–203 accounting/reporting by lessee, 3:624, finance vs. operating leases for later-stage financing (venture capital), 627–635 financial statement impact of leases, 6:153 accounting/reporting by lessor, 3:635, 3:529–538 Latin America. see also specific countries 640 leases on long-lived assets, 3:529–538 Brady bonds in, 5:357 analyst adjustments related to, leases on non-current liabilities, currency regimes, 2:436 3:765–771 3:624–635 debt and equity outstanding, 5:350 and analyst adjustments to debt, treating operating leases as finance exchange rate regimes, 2:439–440 3:768–770 leases, 3:534–538 institutionally owned real estate, 6:159 coverage ratio for analyst adjustment, lessors trade-to-GDP ratio, 2:340 3:770–771 defined, 3:525, 622 laundry business, asset-based equity defined, 3:526 finance vs. operating leases for valuation, 5:277 finance vs.,3: 526–543, 623–640 direct financing leases,3: 538–543 law(s). see also applicable law financial statement impact of,3: 640 financial statement impact of leases, distribution area, 1:54 sales-type, 3:542, 543, 635, 636, 3:538–543 ethical influences on,1: 7–8, 17–18 638–640 leases on long-term assets, and governance, 4:20 synthetic, 3:525, 623 3:538–543 knowledge of (see Knowledge of the Leases (ASC 840), 3:526n.29, 526n.31, leases on non-current liabilities, Law [Standard I(A)]) 635n.12 3:635–640 more strict law, 1:50 Leases (IAS 17), 3:526n.29, 526n.30 sales-type leases, 3:543 religious tenets as basis for, 1:56–57 lease versus buy decision, 3:525–528 less strict (LS) countries, 1:52–53 law of demand leaving an employer, 1:134–135, 143 “less than” alternative hypothesis, 1:626, defined, 2:6 Lebanon 627, 653–654 exceptions for, 2:21 exchange rate regime, 2:436 letras del Tesoro, 5:368 in perfect competition, 2:75 exchange rate targeting, 2:294 letters of credit, 5:309 and substitution/income effects, IFRS adoption, 3:116 Level I ADRs, 5:168 2:18–19 MSCI multi-market index, 5:96 Level II ADRs, 5:168 law of diminishing marginal returns, 2:23 Lee, Inmoo, 4:106 Level III ADRs, 5:168 law of diminishing returns, 2:79 Lee, Rafaelina M., 4:101n.34 level of service, disclosure of, 1:114 law of one price, 5:269; 6:47, 67 Leeson, Nick, 4:264 level of significance,1: 628–630 lawyers, in securitization process, legal counsel, 1:54 leverage, 4:125–154 5:478–479 legal environment, 4:27 about, 4:126–128 Lay, Kenneth M., 1:13n.10 legal factors and asset revaluation, 3:503 layoffs, 2:223–224 with fixed-income securities, breakeven points, 4:143–145 LBOs. see leveraged buyouts 5:313–316 business risk, 4:128–136 Leading Credit Index, 2:240 in IPSs, 4:425–426 components of business risk, 4:128 leading economic indicators, 2:239–243 legal form of bonds, 5:305–306 for creditors and owners, 4:145–147 lead underwriter, 5:50 legal identity, bond issuer, 5:305–306 financial risk,4: 136–140 learning, personal, 5:138 legal infrastructure, 4:14 operating risk, 4:130–136 leases, 3:622–640; 4:87 legal maturity, mortgage-backed sales risk, 4:128–130 advantages of, 3:622–623 security, 5:494–495 and debt structure, 5:640–642 analyst adjustments for, 3:765–771 legal risk, 4:29, 262–263 defined, 4:125 direct financing,3: 538–543, 635–638, legal standards, ethical standards vs., and derivatives, 6:44 640 1:17–20 financial, 4:136–140 finance legal tender, 2:277, 436, 437 degree of financial leverage, accounting/reporting by lessee, Lehman Brothers, 4:265, 274; 5:386, 639 4:137–138, 142–143 3:624–635 Lehman Brothers Aggregate Bond Index, leveraged positions in markets, accounting/reporting by lessor, 5:99 5:41–44 3:635–640 Lehman Brothers Global Aggregate leveraging role of debt, 4:139–140 defined, 3:526 Bond Index, 5:103 and solvency ratio, 3:360–361 direct financing leases,3: 538–543, Lehman Brothers Government Index, fixed costs as,4: 125 635–638, 640 1:586–587 and hedge funds, 6:143–144 financial statement impact of, LEI. see Index of Leading Economic and historical returns, 6:126–127 3:638–640 Indicators measuring, 4:274

bind 55 June 17, 2017 4:16 PM I-56 Index

leverage (continued) Liberia, 2:437 links, 1:269 operating Libor. see London interbank offered rate Lintner, John, 4:216, 383 and capacity, 5:612 Libya, 2:436 liquid asset requirement, 3:379, 380 degree of, 4:130–135, 140–143 Liechtenstein, 1:233 liquidating dividend, 5:249n.1 financial leverage vs.,3: 360 Liechtenstein Bankers’ Association, liquidation(s) practice problems, 4:149–152 1:233 absolute priority rule in, 5:483 in real estate investing, 6:167 liens, 5:596, 644 LIFO, 3:421–425 risk associated with, 6:177 life-cycle stage disclosure of, 3:422–424 solutions to problems, 4:153–154 of airline industry, 5:227 example, 3:424–425 total, 4:140–143 industry classifications based on,5: 203 on financial statements,3: 422–424 leveraged accounts, in FX market, 2:412 in strategic analysis, 5:220 and LIFO reserve, 3:421–422 Leveraged Bond Composite, 1:295 life of contract, pricing/valuation over, priority of claims in, 5:599–600 leveraged buyouts (LBOs) 6:76–77 priority of preference shares in, covenants for, 5:626–627 LIFO conformity rule, 3:415 5:159n.15 defined, 6:148 LIFO liquidations, 3:421–425 private equity, 6:154, 157 financing of,6: 150–151 disclosure of, 3:422–424 reorganizations vs., 4:146, 147 as pooled investments, 4:237 example, 3:424–425 stockholders’ rights in, 5:157 as private equity investments, 5:162, on financial statements,3: 422–424 liquidation value, of private equity, 6:157 163 and LIFO reserve, 3:421–422 liquidity, 4:156–164 target companies for, 6:150–152, LIFO method. see last-in, first-out of alternative investments, 6:177 151–152 method on balance sheet, 3:15, 221–223 leveraged instruments, 5:383 LIFO reserve, 3:415–421 broad measure of, 2:270 leveraged loans, covenants with, 6:151 converting LIFO to FIFO inventory in credit analysis, 5:618 leveraged ownership, of real estate, with, 3:416–421 from dealers, 5:30 6:160 defined, 3:415 defined, 3:8, 220–221, 252; 4:156–157 leveraged portfolios and LIFO liquidations, 3:421–422 of derivatives, 6:41 capital market line for, 4:370–374 Li & Fung, 4:210–213 drags and pulls on, 4:158–159 with different lending and borrowing Light Sweet Crude Oil futures contract, evaluation of measures, 3:358 rates, 4:372–374 5:23 of exchange-traded derivatives market, with equal lending and borrowing likelihood, 1:508 6:10 rates, 4:371 Lilly Endowment, 4:219 external, 5:647 leveraged positions, 4:303, 371; 5:41–44 limitations, investment policy, 4:172 and forward contracts, 5:22 leveraged returns, 4:303 limitations on liens covenant, 5:644 in high-yield credit analysis, 5:638–639 leveraged transactions, call options vs., limit down, 6:19 integrated analysis of, 3:368–369 6:91–92 limited partners, 1:269 as investor constraints, 4:422–424 leverage ratios limited partners (LPs) liquidity management, 4:157–159 for credit analysis, 5:616–617 investors as, 6:132 as market characteristic, 4:314–315 evaluating solvency with, 3:644–647 in private equity, 6:149,150, 158 measuring, 4:159–164, 274 interpretation of, 3:362 in real estate, 6:160 and operating cash flow,5: 639 and risk associated with leveraged limited partnerships, 1:269; 5:18 of OTC derivatives market, 6:12 positions, 5:41–42 broker-sponsored, 1:179 and portfolio management, 4:222 Levitt, Arthur, 3:682–683 master, 5:26; 6:174,175 primary sources, 4:157 Lexmark, 5:209 real estate, 6:160 and returns, 1:428–430 LG Group, 5:315–316 limit order book, 5:45–46 and secondary bond markets, 5:365 Li, Wei, 4:90n.16 limit orders, 1:484–485; 5:44–49 secondary sources, 4:157–158 liabilities. see also non-current liabilities limits, on private placements, 1:187 and securitization, 5:475 on balance sheets, 3:218, 221–222, limit up, 6:19 in sovereign credit analysis, 5:647 230–234, 246–247 Lindsay, Don, 3:10–11 and valuation, 6:146 Conceptual Framework on, 3:121 linear interpolation, 1:424–425 and yield-to-maturity, 5:433 contingent, 5:648 linear scale, 1:690, 691 liquidity duration, 5:574 current line charts, 1:684–685 liquidity enhancement, 5:375 of Apple Inc., 3:231 line costs, 3:706 liquidity management, 4:157–159 on balance sheets, 3:221–222, line graphs, 3:347 liquidity premium, 1:307 230–234 lines of credit liquidity ratios, 3:355–360 deferred revenue analysis, 3:232–234 backup, 5:375 bounds and context of, 3:359–360 of SAP Group, 3:231 committed, 4:190; 5:618 calculations, 3:356 current tax, 3:567–568 liquidity from, 5:639 in company analysis, 5:231 deferred tax restrictions on, 4:159 defined, 3:260, 348, 356 accounting profit vs. taxable income for short-term financing,4: 189–191 evaluation, 3:358 for, 3:568–571 linked performance interpretation, 3:357–358 on balance sheets, 3:247 Disclosure (GIPS Section I.4), 1:242 cash conversion cycle, 3:358 changes in tax rates, 3:575–576 Presentation and Reporting (GIPS cash ratio, 3:357 defined, 3:567 Section I.5), 1:243, 244 current ratio, 3:357 defined, 3:45–46, 218 Real Estate (GIPS Section I.6), 1:246 defensive internal ratio, 3:357 and financial position,3: 9 Wrap Fee/SMA Portfolios (GIPS quick ratio, 3:357 income tax bases of, 3:573–575 Section I.8), 1:254 in working capital management, long-term, 3:246–247 linked time-weighted rates of return, 4:159–160 total liabilities-to-equity ratio, 3:421 1:246 liquidity risk Liber Abaci (Fibonacci), 1:726 linkers. see inflation-linked bonds as financial risk,4: 261–262

bind 56 June 17, 2017 4:16 PM Index I-57

with fixed-income securities, logarithmic scale, 1:690, 691 long positions, 5:39 5:574–575 Logitech, 2:344 long-run aggregate supply, 2:159–161 interactions of market and solvency lognormal distribution, of continuous defined, 2:148–149 risk with, 4:267 random variables, 1:553–559 and human capital, 2:159, 160 market, 5:593–594 Lombardy region, Italy, 5:650 and labor, 2:159 safety measures for, 4:171 London interbank offered rate (Libor), and natural resources, 2:159–161 solvency risk vs., 4:265n.23 2:430 and physical capital, 2:159, 160 liquidity traps, 2:298 asset returns vs., 6:170 and productivity/technology, 2:160 liquid markets as benchmark for returns, 4:421 long-run aggregate supply (LRAS) curve, information-motivated trading in, 5:12 and coupon rate, 5:301 2:148–150 raising capital in, 5:9 defined, 4:190; 6:23n.11 long-run average cost (LRAC), 2:102 risk management in, 5:10 floating-rate debt,4: 86 long-run average total cost (LRAC) secondary, 5:53 in forward rate agreements, 6:78 curve, 2:44–48 Liquidnet, 5:30 historical returns and volatility, 6:126 long-run cost curves List of Composite Descriptions (GIPS interest rate swaps, 5:23–24 average, 2:44–48 Section V.0.1), 1:294–297 and I-spread, 5:443 scale and profit maximization on, Lithuania, 3:115; 5:96 marginal cost of capital structure, 2:43–44, 47–48 litigation losses, 3:681 4:104–105 time frame for, 2:43 litigation risk, 5:608 as reference rate, 5:352–353, 425 long-run demand, elasticity of, 2:12 Lleras, Miguel Palacios, 4:90n.16 setting, 5:353 long-run equilibrium Lloyd’s of London, 4:278–279 swaps based on, 6:23 macroeconomic, 2:163 LMC. see long-run marginal cost and TED spread, 6:24 in monopolies, 2:104–105 LM curve, 2:144–145 as underlying, 6:37 in monopolistic competition, 2:86–87 LM Ericsson Telephone Company, London Stock Exchange in oligopolies, 2:96 3:645–647 board composition rules, 4:24 in perfect competition, 2:81–82 load funds, 4:228–229 and Committee on the Financial Aspects long-run marginal cost (LMC), 2:30, loan covenants, 3:692 of Corporate Governance, 4:7 102 loan loss reserves, allowances for, 3:711 GDRs on, 5:167 long sales, clearing instructions on, 5:50 loans information availability, 5:122 Long-Term Capital Management, 4:267; amortizing, 5:487, 508 in intermarket analysis, 1:728 6:43 asset-based, 4:192 total market capitalization in, 5:151, long-term contracts, revenue auto loan ABS, 5:508–511 152 recognition for, 3:160–163 bank, 5:349, 350, 373–374 long (term), 6:7 long-term debt bilateral, 5:373, 374 long hedge fund strategies, 4:236 on cash flow statement,3: 297 to borrowers abroad, 2:374 longitudinal data, 1:589n.3 disclosure of, 3:619–622 bullet, 5:374 long-lived assets, 3:473–564. see also and lease disclosure, 3:630–635 collateralized, 4:190, 191 non-current assets presentation of, 3:619–622 commercial and industrial, 2:241 acquisition of, 3:475–493 long-term financial liabilities,3: 246–247 leveraged, 6:150–151 accounting for, 3:475 long-term risk management, 4:35 margin, 5:41 capitalisation of costs, 3:481–493 long-term unemployed (term), 2:222 mortgage, 5:485–490 and financial reporting issues,3: 706 look-ahead bias, 1:607, 608; 3:754 non-amortizing, 5:508 intangible assets, 3:478–481 L’Oreal, 1:426 non-recourse, 5:488 property, plant, and equipment, loss(es) prime, 5:486 3:475–478 capital, 5:316, 533–535, 569 recourse, 5:488 amortisation of, 3:501–502 on commodities, 6:171 residential mortgage, 5:485–490 defined, 3:177, 474 in conservative accounting choices, amortization schedule, 5:487–488 depreciation of, 3:493–501, 3:679 interest rates, 5:486–487 701–705, 711 deadweight, 2:356, 357 lender’s rights in foreclosures, derecognition of, 3:509–511 economic, 2:40 5:488–489 disclosures for, 3:511–524 expected, 5:593 maturity, 5:486 Daejan Holdings PLC, 3:523–524 impairment, 3:507 prepayment options and penalties, fixed asset turnover and average age on income statement, 3:154 5:488 of depreciable assets, 3:520–522 litigation, 3:681 stand-alone mortgage, 6:160–161 Vodafone Group Plc, 3:513–518 on marketable securities, 3:244 subprime, 5:486 impairment of, 3:506–509, 681 net, 3:49 syndicated, 5:364, 374 investment property as, 3:522–525 scenario, 4:258 and taxable/deductible temporary leases on, 3:525–543 stock-out, 4:182 differences, 3:579, 580 finance vs. operating leases, stop-loss orders, 5:48–49 and tax bases of liabilities, 3:574, 575 3:526–543 tax loss carry forward, 3:567 loan-to-value ratio (LTV), 5:486, 504; lease versus buy decision, 3:525–528 tax-loss selling hypothesis, 5:131 6:162 practice problems, 3:547–558 unused tax, 3:581–582 local requirements, for record retention, presentation of, 3:511–524 loss aversion, 5:137 1:175 comparing fixed asset turnover and loss given default, 5:592 location, measures of, 1:406 average age of depreciable assets, loss severity, 5:592, 593 Lochhead, Scott, 4:106 3:520–522 lot allocations, minimum, 1:116–117 lockbox systems, 4:178 Daejan Holdings PLC, 3:523–524 Lotte Group, 3:735 locked limit, 6:19 Vodafone Group Plc, 3:513–518 low-cost strategy, for companies, 5:228 lockout period, 5:508, 511 revaluation model for, 3:502–506 lower bound, 1:591 lockup period, hedge fund, 6:133, 144 solutions to problems, 3:559–564 lower Tier 2 securities, 5:596n.4

bind 57 June 17, 2017 4:16 PM I-58 Index

Lowe’s, 5:208 M3 money measure, 2:270 Malaysia low liquidity positions, 4:159 M4 money measure, 2:270 Asian financial crisis,2: 343 low-quality financial reports Macaulay, Frederick, 5:538 capital restrictions, 2:368–369 conditions conducive to, 3:684 Macaulay duration exchange rate regime, 2:437 and earnings quality, 3:667, 676 calculating, 5:538–542 and IFRS, 3:116 motivations for, 3:683–684 and interest rate risk/investment MSCI multi-market index, 5:96 on spectrum of quality, 3:677–678 horizon, 5:569–574 Maldives, 2:295 Loyalty, Prudence, and Care [Standard and modified duration,5: 549–551 Malta, 2:362n.18, 436 III(A)], 1:101–109 of portfolio, 5:555–557 Malthus, Thomas,2: 174 application of the standard, 1:106–109 MACD line, 1:716–717 managed accounts, 4:235 compliance procedures, 1:105–106 McDonald’s Corporation, 1:412; managed float currency regimes,2: 437, client approval, 1:105 5:216–217 440 firm policies,1: 105–106 MACD oscillator. see moving-average managed futures funds, 6:169 regular account information, 1:105 convergence/divergence oscillator management guidance, 1:101–105 Macedonia, 3:115 and book value, 5:172 client’s portfolio, developing, Macintosh® computers, 3:9 risk governance by, 4:255 1:103–104 MacKinnon, James G., 1:634n.15 in risk management framework, identifying actual investment client, McLeavy, Dennis, 4:84n.5, 84n.7 4:249–250 1:103 McLeod Russel India Ltd., 3:735 management (executive) board, 4:10 proxy voting policies, 1:104–105 macroeconomic factor models, management buy-ins (MBIs), 6:150 soft commission policies, 1:104 4:376–377 management buyouts (MBOs), 5:162; understanding application of macroeconomics, 2:117–197 6:150 standard, 1:102–103 aggregate demand, 2:137–148 management commentary, 3:26, 686 text of, 1:45, 101 AD curve, 2:145–148 “Management Commentary” (IFRS Loyalty [Standard IV(A)], 1:133–143 defined, 2:136 Practice Statement), 3:673 application of the standard, 1:137–143 IS curve, 2:137–144 management discussion and analysis compliance procedures, 1:137 LM curve, 2:144–145 (MD&A), 3:12 competition policy, 1:137 shifts in, 2:150–157 “Critical Accounting Estimates,” 3:683 employee classification,1: 137 aggregate output and income, on derecognition, 3:615 incident-reporting procedures, 1:137 2:119–136 in financial statement analysis,3: 26 termination policy, 1:137 in economy, 2:119–120 information in, 3:622 guidance, 1:133–137 in gross domestic product, 2:120–136 inventory management in, 3:439–440 employer responsibilities, 1:134 aggregate supply LIFO liquidation in, 3:422 independent practice, 1:134 about, 2:148–150 of Microsoft, 3:489 leaving employers, 1:134–135 defined, 2:136 of PACCAR, 3:671–672 nature of employment, 1:136–137 shifts in, 2:150–151, 157–162 policy disclosure requirements, 3:135 social media, 1:136 defined, 2:5 as SEC requirement, 3:615n.5 whistleblowing, 1:136 economic growth, 2:173–185 of Volvo Group, 3:439–440 text of, 1:45–46, 133 production function and potential management fees loyalty to clients, 1:109 GDP, 2:174–175 for fund investments, 6:133 LPs. see limited partners sources, 2:176–179 for hedge funds, 6:139–140, 143 LRAC. see long-run average cost sustainable growth, 2:179–185 for private equity investments, LRAC curve. see long-run average total equilibrium GDP and prices, 6:149–150 cost curve 2:163–173 management strategy, as company LRAS curve. see long-run aggregate business cycle and AD/AS curves, fundamental, 5:613–614 supply curve 2:170–173 managers LS countries. see less strict countries inflationary gap,2: 167–168 financial reporting quality and LT V. see loan-to-value ratio long-run equilibrium, 2:163 disclosure by, 3:717 lump sum recessionary gap, 2:163–167 fixation on earnings reports by,3: 717 funding annuity with, 1:335–338 stagflation, 2:169–170 merger and acquisition orientation of, future, 1:319–321 and industry analysis, 5:203, 222 3:718 future value of, 1:311–312 microeconomics vs., 2:118 motivations for issuing low-quality present value of, 1:319–322 new classical, 2:217 reports by, 3:683–684 Lund, Susan, 5:348n.1 practice problems, 2:190–194 relations with board, 4:13 Luxembourg risk drivers from, 4:270 selection of, 1:62, 69–70, 164 customs union, 2:362 solutions to problems, 2:195–197 shareholder relationships, 4:11–12 employee laws in, 4:19 macro strategies, with hedge funds, as stakeholders, 4:9 EU membership, 2:362n.18 6:135, 137 mandates exchange rate regime, 2:436 Macy’s Inc., 1:414 following, 1:123 Luxembourg Stock Exchange, 5:167 MAD. see mean absolute deviation managing to, 1:121 LVMH Moët Hennessy, 1:426 Maersk Line, 5:210 notification of change in,1: 170 maintenance covenants, 5:644 manipulation, of financial reports,3: 666, M maintenance margin requirement, 5:22, 689–690 M0 money measure, 2:270 43–44; 6:18 Mann-Whitney U test, 1:657 M1 money measure, 2:269, 270 maintenance of records, 1:90, 264 manufacturers M2 money measure, 2:269, 270 make-whole calls, 5:330 inventories of, 3:404 M2 money supply, 2:242, 243 make-whole charge, 5:505 new orders of, 2:240 M2 portfolio measure, 4:390–391 making a market, 5:45, 46, 631 manufacturing resource planning (MRP) M3H money measure, 2:270 Malawi, 3:117 systems, 4:183–184

bind 58 June 17, 2017 4:16 PM Index I-59

manufacturing sales, 2:241 and predictability of returns, market model, 4:94n.24, 378–381 maple bonds, 5:313 5:135–136 market multiple models, 5:247. see Marathon Oil, 5:209 time-series, 5:130–132 also multiplier models for equity margin. see also profit margin market-based valuation, 3:740–745 valuation contribution, 4:131 market bid–ask spread, 5:44 market neutral strategies, for hedge discount, 5:426–429 market capitalization funds, 6:137 for futures, 6:18–19 of equity markets, 5:150–152 market-on-close orders, 5:48 for hedge funds, 6:144 style indexes based on, 5:97 market or comparables valuation initial margin requirements, 5:22, 41; total, 5:89 approach, for private equity, 6:18 market-capitalization weighting, of 6:156–157 maintenance margin requirements, indexes, 5:87–90 market orders, 5:44, 45, 47–48 5:22, 43–44 market characteristics of assets, market-oriented investors, 3:754 quoted, 5:426 4:314–315 market participants repo, 5:388 market concentration, 2:105–106 fair treatment of, 5:122 required, 5:426 market cycles, 1:724–725 and market efficiency,5: 120–122 segment, 3:386–387 decennial pattern, 1:725 and technical analysis, 1:680–682 variation margin payments, 5:22 18-year cycle, 1:724 market portfolio, in CAPM, 4:400 marginal cost of capital (MCC), 4:82–83 Kondratieff Wave,1: 724 market power, 2:97, 105 marginal cost of capital (MCC) schedule, presidential cycle, 1:725 market price 4:102–105 market demand function, 2:16 and estimated value, 5:245–246 marginal costs (MC) market discount rate of risk, 4:321 defined, 2:23 bond price and, 5:407–411 market rate(s) interactions of other costs and output calculating, 5:402–406 for bonds payable, 3:612–613 with, 2:31–35 market efficiency,5: 115–146 of interest, 3:605 long-run, 2:30, 102 and active manager selection, 5:116 market risk, 4:171, 261, 267 and marginal revenue/profit anomalies, 5:129–136 markets, 5:5–76. see also fixed-income maximization, 2:30 and closed-end investment fund market in monopolies, 2:36–37, 102 discounts, 5:133–134 assets in, 5:14–20 in perfectly competitive markets, cross-sectional, 5:133 and classification of markets,5: 14–16 2:36–37, 79–80 and earnings surprises, 5:134–135 currencies, 5:19–20 marginal probabilities, 1:480 for initial public offerings,5: 135 real assets, 5:26–28 marginal product, 2:23 investment strategies using, 5:136 securities, 5:16–19 marginal product of labor (MPL), and predictability of returns, bear, 1:562–564, 725 2:25–28. see also marginal returns 5:135–136 benefits of securitization for, marginal propensity to consume (MPC), time-series, 5:130–132 5:474–476 2:139, 314–316 and arbitrage opportunities, 6:50, 138 bull, 1:562–564, 726–728 marginal propensity to save (MPS), in behavioral finance,5: 136–139 call, 5:54 2:139, 315 contributing factors, 5:120–123 capital, 5:13–15 marginal returns, 2:23–28 of derivatives market, 6:42 analyzing developments in, 2:383 and definition of productivity,2: 23–25 description of efficient market, and benefit of ethics to society,1: 40 increasing, 2:23 5:117–119 functions of, 2:406–407 law of diminishing, 2:23 forms of, 5:124–129 primary, 5:13–15 and total/average product of labor, and market vs. intrinsic value, regulation of, 3:113 2:25–28 5:119–120 sustainability of, 1:40–41 marginal revenue (MR) and portfolio management, 5:129 CAPM assumptions about, 4:384 and marginal cost/profit maximization, practice problems, 5:142–144 cash, 6:5 2:29–30 semi-strong-form efficient markets, central bank funds, 5:385 in monopolies, 2:98–102 5:125–128 commodities in, 5:25–26 in monopolistic competition, 2:85–87 solutions to problems, 5:145–146 common, 2:362–366 in oligopolies, 2:90, 91, 94, 96 strong-form efficient markets,5: 128 complete, 5:58 in perfect competition, 2:70, 78–79 and transaction/information- continuous trading, 5:54, 56–57 and price elasticity, 2:73–74 acquisition costs, 5:123–124 contract, 5:20–25, 27–28, 54–58 marginal value curve, 2:75 weak-form efficient markets,5: 125 contracts for difference,5: 20–21 margin bond, 6:11 market float, securities’,5: 87 execution mechanisms, 5:54–57 margin calls, 5:43; 6:19, 144 market functions, in FX markets, forwards, 5:21–22 margin debt, 1:718–719, 722 2:406–412 futures, 5:22–23 margin loans, 5:41 market index, for beta, 4:95 insurance contracts, 5:25 margin stability, 3:749 market indicators, 1:723 market information systems, 5:58 margin transactions, 6:91–92 market information systems, 5:58 options, 5:24–25 Mariscal, Jorge O., 4:101n.34 market liquidity risk, 5:593–594 swaps, 5:23–24 marketable limit orders, 5:45 market making, 1:91; 6:10–11 trading sessions on, 5:54 marketable securities, 3:225, 243–245 Market Manipulation [Standard II(B)], debt, 5:592 market anomalies, 5:129–136 1:96–101 defined, 4:367 and closed-end investment fund application of the standard, 1:97–101 derivatives, 6:9–14, 38–39 discounts, 5:133–134 guidance, 1:96–97 duopoly, 2:90–93 cross-sectional, 5:133 information-based manipulation, in economy, 2:128 and earnings surprises, 5:134–135 1:96 efficient for initial public offerings,5: 135 transaction-based manipulation, 1:97 arbitrage opportunities in, 6:50, 138 investment strategies using, 5:136 text of, 1:45, 96 derivatives market as, 6:42

bind 59 June 17, 2017 4:16 PM I-60 Index

markets (continued) exchanging assets for immediate optimal price and output, 2:77–81 description of, 5:117–119 delivery in, 5:10 supply analysis, 2:76–77 intrinsic value in, 5:119–120 information-motivated trading in, practice problems, 2:110–113 semi-strong-form, 5:125–128 5:12 solutions to problems, 2:114–115 strong-form, 5:128 raising capital in, 5:9 types of, 2:64–66 weak-form, 5:125 risk management in, 5:10 Market Technicians Association, 1:683 emerging secondary, 5:53 market timing, 1:562–564 bonds in, 5:355 making, 5:45, 46, 631 market-to-book ratio, 5:175 capitalization level and contributions orders in, 5:44–50 market value to global GDP, 5:151 over-the-counter, 2:408; 5:55, 168, 358, and asset-based valuation, 5:276; 6:157 fixed-income securities for,6: 146 365 and book value, 5:172 hedge funds in, 4:236 positions in, 5:38–44 of debt, 5:274–275 securitization in, 5:475 practice problems, 5:66–72 defined, 1:269 sovereign debt of, 5:646 primary of derivatives, 6:38–39 technical analysis for, 5:125 bond, 5:359–365 GIPS Valuation Principles (GIPS World Bank definition of,5: 646n.42 capital, 5:13–14 Section II), 1:254 equity securities, 5:14–15, 50–53 Input Data (GIPS Section I.1), 1:237n.2 efficiency of,6: 42 quote-driven, 5:54, 55, 57, 98 intrinsic vs., 5:119–120 global, 5:349–350 rationality of individuals vs., 5:137 Real Estate (GIPS Section I.6), 1:245n.6 hedge fund strategies with neutrality regulation of, 5:60–63 total, 5:175 in, 4:236 secondary market value to book value (MV/BV) OTC derivatives market vs., 6:9–10 bond, 5:359, 365–367 ratio, 3:763–764 ethics and, 1:15–17 security, 5:53–58 Market Vane Bullish Consensus, 1:717 Eurocommercial paper, 5:376–377 solutions to problems, 5:73–76 Market Vectors Vietnam ETF, 5:95 factor, 2:128 spot, 5:10, 15; 6:5 marking to market, 3:243; 6:18, 73n.7, 80 financial, 2:128 sustainable securitization, 5:476 Markit iBoxx, 5:98 and financial analyst decisions,5: 6 taking, 5:46 Markit iBoxx Euro High-Yield Bond financial intermediaries,5: 28–38 target, for security indexes, 5:82–83 Indexes, 5:103 arbitrageurs, 5:34–36 traditional investment, 5:15 Markowitz, Harry, 1:430; 4:215, 383 brokers, exchanges, and alternative US commercial paper, 5:376–377 Markowitz efficient frontier,4: 339, trading systems, 5:28–30 in well-functioning financial systems, 367–368 dealers, 5:30–31, 34–36 5:58–60 Marsh, Paul, 4:90 depository institutions and financial yield spread and performance of, 5:631 Marshall-Lerner condition, 2:445–449 corporations, 5:32–33 market segmentation, 6:130 Mars/Wrigley, 5:209, 219–221 insurance companies, 5:33–34 market sentiment, 5:93 Marvell Technology Group, 1:697, 698, securitizers, 5:31–32 indicators of, 1:717–720 700 for settlement and custodial services, and technical analysis, 1:680–681 Mason, Andrew, 3:693 5:36–37 market share Massachusetts Institute of Technology, transactions facilitated by, 5:38 and industry concentration, 5:208–209 4:218 foreign exchange, 2:399–418 stability of, 5:212–213, 220 Massachusetts Mutual Life Insurance about, 2:399–400 Markets in Financial Instruments Company, 4:224–225 currency conventions, 2:401–402 Directive (MiFID), 4:414 Massey Energy, 4:35 functions, 2:406–412 market structures, 2:63–115 MasterCard, 5:206, 209 nominal vs. real exchange rates, analysis of, 2:64–68 master limited partnerships (MLPs), 2:402–406 determining factors for, 2:66–68 5:26; 6:174,175 participants in, 2:412–415 identification of,2: 105–108 matador bonds, 5:313 size and composition of, 2:415–418 importance of, 2:63–64 matching principle, 3:172 forward, 5:437 monopolistic competition, 2:83–87 matching strategies, 4:171–172, 192 and functions of financial system, demand analysis, 2:84–85 material adverse change provisions, 5:6–14 long-run equilibrium, 2:86–87 5:375 capital allocation efficiency,5: 13–14 optimal price and output, 2:85 material information, 1:85, 92–94 determining rates of return, 5:12–13 supply analysis, 2:85 materiality, determining, 1:92, 95 for individuals, 5:7–12 monopoly, 2:97–105 material nonpublic information futures, 6:21 about, 2:97–98 adopting compliance procedures for, geographic limitations of, 2:64 demand analysis, 2:98–99 1:88 global debt, 5:349–350 long-run equilibrium, 2:104–105 analyst recommendations as, 1:93–94 global equity, 5:349–350 optimal price and output, 2:101–102 legal vs. ethical restrictions on, 1:18 global finance price discrimination and consumer Material Nonpublic Information and depository receipts, 5:166–169 surplus, 2:102–104 [Standard II(A)], 1:84–95 direct investing, 5:165–166 supply analysis, 2:99–100 application of the standard, 1:91–95 equity securities in, 5:150–155 oligopoly, 2:87–96 compliance procedures, 1:88–91 integration and growth in, demand analysis and pricing achieving public dissemination, 1:88 5:164–165 strategies, 2:88–94 adopting, 1:88 goods, 2:128 long-run equilibrium, 2:96 adopting disclosure procedures, inefficient, 5:119 optimal price and output, 2:95–96 1:88–89 informationally efficient,4: 366 supply analysis, 2:94–95 appropriate interdepartmental interbank, 5:352, 385–386 perfect competition, 2:68–83 communications, 1:89 labor, 2:218 demand analysis, 2:69–76 communication to employees, 1:91 liquid long-run equilibrium, 2:81–82 firewall elements,1: 89

bind 60 June 17, 2017 4:16 PM Index I-61

issuing press releases, 1:89 hypothesis testing with, 1:634–650 Medtronic, 5:213 personal trading limitations, 1:90 tests with mean differences,1: 641–650 members physical separation of departments, tests with single mean, 1:634–641 CFA (see Responsibilities as a 1:89 of lognormal distribution, 1:555, CFA Institute Member or CFA preventing personnel overlap, 1:90 558–559 Candidate [Standard of Professional proprietary trading procedures, 1:91 of normal distribution, 1:545, 548 Conduct VII]) record maintenance, 1:90 population, 1:406–407 exchange, 6:10n.4 reporting systems, 1:90 estimates of, 1:593–603 Membership Agreement, 1:51 guidance, 1:84–88 test static for single, 1:635–638 membership status, CFA Institute, 1:199, industry experts, 1:87–88 sample, 1:407–409, 590n.4 203 investment research reports, 1:88 distribution of, 1:590–593 mental accounting, 5:138 material information defined,1: 85 as point estimator, 1:593, 595 menu costs, 2:219–220, 282 mosaic theory, 1:86–87 standard error of, 1:590–591 Mercedes, 2:86; 5:218 nonpublic information defined,1: 86 of standard normal distribution, merchandise trade sub-account, BOP, social media, 1:87 1:546 2:371 text of, 1:44–45, 84 trimmed, 1:410n.14 merchandising companies, inventories Mathews International Corporation, weighted, 1:415–418 of, 3:404 5:199 Winsorized, 1:410n.14 Merck & Co., 5:209, 219–221 matrioshka bonds, 5:313 mean absolute deviation (MAD), MERCOSUR. see Southern Cone matrix pricing, 4:86; 5:417–420 1:431–433 Common Market mature stage (industry life-cycle), mean differences,1: 641–650 Mercurio, V., 4:108n.43 5:215 in tests with dependent samples, merger and acquisition orientation, maturity 1:646–650 3:718 balloon maturity provisions, 5:505 in tests with independent samples, merger arbitrage strategy, for hedge classifying fixed-income markets by, 1:641–646 funds, 6:136 5:351 mean returns on S&P 50, 1:642–644 mergers, market concentration and, of corporate notes/bonds, 5:377–378 recovery rates on defaulted bonds, 2:105–106 of fixed-income securities,5: 300 1:644–646 mesokurtic, 1:454 of forward contracts, 2:426n.5 mean return(s), 4:294 MET. see Medical Equipment Trust and forward points, 2:429–430 excess, 1:445–446 MetaCarta, 3:675 legal, 5:494–495 geometric, 1:419–422; 4:294–295 method of comparables of residential mortgage loans, 5:486 historical, 4:307–308 and multiplier models for equity weighted average, 5:491–494 mean–variance analysis, 1:498n.10, 551 valuation, 5:269–272 maturity effect,5: 408, 409 measurement scales, 1:392–393 price multiples in, 5:266 maturity premium, 1:307 measures of central tendency, 1:406–424 Metropolitan Life Insurance Company, maturity structure of interest rates, arithmetic mean, 1:406–410 4:225 5:433–441 and coefficient of variation, Mexican Comisión Nacional Bancaria y maturity value. see par value 1:443–444 de Valores, 5:29 Mauritius, 3:117; 5:96 cross-sectional mean, 1:407–409 Mexican peso, 2:401, 421; 5:10 MBIs. see management buy-ins defined, 1:406 Mexico MBOs. see management buyouts and median, 1:412–413 accounting standards and ROE MBSs. see mortgage-backed securities population mean, 1:406–407 comparisons, 3:736–738 MC. see marginal costs properties, 1:409–410 business investment, 2:177 MCC. see marginal cost of capital sample mean, 1:407–409 consumption expenditures, 2:139 MCC schedule. see marginal cost of using, 1:458–459 economic growth in, 2:182 capital schedule and weighted mean, 1:416n.19 effect of global recession,2: 166 MD&A. see management discussion and geometric mean, 1:418–422 exchange rate regime, 2:437 analysis and arithmetic mean, 1:420–422 floating-rate bonds,5: 369 MDURATION financial function, formula, 1:418–419 government spending, 2:129 5:542n.4 using, 1:458–459 IFRS adoption, 3:115 mean(s) harmonic mean, 1:422–423 inflation-linked bonds,5: 326 arithmetic, 1:406–410 median, 1:411–413 inflation targeting,2: 287 and coefficient of variation, and arithmetic mean, 1:412–413 labor productivity, 2:181 1:443–444 defined, 1:411 labor supply, 2:176 cross-sectional mean, 1:407–409 mode, 1:413–415 MSCI multi-market index, 5:96 defined, 1:400n.9, 406 weighted mean, 1:415–418 NAFTA, 2:362, 364–365 and median, 1:412–413 measures of location, 1:406 NAICS system, 5:197 population mean, 1:406–407 measuring implication, triangle pattern’s, trade balance with US, 2:131 properties, 1:409–410 1:705–706 underground economy, 2:124 sample mean, 1:407–409 media, governance and, 4:27 mezzanine bond classes, 5:513 using, 1:458–459 median, 1:411–413 mezzanine financing, for leveraged and weighted mean, 1:416n.19 Medical Equipment Trust (MET), buyouts, 6:151 of binomial random variables, 1:539 5:477–478, 481–483 mezzanine-stage financing (mezzanine cross-sectional, 1:407–409 medical industry, governmental venture capital), 6:153 geometric, 1:418–422 influences on,5: 225 mezzanine tranche, 6:34 and arithmetic mean, 1:420–422 Mediquip, 5:476–478, 482–483 Mian, Shehzad L., 4:175n.5 formula, 1:418–419 Medium Term Financial Strategy Mibor. see Mumbai interbank offered using, 1:458–459 (MTFS), 2:276 rate harmonic, 1:422–423 medium-term notes (MTNs), 5:378 Michelin Group, 5:68, 74

bind 61 June 17, 2017 4:16 PM I-62 Index

microeconomics guidance, 1:71–74 exchange rate targeting, 2:293–296 defined, 2:5 impact on investment practice, 1:72 and fiscal policy,2: 320–324 demand and supply analysis in, 2:5–6 omissions, 1:73 and inflation,2: 168 macroeconomics vs., 2:118 performance reporting, 1:72–73 inflation targeting,2: 287–293 Micronesia, 1:233 plagiarism, 1:73–74 central bank independence, 2:288 Micron Technology, Inc., 3:586–591 social media, 1:73 credibility, 2:288–289 consolidated balance sheet, 3:587–588 work completed for employer, 1:74 exceptions to inflation-targeting rule, consolidated statement of operations, text of, 1:44, 71 2:291–292 3:586–587 Mitchell, Arthur F., 2:200 and monetary policy in developing notes to consolidated financial Mittoo, Usha, 4:108 countries, 2:292–293 statement, 3:588–589 MLPs. see master limited partnerships transparency, 2:289–291 Microsoft Corporation, 2:98; 3:489 MNCs. see multinational corporations influence on economy,2: 262–264 Microsoft Excel, 1:633n.14 modal interval, 1:414 limitations, 2:297–301 Microsoft Word, 2:98 mode, 1:413–415 and New Classical school, 2:219 Middle East. see also specific countries model building, financial analysis for, objectives, 2:280–283 debt and equity outstanding, 5:350 3:388 in sovereign debt analysis, 5:648 foreign exchange reserves, 2:414 model portfolios, security market and stock returns, 1:587–588 and IFRS, 3:116 indexes in, 5:94–95 of United Kingdom, 2:276 industrial comparative ratio analysis, Model Request for Proposal, 1:157 monetary reserve requirement, 3:380 5:617 model risk, 4:263 monetary transmission mechanism, institutionally-owned real estate, models 2:285–287, 297–298 6:164–165 manipulating inputs for, 1:100 monetary unions, 2:362, 365–366, 436 natural resources, 2:178 in quantitatively oriented research, money, 2:264–276. see also time value of terms of trade, 2:338 1:156–157 money (TMV) trade-to-GDP ratio, 2:340 understanding technical aspects of, creation process, 2:266–269 mid-swaps (term), 5:442 1:164–165 defined, 2:153, 269–270 MiFID. see Markets in Financial modern portfolio theory (MPT) demand for, 2:271–274 Instruments Directive and CAPM, 4:383 Fisher effect,2: 274–275 migration, credit ratings, 5:606–607 development of, 4:215–216 functions of, 2:265–266 Mikuni & Co., 5:602 and mean-variance analysis, 1:551 and interest rates, 2:275 Miles, James A., 4:83n.3 security-specific risk in,4: 271 New Classical school models with, Miller, Merton, 4:96n.28 modified duration 2:219–221 minimalist disclosure approach, 3:717 annual, 5:542–544 New Classical school models without, minimum cash balances, 4:165 approximate, 5:543–545 2:218–219 minimum efficient returns to scale,2: 46 calculating, 5:542–543 quantity theory of, 2:144, 270–271 minimum lot allocations, 1:116–117 and credit risk/return, 5:633–635 supply and demand relationship, minimum prices and effective duration,5: 547–548 2:272–274 of American options, 6:105–106 and Macaulay duration, 5:549–551 surplus of, 2:235–236 of European options, 6:91–93 of portfolio, 5:555–557 velocity of, 2:144, 236 minimum required rate of return, 5:177 Modigliani, Franco, 4:96n.28, 390 money convexity, 5:564–565 minimum-variance frontier, 4:338 Modigliani, Leah, 4:390 money creation, 2:266–269 minimum-variance portfolios, Moldova, 3:115 money duration, 5:557–559, 572 4:337–339 momentum anomalies, 5:132 money managers, estimation of client minority equity investing, 6:153 momentum effect, of market- inflows by,1: 601–603 minority interests, 3:17, 249 capitalization-weighted indexes, money market funds, 4:169, 230–231 minority (non-controlling) shareholders, 5:91 money market instruments, 5:429–433 4:9, 12, 16 momentum oscillators, 1:710–717 money markets Minsky, Hyman, 2:216 about, 1:710–712 capital markets vs., 5:15 Minsky moment, 2:216 MACD oscillator, 1:716–717 equilibrium in, 2:144–145 Misconduct [Standard I(D)], 1:81–84 relative strength index, 1:712–714 fixed-income instruments in,5: 17 application of the standard, 1:82–84 stochastic oscillator, 1:714–716 interbank, 1:377 compliance procedures, 1:82 Monetarist school, 2:217, 271, 276, 303 money market securities, 5:300 guidance, 1:81–82 monetary accommodation, 2:322 money market yields, 1:376–381 text of, 1:44, 81 Monetary Authority of Singapore, 5:161 bank discount yield, 1:377–378 mismatching strategies, 4:171–172 monetary base, 2:438 calculating, 4:170 misrepresentation monetary flexibility, in sovereign credit discount rate for, 1:380–381 avoiding, 1:80 analysis, 5:648 other yields vs., 1:380–381 of financial data,3: 76 monetary policy, 2:262–302 money multiplier, 2:268 of information, 1:79 and aggregate demand, 2:153–154 moneyness, 6:87 potential, 1:77 central banks money neutrality, 2:270–271, 274 Misrepresentation [Standard I(C)], roles and responsibilities, 2:277–280 money supply 1:71–81 tools of, 2:283–285 and aggregate demand/supply, 2:154 application of the standard, 1:76–81 and concept of money, 2:264–276 changes in, 2:272–274 compliance procedures, 1:74–75 contractionary and expansionary and interest rates, 2:275 factual presentations, 1:74–75 policies, 2:296–297 M2, 2:242, 243 maintaining webpages, 1:75 and currency regime, 2:433 real, 2:144–146 plagiarism policy, 1:75 defined, 2:263 money-weighted rate of return qualification summary,1: 75 of developing countries, 2:292–293 for portfolios, 1:370–371, 374–376 verifying outside information, 1:75 evaluating, 2:301–302 time- vs., 1:374–376

bind 62 June 17, 2017 4:16 PM Index I-63

money-weighted return, 4:296–297 Morningstar US Market Index, 5:104 Mozambique, 3:117 monitoring Morocco, 3:117; 5:96 MPC. see marginal propensity to in capital budgeting process, 4:48–49 mortality risk, 4:266 consume of financial reporting standards, mortgage-backed securities (MBSs), MPL. see marginal product of labor 3:133–138 5:308; 6:162–163 MPS. see marginal propensity to save by CFA Institute, 3:134–135 commercial, 5:503–508 MPT. see modern portfolio theory with company disclosures, 3:135–138 balloon maturity provisions, 5:505 MR. see marginal revenue for new products/types of call protection, 5:504–505 MRP systems. see manufacturing transactions, 3:133 credit risk, 5:504 resource planning systems in portfolio management, 4:225 structure, 5:504–508 MSCI ACWI Index, 6:134, 165, 175 in risk management framework, 4:248 coupon frequency, 5:300–301 MSCI All Country World Index, 5:103 Monitronics International, Inc., 5:199 defined, 5:474 MSCI Argentina Index, 5:96n.1 monoline insurance companies, 5:479 effective duration of,5: 546 MSCI Barra monopolist firms,2: 100–101 overcollateralization with, 5:309 company classifications,5: 192 monopolistic competition, 2:83–87. see repayment structure for, 5:320 developed equity market index, also imperfect competition residential, 5:490–503 2:368–369 benefits of trade for,2: 343–344 collateralized mortgage obligations, multi-market indexes of, 5:95–96 characteristics of, 2:67 5:496–503 MSCI Developed Markets Index, 5:96 defined, 2:65 mortgage pass-through securities, MSCI Emerging Markets Index, 4:306– demand analysis, 2:84–85 5:31, 491–496 307, 432; 5:96 long-run equilibrium, 2:86–87 non-agency residential mortgage- MSCI Europe, Australasia, and Far East optimal price and output, 2:85 backed securities, 5:503 (EAFE) Index, 5:96 supply analysis, 2:85 and securitizers, 5:31 co-movement patterns, 4:213–215 monopoly, 2:97–105 mortgage crisis (2007-2008), 2:277–278 correlation with other indexes, 4:432 about, 2:97–98 mortgage debt, 5:596 cross-sectional mean of, 1:408–409 breakeven point in, 2:38–39 mortgage design, 5:486, 489–490 portfolio expected return and variance characteristics of, 2:67 mortgage loans (mortgages) of return, 1:498, 499, 502, 503 defined, 2:66 defined, 5:485 tracking objective, 1:538 demand, average, and marginal costs fixed-rate, 1:334–335 MSCI Europe Index, 4:432 under, 2:37 residential, 5:485–490; 6:161 MSCI Frontier Markets Index, 5:96 demand analysis, 2:98–99 amortization schedule, 5:487–488 MSCI GCC Countries Index, 5:96n.4 long-run equilibrium, 2:104–105 interest rates, 5:486–487 MSCI Jamaica Index, 5:96n.3 marginal revenue in, 2:29 lender’s rights in foreclosures, MSCI Pakistan Index, 5:96n.2 optimal price and output, 2:101–102 5:488–489 MSCI Trinidad & Tobago Index, 5:96n.3 price discrimination and consumer maturity, 5:486 MSCI US Index, 4:432 surplus, 2:102–104 prepayment options and penalties, MSCI World Index, 1:466–467; 4:432; supply analysis, 2:99–100 5:488 5:94; 6:155,156 Monte Carlo simulation, 1:559–565 securitization of, 6:160–163 MS countries. see more strict countries of capital expenditures, 1:591–592 stand-alone, 6:160–161 MSPs. see Multiple Strategy Portfolios historical simulation vs., 1:564–565 mortgage pass-through securities, 5:31, MTFS. see Medium Term Financial number of trials for, 1:561 491–496 Strategy potential gains from market timing, cash flow construction,5: 493–494 MTNs. see medium-term notes 1:562–564 characteristics, 5:491–492 MTR Gaming Group, Inc., 3:487–488 process, 1:560–561 collateralized mortgage obligations vs., multi-factor model, 4:376 random observations in, 1:561–562 5:496–497 Multi Fiber Agreement, 2:345 for risk assessment, 3:748 defined, 5:491 multilateral trading facilities (MTFs), Montenegro, 2:436 prepayment rate measures, 5:492–493 5:29–30 monthly billing terms, 4:177 prepayment risk, 5:492 multi-market equity indexes, 5:95–96 Moody, John, 5:601 weighted average life, 5:494–495 multinational corporations (MNCs), Moody’s Analytics, 4:274 mortgage pools, 5:31 2:341–342 Moody’s Investors Service, 1:414–415 mortgage rates, 5:486–487 multinomial formula, 1:512 commercial paper ratings, 5:375 mortgage real estate investment trusts, multiple-class share structure, 4:12–13 in credit markets, 5:601, 602 6:162 multiple-delivery arrangements, 3:714 evaluation of quantifiable rating mortgage sector, 5:491n.9 multiple IRR problem, for capital factors, 3:750–751 mosaic theory projects, 4:64–66 investment-grade ratings, 5:299n.2, 350 applying, 1:93, 94 multiple-period financial performance, long-term ratings matrix, 5:602–603 and material nonpublic information, projecting, 3:745–748 municipal debt ratings, 5:650, 651 1:86–87 multiple-price auctions, 5:362 ratings for Ford Motor Company, 5:607 Mossin, Jan, 4:383 multiple put bonds, 5:332 sovereign ratings, 5:368 Motally, 3:675 Multiple Strategy Portfolios (MSPs), Moore’s law, 5:222 motivation 1:253 moral hazard, insurance and, 5:34 for manipulating financial reports, multiple-year leases, 6:158 moral principles, 1:7 3:689–690 multiplication rule for expected value more strict (MS) countries, 1:52–53 for producing low-quality financial of product of uncorrelated random more strict law, 1:50 reports, 3:676, 683–684 variables, 1:506 Morgan, J. P., 2:96 Motley Fool, 1:604 multiplication rule for independent Morgan Stanley, 5:300 moving-average convergence/divergence events, 1:485–488 Morl, Ian, 3:183 (MACD) oscillator, 1:716–717 multiplication rule for probabilities, Morningstar, 1:392, 428; 5:98, 104 moving averages, 1:707–709 1:481, 483

bind 63 June 17, 2017 4:16 PM I-64 Index

multiplication rule of counting, NARU. see natural rate of negotiable CDs, 5:386 1:511–512 unemployment Neiman Marcus Group, Inc., 1:414 multiplier models for equity valuation, NASDAQ. see National Association Neoclassical school of economic 5:265–276 of Securities Dealers Automated thought, 2:213–214 defined, 5:247 Quotations Neo-Keynesians, 2:219 enterprise values in, 5:273–276 NASDAQ 100 Index, 4:380; 6:10, 155 Nestlé Group, 3:688, 743–745 example, 5:272–273 NASDAQ OMX, 5:151, 152 Nestlé SA fundamentals in, 5:266–267 Nash, John, 2:92 in hedge funds, 6:143 method of comparables, 5:269–272 Nash equilibrium, 2:92–93, 96 justified forward P/E of,5: 267–269 other models vs., 5:246–248, 278–280 NASSCOM, 2:354n.11 strategic analysis, 5:219–221 price multiples in, 5:266–269 National Association of Pension Funds, subsidiary of, 5:159 multistage dividend discount models, 1:233 net asset value (NAV) 5:261–264 National Association of Real Estate breaking the buck, 4:231 multi-step format, income statement, Investment Trusts (NAREIT), closed-end investment fund, 5:134 3:154 5:101,102; 6:164 and drawdown, 6:144 multi-strategy strategies, for hedge National Association of Securities mutual fund, 4:226–227 funds, 6:137 Dealers Automated Quotations of REITs, 6:166 multivariate distribution, 1:546 (NASDAQ), 5:151n.4 trading vs. reporting, 6:146 multivariate normal distribution, 1:546 American depositary shares, 5:168 net book value, 3:179 Mumbai interbank offered rate (Mibor), Arms index, 1:721–722 net cash flow,3: 276, 383 5:353 correlations of stocks, 4:332 net client inflows, estimating, Munich RE, 1:425 delisted companies, 1:607 1:601–603 municipal bonds (munis), 4:425; 5:355 performance of UEC and, 5:93 net coupon pass-through rate, 5:491 Murphy, John, 1:728 National Bureau of Economic Research net debt, 5:616 must (term), 1:269 (NBER), 1:682; 2:203, 240 net exports, 2:140, 338 must not (term), 1:269 National Bureau of Statistics of China, Netherlands mutual fund cash position indicator, 2:121 banking supervision, 2:279 1:722–723 National Council of Real Estate bonds outstanding, 5:354, 360 mutual funds, 4:226–233 Investment Fiduciaries (NCREIF), “comply or explain” codes, 4:34 about, 4:226–230 6:164 customs union, 2:362 barriers to entry for, 5:207 National Datacomputer Inc., 3:359–360 domestic and international debt derivatives vs., 6:6 national debt, 2:307–309. see also securities, 5:315 hedge funds vs., 4:235–236 government debt equity risk premiums, 4:91 performance of, 1:487–488; 5:129 National Highways Authority of India EU membership, 2:362n.18 as pooled investments, 5:18–19 (NHAI), 5:355 exchange rate regime, 2:436 predictability of performance for, national income, 2:133, 377 fact finding requirements,4: 427 1:482–483 National Income and Product Accounts frequency of capital budgeting, 4:67 risk/returns of, 1:636–637, 651–652 (NIPA), 2:120 GIPS sponsor, 1:233 short-term investment, 4:169 nationalization, of monopolies, 2:104 IFRS adoption, 3:115 skewness of, 1:452–454 National League of Management imports in, 2:337 SMAs vs., 4:235 Companies, 1:233 in MSCI multi-market index, 5:96 types, 4:230–233 national tax-free bond mutual funds, residential mortgage loans, 5:486–488 bond mutual funds, 4:231–232 4:231 returns hybrid/balanced funds, 4:232–233 national welfare, 2:357, 360 on bonds, bills, and equities, 5:153 money market funds, 4:230–231 National Welfare Fund, 4:221 real equity returns, 1:401 stock mutual funds, 4:232 natural level of output, 2:150 total returns, 1:408, 412 mutually exclusive events, 1:477 natural monopolies, 2:97–98, 104 say on pay, 4:18 mutually exclusive projects, 1:363; 4:51 natural rate of unemployment (NARU), sovereign bonds, 5:368 MV/BV ratio. see market value to book 2:150, 234 two-tier boards, 4:10 value ratio natural resources, 2:160, 161, 178. see Netherlands Antilles, 2:294 also raw materials Netherlands Beroepsvereniging van N nature of employment, 1:136–137 Beleggingsprofessionals, 1:233 NACE. see Statistical Classification nature of expense method, 3:512–513 net income of Economic Activities in the NAV. see net asset value and asset revaluations, 3:503–504 European Community Navistar, 5:189 cash flow and,3: 715 NAFTA. see North American Free Trade NAVTEQ, 3:675 coefficient of variation for,3: 380 Agreement Nayar, Nandkumar, 1:640 defined, 3:49, 154 Nagler, Florian, 1:644–645 NBC, 4:279n.36 and direct method for overall NAICS. see North American Industry NBER. see National Bureau of Economic statement of cash flows,3: 297–298 Classification System Research and financial reporting issues,3: 715 NAIRU. see non-accelerating inflation NCREIF. see National Council of Real on income statement, 3:154 rate of unemployment Estate Investment Fiduciaries and indirect method for overall names, fictitious,1: 204 NCREIF Farmland index, 6:164 statement of cash flows,3: 298–301 Namibia, 3:117 NCREIF Property index, 6:164 per employee, 3:380 Napoleonic Wars, 2:307 negative correlation, 4:325 in ROE, 5:172–174 NAREIT. see National Association of negative covenants, 3:617; 5:310–311, net interest margin, 3:380 Real Estate Investment Trusts 626 net interest pass-through rate, 5:491 narrow framing, 5:138 negative pledges, 5:310 net investment, 2:139–140 narrow money, 2:269 negative screening, 4:39 net loss, 3:49

bind 64 June 17, 2017 4:16 PM Index I-65

net-of-fees returns New York Stock Exchange (NYSE) of asset classes in other countries, Calculation Methodology (GIPS ADRs on, 5:168 4:310–311 Section I.2), 1:238 Arms index, 1:721–722 of asset classes in United States, defined, 1:269 board composition rules, 4:24 4:308–309 Disclosure (GIPS Section I.4), 1:240 correlations of stocks, 4:332 defined, 4:302 GIPS Advertising Guidelines (GIPS cross-sectional data from, 1:587 nominal scales, 1:392 Section III), 1:259 delisting of Allianz SE on, 5:165 nominal wages, 2:157, 160 for hedge funds, 6:142 equities trading on, 6:9 nomination committee, 4:23 Presentation and Reporting (GIPS industry concentration and pricing Nomura, 5:30 Section I.5), 1:243 power of, 5:209 non-accelerating inflation rate of Private Equity (GIPS Section I.7), information availability of, 5:122 unemployment (NAIRU), 2:234 1:249, 250 intermarket analysis, 1:728 non-agency residential Real Estate (GIPS Section I.6), 1:246, trading volume, 4:384 mortgage-backed securities, 5:490, 248 New Zealand 491, 503 net-of-fees SI-IRR, 1:247, 251 business investment, 2:177 non-amortizing loans, 5:508 net operating cycle, 4:163–164 coupon payment structures, 5:323 nonbank finance companies,4: 190 net operating income (NOI), 5:504; 6:165 current account imbalance, 2:380 non-callable, non-convertible perpetual net operating tax loss carryforwards exchange rate regime, 2:437 preferred shares, 5:254–255 (NOLs), 3:590n.4 export subsidies, 2:359 non-cash activities, on cash flow net present value (NPV), 4:58–63 GIPS country sponsor, 1:233 statements, 3:275–277 in capital-budgeting decisions, 4:83 IFRS adoption, 3:117 noncompete agreements, 1:135 defined, 4:52–53 inflation-linked bonds,5: 327 non-conforming mortgages, 5:490 and IRR, 4:53–54 inflation targeting,2: 287, 289–291 noncontrolling interest, 3:17, 249 and net present value rule, 1:362–364 in MSCI multi-market index, 5:96 non-controlling (minority) shareholders, NPV profile,4: 58–60 Policy Targets Agreement, 2:290–291 4:9, 12, 16 ranking conflicts between IRR and, returns nonconventional cash flow,4: 51 4:60–63 on bills and bonds, 5:152–153 noncorrection of known errors, 1:76 and stock prices, 4:67–68 on equities, 5:152–153 non-cumulative preference shares, net profit margin,3: 364, 365 real equity returns, 1:401 5:160 calculation of, 3:334 total returns, 1:408 non-current assets. see also long-lived and conversion from LIFO to FIFO, risk tolerance and equity ownership, assets 3:421 5:155 on balance sheets, 3:221, 234–245 defined, 3:365 New Zealand dollar, 2:401, 418, 419n.4 Apple Inc., 3:235 and income statement ratios, 3:199 New Zealand Stock Exchange, 1:529 financial assets,3: 242–245 and inventory write-downs, 3:433 NHAI. see National Highways Authority goodwill, 3:239–242 in ratio analysis, 3:333 of India intangible assets, 3:237–242 net realisable value (NRV), 3:227–228, Nicaragua, 3:116 investment property, 3:236–237 426 Nigeria, 3:117; 5:96 property, plant, and equipment, net reporting of revenues, 3:165–166 Nigerian Federal Executive Council, 3:235–236 net return, 4:301–302 3:117 SAP Group, 3:234–235 Netscape, 2:98 Nikkei 225 Index, 1:407, 692 defined, 3:48 net tax rate, 2:314 Nikkei 300 Index, 4:366 non-current liabilities, 3:603–662 network effects, in monopolies,2: 98 Nikkei 500 Index, 4:213–215 balance sheets, 3:245–247 net working capital, in credit analysis, Nikkei-Dow Jones Average, 1:584 of Apple Inc., 3:246 5:618 Nikkei Stock Average, 5:103 deferred tax liabilities, 3:247 neutrality, in financial reporting,3: 679 Nikon Corporation, 5:223 long-term financial liabilities, neutral rate of interest, 2:296 Nintendo, 2:342 3:246–247 new accounts, temporary, 1:239, 272 NIPA. see National Income and Product of SAP Group, 3:245–246 New Century Financial, 3:677 Accounts on balance sheets, 3:222 new classical macroeconomics, 2:217 Nissan Motor Company, 5:189, 270 bonds payable, 3:604–622 New Classical school of economic no arbitrage, principle of, 6:70 amortisation of bonds, 3:608–612 thought, 2:217–221 no-arbitrage value, 5:411 debt covenants, 3:617–619 new entrants, in strategic analysis, nodes, 1:493, 540 derecognition of debt, 3:615–617 5:205–208 NOI. see net operating income disclosure of long-term debt, new equity issuance indicator, no IRR problem, for capital projects, 3:619–622 1:723–724 4:64–66 fair value reporting, 3:612–615 new firms, starting,1: 140 noise, on point and figure charts,1: 689 interest expense, 3:608–612 New Keynesians, 2:219 Nokia Corporation, 3:645–647, 674– interest payment, 3:608–612 new media, retention of information on, 676; 5:217 issuance of bonds, 3:604–608 1:175 Nokia Siemens Networks, 3:674, 675 presentation of long-term debt, Newmont Mining, 5:276 no-load funds, 4:228 3:619–622 new product bias, of price index, 2:228 NOLs. see net operating tax loss defined, 3:604 new products carryforwards leases, 3:622–640 capital budgeting for, 4:49 nominal exchange rates, 2:402–406 advantages of, 3:622–623 financial reporting standards for,3: 133 nominal GDP, 2:124–127 finance vs. operating,3: 623–640 New York Mercantile Exchange nominal interest rates, 1:307; pension plans, 3:640–643 (NYMEX), 5:23 2:274–276 practice problems, 3:650–655 New York Society of Security Analysts, nominal rate. see coupon rate solutions to problems, 3:656–662 1:683 nominal returns solvency of, 3:643–647

bind 65 June 17, 2017 4:16 PM I-66 Index

non-cyclical companies, 5:190–191, 613 non-sovereign bonds, 5:307, 371–373 no securities laws (NS) countries, nondeliverable forwards. see contracts non-sovereign government debt, 1:52–53 for difference (CFD) 5:650–651 notching, 5:604 non-discretionary goods, 2:12 non-sovereign governments, 5:299 “not equal to” alternative hypothesis, non-domestic equity securities, nonsystematic risk, 4:374–376 1:626, 627, 653–654 5:164–169 non-traded investments, valuation of, note rates, 5:486–487 depositary receipts, 5:166–169 6:146 notes direct investing in, 5:165–166 no par shares, 3:248 bonds vs., 5:17 nondurable goods, 2:209 Nordstrom, Inc., 1:414 corporate, 5:377–380 non-executive (external) directors, normal distribution credit-linked, 5:382; 6:31 4:9–10, 21 characteristics of, 4:312 exchange-traded, 5:19 nonfinancial assets, purchase of,2: 376 confidence intervals for population floating-rate non-financial risks mean with, 1:596 cash flows from,5: 323–324 defined, 4:260 cumulative probabilities for, 1:742–743 as corporate debt, 5:378 financial vs.,4: 268–269 estimating probability with, 1:553 coupon rate for, 5:301 types of, 4:262–266 hypothesis tests of normally- inverse, 5:324 non-investment-grade bonds (high-yield distributed populations yield measures for, 5:425–429 bonds), 5:603 difference between population medium-term, 5:378 and classification of bond market, means, 1:642–646 privately placed, 5:510 5:350–351 differences between variances,1: 653 publicly offered,5: 509 credit analysis of, 5:638, 643–645 mean differences,1: 647–650 US Treasury, 5:368, 547–548 credit risk with, 5:299–300 single population mean, 1:635–638 variable-rate, 5:323 non-investment grade credit ratings, value of population variance, 1:651 notes payable, 3:232 5:638 normal distribution of continuous notes to financial statements nonmarket securities, weight of, 4:398 random variables, 1:545–553 by Alcatel-Lucent, 3:443–444 non-mortgage asset-backed securities, applications of, 1:551–553 by Caterpillar Inc., 3:418 5:508–512 and probabilities for common stock disclosures in, 3:127 auto loan ABSs, 5:508–511 portfolio, 1:550 in financial statement analysis, credit card receivable ABSs, 5:511–512 safety-first optimal portfolio, 3:24–25 non-operating items 1:551–553 LIFO liquidation in, 3:423 financial reporting quality issues with, reliability factors for confidence by PACCAR, 3:671 3:716 intervals based on, 1:596–597, by Volvo Group, 3:430–431 on income statements, 3:186–187 600–601 notice period, hedge fund, 6:133 nonparametric inference, 1:656–660 skewed vs., 1:448–451 notification and parametric tests, 1:656–657, 660 standard, 1:546, 742–743 changes to investment process, and tests with correlation, 1:657–660 Student’s t-distribution vs., 1:598–599 1:170–172 use of, 1:656–657 normal goods client bonus compensation, 1:144–145 nonparametric test, 1:656–657 defined, 2:15, 19 Code and Standards, 1:142 non-participating preference shares, substitution and income effects on, of errors, 1:172 5:160 2:19–23 fund mandate change, 1:170 non-price competition, 2:67 normal profit,2: 33 known violations, 1:55 non-profit organizations,4: 10–11 Norse Energy Corp., 3:709 outside compensation, 1:145 non-public companies, related-party North Africa, trade-to-GDP ratio, of risks/limitations, 1:173–174 transactions with, 3:713 2:340 notional principal nonpublic information North America, 3:115; 6:159. see also in currency swaps, 6:23n.12 acting on, 1:91, 94 specific countries defined, 6:23 analyst recommendations as, 1:93–94 North American Free Trade Agreement as measure of OTC market, 6:39 controlling, 1:92 (NAFTA), 2:362, 364–365 Novarra, 3:675 defined, 1:86 North American Industry Classification Novartis AG material (see Material Nonpublic System (NAICS), 5:197 industry concentration and pricing Information [Standard II(A)]) Northern Rock Bank, 2:277–278 power, 5:209 standards for priority of transactions Northern Telecom, 4:209–210 in pharmaceutical industry, 5:189 with, 1:186 Northern Trust, 5:210 ROE for, 5:173–175 in strong-form efficient markets,5: 128 Northwestern University, 4:218 strategic analysis, 5:219–221 nonrated debt, cost of, 4:86 Norwalk Agreement, 3:114 Novartis Group, 3:687–688, 743 non-recourse loans, 5:488 Norway, 2:287 Novo Nordisk, 3:642–643 non-recurring items exchange rate regime, 2:437 NPV. see net present value financial reporting quality issues with, GIPS sponsor, 1:233 NPV profile,4: 58–60 3:716 IFRS adoption, 3:115 NPV rule on income statements, 3:181–187 MSCI multi-market index, 5:96 defined, 1:363 and changes in accounting policies, returns evaluating R&D programs with, 1:364 3:184–186 on bonds, bills, and equities, 5:153 and IRR rule, 1:366–367 discontinued operations, 3:182 real equity returns, 1:401 NRV. see net realisable value extraordinary items, 3:182–183 total returns, 1:408, 411 NS countries. see no securities laws unusual and infrequent items, Norwegian Government Pension Fund- countries 3:183–184 Global, 4:221 null hypothesis, 1:626–627 non-recurring restructuring events, Norwegian krone, 2:401; 5:351 number of days of inventory, 4:161, 185 3:682 Norwegian Society of Financial Analysts, number of days of payables, 3:349, 353; non-renewable resources, 2:178 1:233 4:161, 188

bind 66 June 17, 2017 4:16 PM Index I-67

number of days of receivables, 4:160, oil, supply and price of, 2:158 indirect method for calculating, 181 oil and gas industry, 3:679–680 3:706–707 numeraire, 2:434n.10 oil services industry, strategic analysis and issuer liquidity, 5:618, 639 NYMEX. see New York Mercantile of, 5:219–221 and leases, 3:529 Exchange oligopoly, 2:87–96 under US GAAP, 3:284–288 NYSE. see New York Stock Exchange characteristics of, 2:67 operating cycle, 4:163 NYSE Euronext, 5:29, 151, 152; 6:143 defined, 2:66 operating efficiency ratios,3: 349. see demand analysis and pricing strategies, also activity ratios O 2:88–94 operating history, as company OAS. see option-adjusted spread long-run equilibrium, 2:96 fundamental, 5:613 OAS duration, 5:548 optimal price and output, 2:95–96 operating income objective probabilities, 1:478 supply analysis, 2:94–95 adjusted consolidated segment, objectives Oman, 2:295; 5:96 3:693–696 of central banks, 2:280–281 omissions, 1:73 coefficient of variation for,3: 380 of financial analysis,3: 327–328 1 and 10 fee structure, 6:139 and enterprise value, 5:275–276 of financial reporting,3: 102–104 one price, law of, 6:47, 67 and operating leverage, 4:140 of financial reports,3: 118–119 one-sided (one-tailed) hypothesis test, operating leases investment, 1:105, 121, 176 1:626 accounting/reporting by lessee, 3:624, of investors, 4:291–292 one-tier board structure, 4:9–10, 21 627–635 of monetary policy, 2:280–283 one-time sales, 3:716 accounting/reporting by lessor, 3:635, return, 4:421–422 ongoing purchases, 3:485 640 risk, 4:416–421 Ontario Securities Commission, 5:29 and adjustments to debt, 3:768–770 of strategic asset allocation, on-the-run securities, 5:368, 442 analyst adjustments for, 3:765–771 4:434–435 OPEC. see Organization of Petroleum coverage ratio for, 3:770–771 tracking, 1:538 Exporting Countries defined, 3:526 of trade organizations, 2:386–388 open book credit accounts, 4:176 finance leases vs.,4: 87n.11 Objectives and Principles of Securities open economies, 2:338 for lessees, 3:529–538, 624–635, 640 Regulation (IOSCO), 3:109 benefits of trade,2: 343 for lessors, 3:538–543, 635–640 objectivity. see Independence and investment in, 2:378 on long-lived assets, 3:526–543 Objectivity [Standard I(B)] national income identity, 2:377 on non-current liabilities, obligaciones del Estado, 5:368 open-end funds 3:623–640 obligations closed-end funds vs., 4:228; 5:18 financial statement impact of,3: 640 in contracts, 3:169 defined, 1:249 treating, as finance leases, performance, 3:169–170 Private Equity (GIPS Section I.7), 3:534–538 obligations assimilables du Trésor 1:269 operating leverage. see also degree of (OATs), 5:367, 368 real estate with, 1:277–279 operating leverage occupancy rate, 3:381 open interest, 6:20 and capacity, 5:612 OCI. see other comprehensive income open market operations, 2:283; 5:358 degree of odds, probabilities stated as, 1:478–481 operating activities calculating, 4:135 OECD. see Organisation for Economic on cash flow statement,3: 275, defined, 4:130 Co-operation and Development; 291–295 and degree of total leverage, Organisation for Economic cash for income taxes, 3:295 4:142–143 Co-Operation and Development cash for interest, 3:294–295 and financial risk,4: 140–142 off-balance-sheet financing,3: 764–771 cash for other operating expenses, and operating risk, 4:130–135 offering day,5: 362 3:294 financial leverage vs.,3: 360 offerings cash from customers, 3:291–292 operating margins, 3:716 best efforts,5: 51 and cash generation activities, operating profit initial public 3:707–708 defined, 3:18 defined, 5:50 cash to employees, 3:293–294 and depreciation method, 3:703–704 in markets, 5:51–52 cash to suppliers, 3:292–293 EBIT vs., 3:155 and pricing anomalies, 5:135 direct vs. indirect reporting method, forecasts of, 3:741–742 and venture capital, 5:162 3:706–707 on income statement, 3:155 public, 5:50–53, 360–364 defined, 3:20, 44 operating profit margin,3: 364, 365 rights, 5:52 operating breakeven points, 4:143–145 defined, 3:365 seasoned, 5:50 operating cash flow,5: 252, 618, 639 and depreciation method, 3:703–704 syndicated, 5:361 operating cash flows (cash flows from and income statement ratios, 3:200 underwritten, 5:50, 51, 360–362 operating activities), 3:277–288 operating risk offer prices,5: 44, 574 and capitalising vs. expensing of costs, defined, 4:95, 128 Office of the Comptroller of the 3:485–486 and leverage, 4:130–136 Currency, 2:279; 3:105 direct-format statement under IFRS, operating ROA, 3:365 Office of the Superintendent of Financial 3:282–284 Operating Segments (IFRS 8), 5:189n.1 Institutions, 2:278 direct method for calculating, 3:706 operational efficiency,3: 749; 4:30 official interest rate (official policy rate), financing vs.,3: 277 operational independence, 2:287, 288 2:284 in free-cash-flow-to-equity valuation, operationally efficient financial systems, off-market forwards,6: 83–84 5:252 5:58–59 offsetting transactions, with futures, free operating cash flow to debt, operational risk, 4:264–266, 274–275 6:20 3:383 operations, statement of, 3:17, 586–587. off-the-run securities,5: 442 indirect-format statement under IFRS, see also income statements O’Halloran, Elizabeth, 4:90n.16 3:279–282 opinion paragraph, audit report, 3:27

bind 67 June 17, 2017 4:16 PM I-68 Index

opinion polls, 1:717 pricing of risk, 4:374–376 corporate governance guidelines by, opinions and risk aversion, 4:315–324 4:7 about CFA Program or Institute, 1:194 concepts, 4:315–316 cyclically adjusted budget deficit,2: 317 audit, 3:27–28 indifference curves,4: 317–319 economic indicators, 2:239 of credit rating agency, 1:61–62 utility theory, 4:316–324 GDP reported by, 2:120 facts in reports vs., 1:168 solutions to problems, 4:357–360, government liabilities/debt for, 2:308 group research, 1:160 410–412 government revenues/expenditures by, integrity of, 1:63 optimal price 2:303, 304 providing, as facts, 1:169 in monopolies, 2:101–102 institutional investors in OECD Oppenheimer, Peter, 3:9 in monopolistic competition, 2:85 countries, 4:216–217 opportunity costs in oligopolies, 2:95–96 net borrowing/lending by, 2:305 in capital budgeting, 4:50, 51 in perfect competition, 2:77–81 spillover effects for,2: 364 defined, 1:306 optimal risky portfolio trade-to-GDP ratio, 2:340, 341 and economic vs. accounting profit, and capital market line, 4:368 organizational infrastructure, 4:14 2:77 and homogeneity of expectations, Organization for the Harmonization of of money invested, 6:65 4:365–366 Business Law, 3:117 and productivity, 2:24 portfolio selection for, 4:361–362 Organization of Petroleum Exporting and required rate of return, 6:63 option-adjusted price, 5:425 Countries (OPEC), 2:88, 93 optimal output option-adjusted spread (OAS), 4:86n.10, organized exchanges, 5:365 in monopolies, 2:101–102 88n.13; 5:445, 631 Oriental Brewery, 3:743 in monopolistic competition, 2:85 option-adjusted yield, 5:425 original issue discount tax provision, in oligopolies, 2:95–96 optionlike features, debt with, 4:86 5:317 in perfect competition, 2:77–81 option premium (option price), 5:24; orthopedic device industry, market share optimal portfolio, 4:291–412 6:26 stability in, 5:212–213 beta, 4:376–383 options (option contracts) Osborne, George, 2:379 calculation and interpretation, in FX market, 2:410 oscillators. see momentum oscillators 4:379–380 options (options contracts), 5:329; Österreichische Vereinigung für estimation, 4:380–381 6:25–30, 33. see also specific types, Finanzanalyse und Asset and expected return, 4:381–383 e.g.: call options Management, 1:232 return-generating models, 4:376–377 binomial valuation of, 6:100–104 OTC markets. see over-the-counter and capital asset pricing model, in contract markets, 5:24–25 markets 4:383–402 dealers of, 5:35 other comprehensive income (OCI) applications, 4:388–399 defined, 6:7, 25, 61 accumulated, 3:248–249 assumptions, 4:383–385 forward commitments vs., 6:30 defined, 3:49n.4, 201 extensions, 4:401–402 forwards vs., 5:25 on income statements, 3:203–204 limitations, 4:399–400 implied volatility with, 6:41 on statement of comprehensive security market line, 4:385–388 long and short sides of, 5:39 income, 3:19–20 and capital market theory, 4:362–374 pricing, 6:85–100, 104–107 other current assets, on balance sheets, capital market line, 4:366–374 American options, 6:104–107 3:229–230 risk-free and risky assets, portfolio of, European options, 6:85–100 other operating expenses, 3:294 4:362–366 volatility in pricing models, other receivables, 3:48 and efficient frontier,4: 336–348 1:557–558 outcomes, of random variables, indifference curve,4: 342–343 risk shifting with, 4:280–281 1:476–477 investment opportunity set, on stocks, 6:36 outflows, 1:364 4:336–337 underlying risk exposures of, 5:39 out-of-date information, 1:80–81 investor preferences and optimal option writers, 5:24 out-of-sample tests, 1:604 portfolio, 4:347–348 Orange County, California, 6:44 out of the money, 6:27, 87 minimum-variance portfolios, order-driven markets, 5:54–57 output 4:337–339 ordering costs, 4:184 aggregate, 2:119–136 portfolio selection example, Order Machine, 5:30 in economy, 2:119–120 4:342–347 order matching rules, 5:55 in gross domestic product, 2:120–136 risk-free assets, 4:339–342 order precedence hierarchy, 5:55 and costs, 2:31–35 and investment characteristics of orders, 5:44–50 full employment/natural level, 2:150 assets, 4:292–315 clearing instructions for, 5:44, 49–50 optimal distributional characteristics, execution instructions for, 5:44–48 in monopolies, 2:101–102 4:312–314 size/frequency of, 2:93 in monopolistic competition, 2:85 market characteristics, 4:314–315 validity instructions for, 5:44, 48–49 in oligopolies, 2:95–96 return characteristics, 4:292–307 ordinal scales, 1:392 in perfect competition, 2:77–81 as investor objective, 4:291–292 ordinary annuities, 1:316 recessionary gap in, 2:205 for investor with heterogeneous beliefs, and annuity due, 1:324–325 value of final output method for GDP, 4:398–399 with equal cash flows,1: 317–318 2:121–122, 132 optimal risky portfolio, 4:361–362 present value of, 1:323, 329 outside compensation, 1:145 and portfolio risk, 4:324–335 projected present value of, outside information, verifying, 1:75 diversification of risk,4: 330–335 1:325–327 outside organizations, referral portfolio with many risky assets, ordinary shares, 3:188 arrangements with, 1:192 4:329–330 ordinary terms, 4:176–177 outside parties, referral arrangements portfolio with two risky assets, Organisation for Economic Co-operation and, 1:190–192 4:324–329 and Development (OECD) outsourcing, 2:342 practice problems, 4:350–356, 404–409 capacity utilization, 2:153 overall payroll employment, 2:224

bind 68 June 17, 2017 4:16 PM Index I-69

overall statement of cash flows, GIPS country sponsor, 1:233 and issuance of bonds, 3:604–608 3:297–302 IFRS adoption, 3:116 presentation of long-term debt, direct method, 3:297–298 MSCI multi-market index, 5:96 3:619–622 adjustments to net income, Panama, 2:436, 437; 3:116 income tax payable, 3:230, 233, 567 3:297–298 panda bonds, 5:313 notes payable, 3:232 converting indirect and, 3:301–302 panel data, 1:589n.3 number of days of payables, 3:349, 353 defined, 3:23, 278 Pan-European Aggregate Bond Index, payables turnover, 3:349, 353 indirect method, 3:298–301 5:357 payback period adjustments to net income, Papaconstantinou, George, 2:387 capital budgeting, 4:54–56 3:298–301 Paraguay, 2:362; 3:116 discounted, 4:56–57 converting direct and, 3:301–302 parallel shift, 5:556 drawbacks of, 4:55–56 defined, 3:23, 278–279 parameters, 1:391, 584. see also specific payment-in-kind (PIK) coupon bonds, overbought conditions, 1:710 parameters 5:325, 378 overcapacity, 5:208 parametric tests, 1:656–657, 660 payments. see also balance of payments overcollateralization, 5:309 par curve, 5:436–437 (BOP) system overconfidence, 5:137 parent companies, on income central banks in payments system, overconfidence bias,1: 11–12 statements, 3:17 2:279 overdraft lines of credit, 4:189 pari passu ranking, 5:597, 644 fixed-rate mortgage,1: 334–335 overinvestment, in inventory, 4:182–183 parity value, 5:333 forms of, 2:119 overnight indexed swaps, 6:24 Parmalat, 3:677; 5:608 interest, 3:608–612 overnight repo, 5:387 partial duration, 5:549 as pull on liquidity, 4:158 overreaction anomalies, 5:132 partial fills,1: 113 receivable, 1:637–638 oversold conditions, 1:710 partially amortized bonds, 5:318–320 transfer, 2:129, 310–311 over-the-counter (OTC) markets, 2:408. partially amortizing loans, 5:487 on underlying assets, 6:90–91 see also quote-driven markets participating preference shares, 5:160 payments-in-lieu of dividends, 5:40 American depositary receipts in, 5:168 participation instruments, 5:382–383 payoffs for derivatives, 6:11–14 participation ratio, 2:222 from call options, 6:26–28 equities market vs., 6:9–10 partnerships with contingent claims, 6:25 exchange-traded vs., 6:13–14 limited, 1:269; 5:18 from forward contracts, 6:15–16 execution of trades in, 5:55 broker-sponsored limited with futures, 6:20–21 for fixed-income securities,5: 358, 365 partnerships, 1:179 from put options, 6:28–30 size of, 6:38–39 master limited partnerships, 5:26; payout ratio, 5:266–269 overvalued (term), 5:245 6:174,175 pay-to-play scandals, 1:62 Owens Corning Corporation, 4:146– real estate, 6:160 P/B. see price-to-book ratio 147, 209–210 private energy, 6:170 PCAOB. see Public Company owners’ equity. see also equity par value Accounting Oversight Board accounting equation, 3:48–49 of fixed-income securities,5: 300 PCE. see personal consumption defined, 3:12, 46, 218 and market discount rate, 5:403–406 expenditures in residential properties, 6:161 of owners’ equity, 3:248 PCE index, 2:229 statement of, 3:70 passing exams in consecutive years, P/CF. see price-to-cash-flow ratio ownership 1:202–203 P C P. see Professional Conduct Program beneficial, 1:186, 187 passive crawling peg currency regime, PDI. see personal disposable income and business risk, 4:145–147 2:439 P/E. see price-to-earnings ratio of completed prior work, 1:139 passive investment strategies, 5:117 peak phase (business cycle), 2:200–203, of firm’s records,1: 175, 176 passive management, 5:129; 6:129 207 of real estate, 6:160 passive portfolios, 4:366 Pearson coefficient of skewness, stock, 1:179–181 passive strategies 1:451n.42 and voting rights, 4:31–32 borrowing, 4:191–192 peer comparison ratios, 3:752 own price (term), 2:7 short-term investing, 4:171 peer groups, 5:197–202 own-price elasticity of demand, 2:9–14 pass-through rate, 5:491 penal sum, 5:309 calculating, 2:9–11 passthrough securities, on investment penalties, prepayment, 5:488 defined, 2:9 pools, 5:32 pennant patterns, 1:706–707 extremes of, 2:11–12 patents, 2:97 pension funds predicting, 2:12–13 path dependence, 5:218n.14 enterprise risk management for, 4:254 and total expenditure, 2:13–14 payable date (payment date), 5:249 investment restrictions for, 4:425–426 payables regulation of, 5:62 P accounts payable pension plans Paasche index, 2:229 in accrual accounting, 3:72–73 defined-benefit PACCAR, 3:670–672; 5:189 as current liability, 3:232 accounting for, 3:640 PAC tranches. see planned amortization bonds payable, 3:604–622 defined, 3:641 class tranches and amortisation of bonds, effective duration in,5: 546–547 paid-in capital, 1:251, 269 3:608–612 as investment clients, 4:217 paired comparisons test, 1:646 debt covenants, 3:617–619 Monte Carlo simulations for, 1:559 paired observations, 1:646 derecognition of debt, 3:615–617 defined-contribution, 3:640–641; 4:216 paired transactions, in BOP system, disclosure of long-term debt, disclosure of, 3:642–643 2:374–376 3:619–622 as non-current liabilities, 3:640–643 pairs arbitrage trade, 1:480 fair value reporting, 3:612–615 Pensions Act (1995), 4:414 Pakistan and interest expense, 3:608–612 Pensions Regulator, 4:415 GDP vs. GNP, 2:337 and interest payments, 3:608–612 pension trust fund, 3:641

bind 69 June 17, 2017 4:16 PM I-70 Index

Pentax Imaging Company, 5:223 guidance, 1:125–126 inflation targeting,2: 287 People’s Bank of China, 5:475 text of, 1:45, 125 MSCI multi-market index, 5:96 PepsiCo, Inc., 5:209, 211 performance reporting, 1:72–73, Philips, 1:425 per capita real GDP, 2:124 458–459; 4:226 photographic film industry,5: 223 percentage-of-completion method of period costs, 3:173 physical assets, 5:14 revenue recognition, 3:160–162, periodic inventory systems, 3:410–412 physical capital 170 periodicity aggregate supply, 2:160 %D (stochastic oscillator), 1:714–715 of annual rate, 5:420–421, 433 defined, 2:139 percentiles, 1:423–427 of beta return interval, 4:95 and economic growth, 2:176–177 %K (stochastic oscillator), 1:714, 715 conversions for, 5:421–422 and labor productivity, 2:180 perfect competition, 2:68–83 defined, 1:270 and long-term aggregate supply, 2:159, breakeven point in, 2:38–39 Presentation and Reporting (GIPS 160 characteristics of, 2:67 Section I.5), 1:243 physical delivery. see delivery defined, 2:65 periods, number of, 1:333–334 physical settlement, of contracts, 5:20 demand, average, and marginal costs PerkinElmer, 5:158–159 PI. see profitability index under, 2:36–37 permanent crops, 6:163 PIC multiple demand analysis, 2:69–76 permanent differences, in taxable and defined, 1:270 and consumer surplus, 2:74–76 accounting profit,3: 576–577 Private Equity (GIPS Section I.7), 1:251 cross-price elasticity of demand, 2:73 permutation, 1:513 Real Estate (GIPS Section I.6), 1:248 elasticity of demand, 2:70–72 permutation formula, 1:513 PIK coupon bonds. see payment-in-kind income elasticity of demand, 2:72–73 Pernod Ricard, 5:209 coupon bonds and innovation, 2:83 perpetual bonds, 5:300 Pinto, Jerald, 4:84n.5, 84n.7 long-run equilibrium, 2:81–82 perpetual inventory systems, 3:410–412 Piotowski, John, 5:348n.1 marginal revenue in, 2:29–30 perpetuities PIPEs. see private investments in public and oligopoly, 2:96 defined, 1:316; 5:550 equity optimal price in, 2:77–81 present value of, 1:327–328 pips, 2:425 output optimization in, 2:77–81 and present value of ordinary annuity, plagiarism, 1:77–79 revenue in imperfect vs., 2:35–36 1:329 and misrepresentation, 1:73–74 shutdown decision in, 2:39–40 present value of projected, 1:328–329 policies on, 1:75 supply analysis, 2:76–77 personal actions, 1:83 plain vanilla (conventional) bonds, 5:301 perfectly elastic demand, 2:12 personal consumption expenditures cash flows for,5: 302, 318 perfectly inelastic demand, 2:11 (PCE), 2:229 outstanding, 5:334 perfect price elasticity, 2:72 personal disposable income (PDI), 2:134 plain vanilla swaps, 6:22–23, 37 perfect price inelasticity, 2:72 personal income, 2:133–134 planned amortization class (PAC) performance personal learning, 5:138 tranches, 5:499–501 of hedge funds, 5:102 personal trading planning step (portfolio management), risk-adjusted, 5:94 and conflict of interest,1: 183 4:222–223 standards for, 5:61 disclosure of, 1:188, 189 platykurtic, 1:454 performance appraisal, 1:369, 427–428 limitations on, 1:90 Playtech, 5:51–52 performance attribution, 1:128; 5:189 and market manipulation, 1:97–98 Plaza Accord, 2:440 performance-based fees, 1:240, 269 priority of transactions for, 1:185 pledges, negative, 5:310 performance bond, 6:11 personnel P&L statements. see profit and loss performance calculation, 1:126–127 preventing overlap of, 1:90 statements disclosing methodology for, 1:128–129 privy to recommendation, 1:112 PME. see public market equivalent with selected accounts, 1:128 reporting requirements for, 1:187–188 point and figure charts,1: 688–690 performance evaluation(s), 1:369n.8; Peru The Point and Figure Method of 4:390 exchange rate regime, 2:437 Anticipating Stock Price Movements benchmarks for, 1:121 IFRS adoption, 3:116 (de Villiers and Taylor), 1:688 objectivity of, 1:61 inflation targeting,2: 287 point estimates, 1:596 portfolio, 4:389–394 MSCI multi-market index, 5:96 point estimators, 1:593–595, 596n.13 example, 4:392–394 underground economy, 2:123–124 point of sale (POS) systems, 4:178 Jensen’s alpha, 4:391–392, 394 per unit contribution margin, 4:131 poison pills, 4:26 M2, 4:390–391 peso, Mexican, 2:401; 5:10 Poland Sharpe ratio, 4:390 Peterson, James D., 4:95n.27 exchange rate regime, 2:437 Treynor ratio, 4:390 pet projects, 4:49 IFRS adoption, 3:115 performance examination report, 1:264, Petroleo Brasileiro ADRs, 1:715–716 inflation-linked bonds,5: 326 270 Petroleo Brasileiro SA (Petrobras), inflation targeting,2: 287 performance examinations 5:266–267 MSCI multi-market index, 5:96 defined, 1:270 Pfizer Inc. sovereign bonds, 5:369 Disclosure (GIPS Section I.4), 1:240 in pharmaceutical industry, 5:189 policy costs, 4:184 Verification (GIPS Section IV),1: 264 ROE for, 5:173–175 policy portfolios, risk objectives for, performance fees, 6:133, 177 strategic analysis, 5:219–221 4:416 performance measurement, 1:369; 4:226 pharmaceutical industry, 5:189, 219–221 policy rate, 2:284 performance obligation, 3:169–170 Philip Morris, 5:209 Policy Targets Agreement, 2:290–291 performance presentation, 1:127–128 Philippines political risk, 5:647 Performance Presentation [Standard Asian financial crisis,2: 343 Polly Peck International (PPI), 3:677 III(D)], 1:125–129 exchange rate regime, 2:437 pooled estimates, 1:642 application of the standard, 1:126–129 exports from, 2:342 pooled investments, 4:226–237; 5:18–19 compliance procedures, 1:126 IFRS adoption, 3:116 buyout funds, 4:237

bind 70 June 17, 2017 4:16 PM Index I-71

creators of, 5:32 optimal risky portfolio, 4:361–362, gathering client information, exchange traded funds, 4:233–235 365–366, 368 4:427–430 hedge funds, 4:235–236 suitability of investment for, 1:122–123 investment policy statements, markets for, 5:15 two-asset, 4:306–307 4:414–427 mutual funds, 4:226–233 Verification (GIPS Section IV), components, 4:415 about, 4:226–230 1:261–263 investor constraints, 4:422–427 types of, 4:230–233 wrap fee/SMA, 1:231, 235, 252–254 legal and regulatory factors, separately managed accounts, 4:235 portfolio beta, SML and, 4:387–388 4:425–426 venture capital funds, 4:237 portfolio company, 6:152, 156–157 liquidity, 4:422–424 pooled real estate vehicles, 6:160 portfolio construction, 4:430–444 return objectives, 4:421–422 population, 1:391, 584 about, 4:430–431 risk objectives, 4:416–421 population mean, 1:406–407 capital market expectations, 4:431 tax concerns, 4:425 estimates of, 1:593–603 and CAPM, 4:396–399 time horizon, 4:424–425 confidence intervals,1: 595–600 implementing investment strategy, unique circumstances on, point estimators, 1:593–595 4:439–443 4:426–427 sample size, 1:601–603 organizing principles for, 4:443–444 portfolio returns test static for single, 1:635–638 and portfolio management, 4:223–225 defined, 4:301 population standard deviation, 1:434– strategic asset allocation, 4:431–439 expected, 1:499, 504 436; 4:305 for European charity, 4:441–443 measurement of, 1:369–376 population variance, 1:433–434 objective of, 4:434–435 money-weighted rate of return, Porsche, 2:86 for private investor, 4:438–439 1:370–371, 374–376 Porter, Michael, 2:68; 5:205, 228, 612 specifying asset classes for, time-weighted rate of return, Porter, R. Burr, 4:107n.41 4:432–433 1:371–376 Porter’s five forces,2: 68 portfolio demand for money, 2:271 weighted mean, 1:417–418 portfolio(s) portfolio management, 4:207–241 for portfolios of risky assets, 4:324, bond, 5:555–557 active 363–364 Calculation Methodology (GIPS information-motivated trading in, portfolio risk, 4:324–335 Section I.2), 1:238 5:10 diversification, 4:330–335 common stock, 1:550 manager performance, 5:129 avenues for diversification, Composite Construction (GIPS manager selection, 5:116 4:333–335 Section I.3), 1:238, 239 security market indexes in, 5:94 correlation and risk diversification, composition of, 4:212–213 with fixed-income securities,5: 298 4:332 defined, 1:270; 5:38 investing in portfolios vs. single historical correlation among asset developing, 1:103–104 equities, 4:207–208 classes, 4:333 Disclosure (GIPS Section I.4), diversification, 4:208–210 historical risk and correlation, 4:332 1:240–242 downside risk, 4:213–215 for portfolios of risky assets discretionary, 1:262 and modern portfolio theory, with many risky assets, 4:329–330 duration of, 5:555–557 4:215–216 with one risk-free asset, 4:363–364 expected defaults in, 1:539–540 and portfolio composition, with two risky assets, 4:324–329 Fundamentals of Compliance (GIPS 4:212–213 portfolio selection Section I.0), 1:236 risk–return tradeoff,4: 210–212 and capital allocation line, 4:321–324 GIPS Valuation Principles (GIPS investment clients, 4:216–222 comprehensive example, 4:342–347 Section II), 1:255 individual investors, 4:216 for optimal risky portfolio, 4:361–362 global minimum-variance, 4:338 institutional investors, 4:216–222 and risk aversion, 4:321–324 hedge, 6:46 passive, 5:129 with utility theory, 4:321–324 Input Data (GIPS Section I.1), 1:237 pooled investments, 4:226–237 portfolio turnover, 1:434–436 as investment approach, 4:207–208 buyout funds, 4:237 Portugal and diversification,4: 208–210 exchange traded funds, 4:233–235 EU membership, 2:362n.18 and downside risk, 4:213–215 hedge funds, 4:235–236 exchange rate regime, 2:436 and modern portfolio theory, mutual funds, 4:226–233 GDP vs. GNP, 2:337 4:215–216 separately managed accounts, 4:235 GIPS country sponsor, 1:233 and portfolio composition, 4:212–213 venture capital funds, 4:237 government debt, 2:262 and risk–return tradeoff,4: 210–212 practice problems, 4:239–240 Greek fiscal crisis 2010,2: 365, 366 lending, 4:370 risk budgeting for, 4:257–258 MSCI multi-market index, 5:96 leveraged, 4:370–374 solutions to problems, 4:241 public sector spending, 2:263 market, 4:400 steps in, 4:222–226 residential mortgage loans, 5:487 minimum-variance, 4:337–339 execution, 4:223–225 sovereign debt, 5:649–650 model, 5:94–95 feedback, 4:225–226 total returns, 1:408, 411 MSPs, 1:253 planning, 4:222–223 POSIT, 5:30, 57 optimal (see optimal portfolio) portfolio managers, 1:59; 4:244 positions, 5:38–44 passive, 4:366 portfolio performance evaluation, leveraged, 5:41–44 policy, 4:416 4:389–394 long, 5:39 Presentation and Reporting (GIPS example, 4:392–394 short, 5:39–41 Section I.5), 1:243 Jensen’s alpha, 4:391–392, 394 positive correlation, 4:325 probabilities for common stock, 1:550 M2, 4:390–391 positive screening, 4:39 Real Estate (GIPS Section I.6), 1:245, Sharpe ratio, 4:390 POS systems. see point of sale systems 247, 248 Treynor ratio, 4:390 post-auditing, 4:48–49 risky portfolio planning, 4:414–430 posterior probability, 1:508 insurance for, 4:335 case studies, 4:419–422, 428–430 post-trade transparent markets, 5:58

bind 71 June 17, 2017 4:16 PM I-72 Index

potential GDP, 2:159 prepayment penalties, 5:488 at other times than t = 0, 1:328–329 and demand-pull inflation,2: 235 prepayment penalty mortgages, 5:488 with unequal cash flows,1: 330 and long-run equilibrium GDP, 2:163 prepayment penalty points, 5:505 present value of single cash flow, measuring growth of, 2:179–181, prepayment rate, 5:492–493 1:319–322 183–184 prepayment risk, 5:481–482, 492 finding, 1:319–321 production function of, 2:174–175 Preqin index, 6:175 frequency of compounding, 1:321–322 pound, British pre-refunded bonds, 5:505n.12 for future lump sum, 1:319–321 currency code, 2:401 Presbo, John A., 5:78n.4 for lump sum, 1:319–321 EUR/GBP exchange rate, 2:418, 419n.4 Prescott, Edward C., 2:217 Preservation of Confidentiality exchange rate quotes with, 2:418–420 presentation(s). see also compliant [Standard III(E)], 1:129–133 GBP/EUR exchange rate, 2:403, 408 presentations application of the standard, 1:131–133 gold standard for, 2:434 aggressive, 3:670, 672–673 compliance procedures, 1:131 international bonds outstanding in, of deferred tax, 3:593–594 guidance, 1:129–130 5:351 and detection of financial reporting compliance with laws, 1:130 as reserve currency, 5:19 issues, 3:691–696 electronic information and security, USD/GBP currency pair, 2:416 of income tax information, 3:586–591 1:130 PowerLinx, Inc., 3:701 of inventory information, 3:434 professional conduct investigations power of a test, 1:629 of long-lived assets, 3:511–524 by CFA Institute, 1:130 PPE. see property, plant, and equipment Daejan Holdings PLC, 3:523–524 status of clients, 1:130 PPF. see production possibilities frontier fixed asset turnover and average age text of, 1:45, 129 PPI. see Polly Peck International; of depreciable assets, 3:520–522 presidential cycle, 1:725 producer price index Vodafone Group Plc, 3:513–518 press releases, issuing, 1:89 PPP. see purchasing power parity of long-term debt, 3:619–622 pretax margin, 3:200, 364, 365 PPPs. see public–private partnerships of non-GAAP financial measures, pre-tax nominal return, 4:302 PRA. see Prudential Regulation 3:672–676 pre-trade transparent markets, 5:58 Authority performance, 1:127–128 pre-verification procedures, GIPS, practice, defined,1: 134 Presentation and Reporting (GIPS 1:261–262 Praxair, 5:209 Section I.5), 1:242–244 PRFDX funds. see T. Rowe Price Equity PRDFX fund. see T. Rowe Price Equity about, 1:234–235 Income fund Income fund recommendations PRI. see Principles of Responsible precautionary money balances, 2:271 general, 1:244 Investment precautionary stocks, of inventory, 4:182 for private equity, 1:252 price(s) precious metals, 6:167,168 for real estate, 1:248 aggregate, 2:273–274 precision, point estimator, 1:596n.13 requirements and alternative trade policies, 2:360 preclearance procedures, 1:188 general, 1:242–244 ask, 5:44; 6:10n.3, 145 predictability, of returns, 5:135–136 for private equity, 1:250–251 asset pre-dissemination behavior, guidelines for real estate, 1:246–247 artificial volatility in,1: 98–100 for, 1:113 for real estate closed-end fund and capital flows,2: 444 preemptive rights, stockholders’, 5:157 composites, 1:247–248 and head and shoulders patterns, prefabricated housing industry, for wrap fee/SMA portfolios, 1:254 1:698–701 5:215–216 sample presentations, 1:274–290 normal distribution as model for, preference shares (preferred shares), asset management company, 1:547 5:159–161 1:275–276 and oscillators, 1:710 callable, 5:160, 171, 254 investment firm balanced growth trends in, 1:681–683 common vs., 5:17–18 composite, 1:274–275 and volume, 1:691–692 convertible, 5:161 large-cap SMA composite, 1:288–290 autarkic, 2:338, 349 cost of, 4:87–88 Presentation of Financial Statements bid, 5:44, 574; 6:10n.3, 145 cumulative, 5:160, 171 (IAS 1), 3:125–127, 150n.1 call, 5:330 diluted EPS for company with, present value (PV) clean, 5:413 3:190–192 defined, 1:308 convergence of oscillator and, 1:710 fixed rate perpetual,4: 87 of financial statement elements,3: 123 conversion, 5:333 non-callable, non-convertible future and, 1:309, 338–339; 6:62 equilibrium, 2:77–78, 272–273 perpetual, 5:254–255 of growth opportunities, 5:258n.3 and equilibrium GDP, 2:163–173 non-cumulative, 5:160 present value models for equity aggregate supply and demand, non-participating, 5:160 valuation, 5:248–264 2:170–173 in owners’ equity, 3:248 defined, 5:246–247 inflationary gap,2: 167–168 participating, 5:160 examples, 5:253 long-run equilibrium, 2:163 retractable term, 5:255–256 Gordon growth model, 5:256–261 recessionary gap, 2:163–167 risk of, 5:171 multistage, 5:261–264 stagflation, 2:169–170 valuation of, 5:254–256 other models vs., 5:246–248, 278–280 exercise, 5:18; 6:26, 87–88 premium bonds preferred stock valuation with, flat, 5:413–417 returns on, 5:531 5:254–256 forward, 6:14, 26 tax provisions for, 5:317 share value for three-year investment full, 1:379n.14; 5:413–417 premiums, 4:310; 5:403–406. see also horizon, 5:252 futures, 6:18, 40–41 specific types, e.g.: risk premiums present value of series of cash flows, harmonised index of, 2:230 prepaid expenses, 3:72, 229–230 1:322–330 housing, 2:152, 155 Pre-Paid Legal Services Inc., 5:199 with equal cash flows,1: 322–327 input, 2:158, 160 prepayment, 5:488; 6:34 for infinite series of equal cash flows, law of one price, 5:269 prepayment lockouts, 5:505 1:327–328 and limit vs. market orders, 5:45–46

bind 72 June 17, 2017 4:16 PM Index I-73

market, 4:321; 5:245–246 price return index, 5:79–81 of underlying assets, 6:62–66 offer, 5:44, 574 price-specie-flow mechanism,2: 434 benefits and costs of holding assets, optimal price takers, 2:66, 71–72; 4:385 6:64–66 in monopolies, 2:101–102 price targets, 1:698–702 forming price expectations, 6:62–63 in monopolistic competition, 2:85 price-to-book ratio (P/B) pricing of risky assets, 6:64 in oligopolies, 2:95–96 and accounting ROE, 5:175–176 required rate of return on assets, 6:63 in perfect competition, 2:77–81 defined, 3:376–378; 5:265 risk aversion of investors, 6:63–64 option, 6:26 and survivorship bias, 1:606 uniform pricing rule, 5:56 option-adjusted, 5:425 price-to-cash-flow ratio (P/CF),3: 376, pricing day, 5:362 and personal trading practices, 377; 5:265 pricing power, 5:207–210 1:97–98 price-to-earnings ratio (P/E) primary dealers, 5:30, 364 quoted, 5:413 for Canon Inc., 5:271–272 primary funds, 1:249–251, 270 relative, 2:231 comparing equity valuation models primary fund vehicle, 1:286–288 repurchase, 5:387 with, 5:278–280 primary markets settlement, 6:18 defined, 3:376, 377; 5:265 bond, 5:359–365 spot, 6:5, 40–41, 171, 173 justified value of,5: 266–269 private placements on, 5:360, stability of, 2:280 and median vs. arithmetic mean, 364–365 stock 1:412–413 public offerings on,5: 360–364 as Bernoulli random variable, in method of comparables, 5:269–272 capital, 5:13–14 1:532–533 price-to-sales ratio (P/S) securities, 5:14–15, 50–53 binomial model, 1:540–541 defined, 3:376, 377; 5:265 defined, 5:14 and control deficiency disclosures, method of comparables with, private placements on, 5:52–53 1:639–641 5:269–270 public offerings on,5: 50–53 lognormal distribution for, 1:555–556 price value of a basis point (PVBP), and secondary markets, 5:53 of stock, 2:155 5:558 primary sources of liquidity, 4:157 and substitution/income effects, price wars, 2:88, 96 Prime Bank, 5:307 2:20–23 PricewaterhouseCoopers, 3:28, 687 prime brokers, 5:33, 49; 6:144 transaction, 3:169, 170 price weighting, 5:83–85, 92 prime lending rate, 2:241; 5:374 two-sided, 2:419–420 pricing. see also capital asset pricing prime loans, 5:486 world, 2:338, 339, 349 model (CAPM) prime paper, 5:375 price-based indicators, 1:707–710 arbitrage-free, 6:70 Princeton University, 4:218 Bollinger bands, 1:709–710 arbitrage pricing theory, 4:401 principal (principal amount; principal moving averages, 1:707–709 in company analysis, 5:230 value), 1:308; 5:300 price collusion, 2:87–88, 93 cross-sectional pricing anomalies, principal–agent relationship, 4:11 price competition, in strategic analysis, 5:130, 133 principal business activity, industry 5:218–220 derivatives, 6:45–52, 59–117 classification based on,5: 189 price controls, 2:367 about, 6:60 principal repayment structures, price currency, 2:401, 418 and arbitrage, 6:47–52, 66–72 5:318–323 price discovery, 6:40–41 definition of derivatives,6: 60–62 for bullet bonds, 5:318–320 price discrimination, in monopolies, forward commitments, 6:73–85 for corporate notes/bonds, 5:378–379 2:102–104 options, 6:85–100, 104–107 for fully amortized bonds, 5:318–320 priced risk, 4:89 practice problems, 6:109–113 for sinking fund arrangements, price-driven markets. see quote-driven pricing underlying assets, 6:62–66 5:321–323 markets solutions to problems, 6:114–117 principal value. see par value price elasticity of demand. see also storage in, 6:46–47 principle of no arbitrage, 6:70 elasticity(-ies) valuation vs. pricing, 6:72–73 Principles of Corporate Governance, 4:7, in oligopolies, 2:88 derivatives pricing rule, 5:57 22 in perfect competition, 2:70–72 discriminatory pricing rule, 5:56 Principles of Responsible Investment and trade balance, 2:445–449 by dominant firms in oligopolies, (PRI) initiative, 4:38 PRICE financial function,5: 415n.1 2:94–95 prior coverage, 1:66 price impact, in cost of trading, 4:314 forward commitments, 6:73–85 prior employer, 1:127, 138 price indexes, 2:227–233 forward contracts, 6:73–80 prior fund, in performance presentation, constructing, 2:227–229 futures, 6:80–82, 171–173 1:127 price return index, 5:79–81 and market structure, 2:66–67 prior information, 5:135–136 sub-indexes, 2:231 matrix, 4:86; 5:417–420 priority of claims, 5:595, 599–600 usage of, 2:229–231 in oligopolies, 2:88–94 Priority of Transactions [Standard price limits, futures, 6:19 options, 6:85–100, 104–107 VI(B)], 1:185–190 price multiples. see also specific price American options, 6:104–107 application of the standard, 1:188–190 multiples European options, 6:85–100 compliance procedures, 1:186–188 defined, 5:265 over life of contract, 6:76–77 guidance, 1:185–186 example valuation based on, 5:272–273 risk, 4:374–376 accounts with beneficial ownership, and method of comparables, risk-neutral, 6:69–70 1:186 5:269–272 risky assets, 6:64 avoiding potential conflicts,1: 185 in multiplier models for equity spot assets, 6:66 nonpublic information, 1:186 valuation, 5:266–269 swap contracts, 6:82–85 personal trading and trading for price priority, in order-driven markets, time-series pricing anomalies, clients, 1:185 5:55 5:130–132 text of, 1:46–47, 185 price relative, 1:555 trade pricing rules, 5:56 prior probabilities, 1:507 price return, 5:79–81 two-part tariff,2: 103–104 prior work, ownership of, 1:139

bind 73 June 17, 2017 4:16 PM I-74 Index

private contracts, 3:688 defined, 1:477–478; 4:271 potential gains from market timing, private energy partnerships, 6:170 down transition, 1:540 1:562–564 private equity, 6:148–158 empirical, 1:478 process, 1:560–561 defined, 1:270 events random observations in, 1:561–562 diversification benefits,6: 155–156 defined, 1:477 practice problems, 1:568–574 downside frequencies, 6:131 independent events, 1:485–488 of sample mean, 1:590–593 due diligence, 6:158 expected value, 1:490–494 solutions to problems, 1:575–581 and GIPS compliance, 1:231 defined, 1:490–491 Procedures, IPS, 4:415 GIPS Valuation Principles (GIPS of product of uncorrelated random Procter & Gamble, 5:210 Section II) for, 1:256, 257 variables, 1:506 procurement process, 1:62 global assets under management, 6:125 properties of, 1:498–499 producer price index (PPI), 2:230 growth in, 6:127 standard deviation, 1:491–492 producer surplus, 2:357, 360 historical returns and volatility, 6:126 total probability rule for expected product, of uncorrelated random investment strategies, 6:150–154 value, 1:492–494 variables, 1:506 exit strategies, 6:154 tree diagrams, 1:493–494 product differentiation leveraged buyouts, 6:150–152 variance, 1:491–492 and market structure, 2:67 minority and distressed, 6:153 joint, 1:481 in monopolistic competition, 2:83–84 venture capital, 6:152–153 joint probability function, 1:504–506 and price collusion, 2:93 portfolio company valuation, marginal, 1:480 production 6:156–157 objective, 1:478 and alternative trade policies, 2:360 returns for, 6:125, 155–156 portfolio expected return in autarky, 2:349 risk management with, 6:177 calculation of, 1:499 breakeven point of, 2:36–39 sample presentations, 1:281–288 and variance of return, 1:504 and costs, 2:23–25 Sharpe and Sortino ratios, 6:131 posterior, 1:508 globalization of, 2:342–343 structure and fees, 6:149–150 practice problems, 1:517–520 scaling up vs. scaling down, 2:44 Private Equity (GIPS Section I.7), prior, 1:507 production costs, 3:405n.7 1:249–252 of random variables, 1:506 production function, 2:174–175 about, 1:235 risk-neutral, 6:102–103 production possibilities frontier (PPF), Calculation Methodology provisions, rules 2:350–351 1:249, 252 addition rule for probability, productive capacity, 3:519 Composite Construction provisions, 1:483–484 productivity 1:250, 252 multiplication rule for expected value and aggregate supply, 2:160 Disclosure provisions, 1:250, 252 of product of uncorrelated random in cost-push inflation,2: 234–235 Input Data provisions, 1:249, 252 variables, 1:506 defined, 2:23–25 Presentation and Reporting provisions, multiplication rule for probability, diminishing marginal, 2:174–175 1:250–252 1:481, 483 and economic growth, 2:175 recommendations, 1:252 multiplication rule of counting, indicators of, 2:224 requirements, 1:249–251 1:511–512 of labor, 2:160, 180–184 private equity funds total probability rule, 1:488–490 and long-term aggregate supply, 2:160 as alternative investments, 6:124 solutions to problems, 1:521–524 and marginal returns, 2:23 defined, 6:128–129 subjective, 1:478 total factor, 2:174, 178 returns in, 6:155–156 in terms of odds, 1:478–481 products private equity securities, 5:15, 162–164 transition, 1:540 new, 3:133 private information, 5:128 unconditional, 1:480 of similar companies, 5:189–190 private investments in public equity up transition, 1:540 profession (term), 1:9–10 (PIPEs), 5:162–163 variance professional conduct. see Standards of private investors, strategic asset conditional variances, 1:494–497 Professional Conduct allocation for, 4:438–439 covariance, 1:499–504 professional conduct investigations, privately placed notes, 5:510 and portfolio expected return, 1:504 1:130 private placements probability density function, 1:530 Professional Conduct Program (PCP), on bond market, 5:360, 364–365 probability distributions, 1:527–581 1:37–38, 51, 82, 130 limits on, 1:187 continuous random variables, Professional Conduct Statement, 1:8–9 Regulation D on, 6:132n.13 1:541–559 professional designations, order of, on securities market, 5:52–53 continuous uniform distribution, 1:204 private sector, size of, 5:647 1:542–545 professionalism, 1:9–11, 82 probability(-ies), 1:475–524 lognormal distribution, 1:553–559 Professionalism [Standard of a priori, 1:478 normal distribution, 1:545–553 Professional Conduct I], 1:49–84 about, 1:476 cumulative probabilities for standard Independence and Objectivity Bayes’ formula, 1:506–510 normal distribution, 1:742–743 [Standard I(B)], 1:58–70 for common stock portfolio, 1:550 defined, 1:528 application of the standard, 1:64–70 conditional, 1:480–483, 487–488 discrete random variables, 1:529–541 compliance procedures, 1:63–64 consistent, 1:480 binomial distribution, 1:532–541 guidance, 1:58–63 correlation, 1:503, 505–506 discrete uniform distribution, text of, 1:44, 58 counting, 1:510–513 1:530–532 Knowledge of the Law [Standard I(A)], combination formula, 1:512–513 distribution of bond price, 1:49–57 multinomial formula, 1:512 1:529–530 application of the standard, 1:55–57 multiplication rule of, 1:511–512 Monte Carlo simulation, 1:559–565 compliance procedures, 1:54–55 permutation formula, 1:513 historical simulation vs., 1:564–565 guidance, 1:49–53 cumulative, 1:742–743 number of trials for, 1:561 text of, 1:44, 49

bind 74 June 17, 2017 4:16 PM Index I-75

Misconduct [Standard I(D)], 1:81–84 defined, 3:348 prospectus, 5:478n.3, 479, 626 application of the standard, 1:82–84 evaluation, 3:366–368 Protection One, Inc., 5:199, 200 compliance procedures, 1:82 and income statement ratios, 3:201 protective puts, 6:95, 96, 98–99 guidance, 1:81–82 interpretation, 3:365–368 “Protocol for Broker Recruiting,” text of, 1:44, 81 profit and loss (P&L) statements,3: 17. 1:135 Misrepresentation [Standard I(C)], see also income statements Provopoulos, George, 2:387 1:71–81 profit margin proxy, for market portfolio, 4:400 application of the standard, 1:76–81 gross, 3:364, 365 proxy contests, 4:26 compliance procedures, 1:74–75 calculating, 3:414 proxy statements, 3:111 guidance, 1:71–74 and conversion from LIFO to FIFO, proxy voting, 1:104, 106; 4:16, 28 text of, 1:44, 71 3:420–421 prudence. see Loyalty, Prudence, and text of, 1:44 defined, 3:365 Care [Standard III(A)] professionally designated, certified, and income statement ratios, 3:200 Prudential Regulation Authority (PRA), or licensed commercial property on income statements, 3:154 2:278n.6; 5:353n.3 valuers/appraisers inventory management with, 3:434, P/S. see price-to-sales ratio defined, 1:270 435 PSA Peugeot Citroën, 5:189 GIPS Valuation Principles (GIPS and inventory write-downs, 3:433 PSA prepayment benchmark. see Public Section II), 1:256 in ratio analysis, 3:333 Securities Association prepayment Real Estate (GIPS Section I.6), 1:245, and income statement ratios, 3:199 benchmark 246, 248 net, 3:364, 365 pseudo-random numbers, 1:561n.45 professional misconduct, 1:83–84 calculation of, 3:334 public auctions, 5:362–364 profit(s) and conversion from LIFO to FIFO, public companies, independence and accounting 3:421 objectivity of, 1:61 defined, 2:28; 3:566 defined, 3:365 Public Company Accounting Oversight taxable income vs., 3:566–571 and income statement ratios, 3:199 Board (PCAOB), 3:27, 110 taxable profit vs.,3: 576–581 and inventory write-downs, 3:433 public dissemination, achieving, 1:88 with calls, 6:27–28 in ratio analysis, 3:333 public equity securities, 5:15, 162–164 cash flow vs.,3: 7–8 operating, 3:364, 365 public information, 5:125–128 economic defined, 3:365 publicly offered notes,5: 509 defined, 2:28, 77 and depreciation method, 3:703–704 publicly traded infrastructure securities, marginal revenue and maximization and income statement ratios, 3:200 6:174 of, 2:29 pretax, 3:200, 364, 365 public market equivalent (PME), 1:250, in monopolistically competitive pro forma reporting, 3:691 270 markets, 2:85, 86 project beta. see beta public offerings in strategic analysis, 5:204 project sequencing, 4:51–52 on bond market, 5:360–364 as form of payment, 2:119 promissory note, 2:266 initial gross, 3:154 promotion, company, 1:97 defined, 5:50 and inflation,3: 413–414 property, plant, and equipment (PPE), in markets, 5:51–52 and inventory valuation method, 3:474. see also long-lived assets and pricing anomalies, 5:135 3:408–410 acquisition of, 3:475–478 and venture capital, 5:162 and LIFO liquidation, 3:422, 424–425 analyst adjustments for, 3:761–762 on securities market, 5:50–53 in periodic vs. perpetual inventory on balance sheets, 3:235–236 public–private partnerships (PPPs), systems, 3:410–412 on cash flow statements,3: 295–296 6:173 maximization depreciation of, 3:761–762 public sector, 2:263; 5:647 under imperfect competition, impairment of, 3:506–508 Public Securities Association (PSA) 2:40–41 investment property, 3:236–237 prepayment benchmark, 5:493 and marginal revenue/costs, 2:29–30 sale of, 3:296 pull on liquidity, 4:158–159 points of production for, 2:36–37 property development investments, pull to par effect,5: 410–411 and scale, 2:43–48 6:167 pump and dump strategy, 1:100 in monopoly, 2:99–100, 102 proposals, in capital budgeting process, pump-priming strategy, 1:99 normal, 2:33 4:48 purchase agreements, 5:478–479 operating proprietary assets, 1:242, 270 purchasing–inventory–payables process, defined, 3:18 proprietary trading procedures, 1:91 4:186–187 and depreciation method, 3:703–704 prorated revenue recognition, 3:160, 161 purchasing managers indexes, 2:244 EBIT vs., 3:155 prospective clients. see also purchasing power parity (PPP), 2:402, forecasts of, 3:741–742 Communication with Clients and 404 on income statement, 3:155 Prospective Clients [Standard V(B)] pure discount bonds, 5:301 with puts, 6:28–29 benefits of GIPS compliance for,1: 225 pure discount instruments, 1:377 taxable, 3:576–581 Composite Construction (GIPS pure-play method, for beta, 4:95–99 profitability Section I.3), 1:239 PureTrading, 5:30 and capitalising vs. expensing of costs, defined, 1:270 purpose, investment policy, 4:172 3:484, 486 Disclosure (GIPS Section I.4), 1:241 putable bonds, 5:332, 379 cost flow assumptions and,3: 697–698 Fundamentals of Compliance (GIPS effective convexity of,5: 567 in credit analysis, 5:615–616 Section I.0), 1:236 interest rate risk with, 5:554 and degree of operating leverage, GIPS Advertising Guidelines (GIPS putable common shares, 5:159, 171 4:133–134 Section III), 1:258 putable preference shares, 5:171 profitability index (PI),4: 58 Verification (GIPS Section IV),1: 260 put–call–forward parity, 6:98–99 profitability ratios,3: 364–368; 5:231 Wrap Fee/SMA Portfolios (GIPS put–call parity, 6:94–98, 100 calculation, 3:364–365 Section I.8), 1:252–254 put/call ratio, 1:717–718

bind 75 June 17, 2017 4:16 PM I-76 Index

put options (puts) quick ratio, 3:356, 357; 4:160 and market discount rate for bonds, American, 5:332n.6; 6:105–107 QUIDS. see quarterly interest debt 5:402 Bermuda-style, 5:332 securities minimum required rate of return, change of control, 5:643 quintiles, 1:423 5:177 defined, 5:24; 6:26, 85 quota rents, 2:359 for present value models, 5:254 embedded (see putable bonds) quotas, 2:359 time-weighted rate of return European (see European put options) defined, 2:356 Calculation Methodology (GIPS and insurance, 6:7 and tariffs,2: 360–361 Section I.2), 1:237 payoffs from,6: 28–30 in textile industry, 2:345 defined, 1:272 profits from,6: 28–29 quotations, attributing, 1:75 linked, 1:246 protective, 6:95, 96, 98–99 quoted interest rate, 1:312 money- vs., 1:374–376 PV. see present value quoted margin, 5:426 for portfolios, 1:371–376 p-value approach to hypothesis testing, quoted price, 5:413 Real Estate (GIPS Section I.6), 1:246, 1:626, 633–634 quote-driven markets (dealer markets) 247 PVBP. see price value of a basis point defined, 5:54, 55 on underlying, 6:63 execution mechanisms for, 5:55 rating agencies. see credit rating Q and fixed-income indexes,5: 98 agencies Q&As. see Questions & Answers, GIPS order-driven and brokered markets vs., ratio analysis, 3:331–344; 5:615–617 Qatar 5:57 for Acer Inc., 3:331–333 bond market in, 5:351 classes of ratios, 3:335–336 exchange rate targeting, 2:295 R common-size, 3:338–345 IFRS adoption, 3:116 rand, South African, 2:401 of balance sheet, 3:339, 342–344 MSCI multi-market index, 5:96 randomness, 1:585 of income statement, 3:340–341 Qlik Technologies, 1:413 random number generator, 1:561 vertical, 3:197n.50, 252, 339–341 Qtel, 4:12 random numbers, 1:561–562 cross-sectional, 3:341, 349 quadruple witching days, 1:655–656 random observations, in Monte Carlo for equity investments, 3:755–756 qualification summary,1: 75 simulations, 1:561–562 for goodwill, 3:763–764 qualified audit opinion,3: 28 random sampling interpreting financial ratios, qualified institutional investors,5: 362 simple, 1:584–586 3:335–336 Qualified Purchasers,6: 133n.14 stratified, 1:586–587 for Lenovo Group Limited, 3:331–333 quality random variables, 1:476–477 and relationships of financial of earnings, 3:666, 667, 676 Bernoulli, 1:532–533 statements, 3:344 of financial reporting (see financial binomial, 1:534–536 and sources of ratios, 3:337–338 reporting quality) continuous (see continuous random for Toshiba Corporation, 3:331–333 of investment policies, 4:173 variables) trend, 3:342–344 of reported results, 3:666 defined, 1:529 value, purpose, and limitations, quality bias, 2:228 discrete (see discrete random variables) 3:336–337 quantiles, 1:423–430 independence for, 1:506 rationality, of markets vs. individuals, calculating, 1:425–427 multiplication rule for expected value 5:137 defined, 1:423 of product of, 1:506 rationing, capital, 4:52 in investment practice, 1:427–430 outcomes of, 1:476–477 ratio scales, 1:392 types of, 1:423–427 standardization of, 1:548–549 raw materials, 2:158, 160. see also quantitative directional strategies, for uncorrelated, 1:506 natural resources hedge funds, 6:138 random walk hypothesis, 5:125n.15 raw materials inventory, 3:404, 435 quantitative easing (QE), 2:322–323 range Rayovac, 2:64 and business cycle theories, 2:221 definition, 1:431 RBC Bank, 5:209 and deflation,2: 298–299 interquartile, 1:431n.27 RBC Canadian Index Fund, 1:415–416, in Japan, 2:300 and mean absolute deviation, 419 quantitatively oriented models, 1:157, 1:432–433 RBC Capital Markets, 5:30 162–163 ranked data, nonparametric tests of, RBCs. see real business cycle models quantitatively oriented research, 1:656–657 RCF. see retained cash flow 1:156–157 rapid amortization provisions, 5:512 R&D. see research and development quantitatively oriented techniques, 1:157 rate of change (ROC) oscillator, real, Brazilian, 2:401 quantity equation of exchange, 2:270 1:710–712 real assets, 5:14, 26–28 quantity theory of money, 2:144, rate of return. see also internal rate of real business cycle models (RBCs), 270–271 return (IRR) 2:218–220 quarterly interest bonds (QUIBS), 5:300 average accounting, 4:57–58 real estate, 6:158–167 quarterly interest debt securities and functions of financial system, commercial, 6:125, 158–159, 162 (QUIDS), 5:300 5:12–13 correlation with other asset classes, quartiles, 1:423 holding-period, 5:571 4:432 quasi-fixed costs,2: 33 money-weighted rate of return defined, 1:271; 6:129 quasi-government bonds, 5:372–373 for portfolios, 1:370–371, 374–376 downside frequencies, 6:131 quasi-government entities, 5:299 time- vs., 1:374–376 forms of investment, 6:159–161 Questcor Pharmaceuticals, 1:413 required and GIPS compliance, 1:231 Quest Diagnostics, 5:209 and cost of equity, 5:177–178 GIPS Valuation Principles (GIPS Questions & Answers (Q&As), GIPS, in dividend discount model based Section II) for, 1:255–257 1:230, 235, 236, 261 approach, 4:92 growth in, 6:128 QUIBS. see quarterly interest bonds and financing costs for capital historical returns and volatility, 6:126 quick assets, 4:160 expenditures, 4:50 institutionally owned, 6:125, 159

bind 76 June 17, 2017 4:16 PM Index I-77

investment categories, 6:161–163 reasonable basis. see also Diligence and recourse loans, 5:488 performance and diversification Reasonable Basis [Standard V(A)] recoverable amount, 3:507, 681 benefits, 6:163–165 defined, 1:155 recovery risk management with, 6:177 developing, 1:159 capital spending in, 2:206 risks with, 6:166–167 reasonableness testing, for company unemployment rate in, 2:223 sample presentations analysis, 5:232 recovery rates with closed-end funds, 1:279–281 rebalancing in credit analysis, 5:597–600 with open-end funds, 1:277–279 of indexes, 5:86, 91–92 on defaulted bonds, 1:644–646 Sharpe and Sortino ratios, 6:131 in portfolio management, 4:225 of non-agency RMBSs, 5:503 valuation, 6:165–166 rebalancing policy, 4:441 rectangle patterns, 1:706 Real Estate (GIPS Section I.6), rebate programs, 3:714 redemptions, hedge fund, 6:133, 1:244–248 rebuilding cost, 6:166 144–145 about, 1:235 recapitalization, private equity, 6:154 redemption yield, 5:304. see also Calculation Methodology provisions, receipts yield-to-maturity 1:245–248 customers’, 4:177–180 reference rates, 5:352–353, 425–426 for closed-end fund composites, government, 2:303–306 references, employee, 1:82 1:247–248 receivables Reference to CFA Institute, Designation Composite Construction provisions, commercial, 3:48 and Program [Standard VII(B)], 1:247 discounted, 4:190 1:198–204 Disclosure provisions, 1:246–248 dividends, 3:572, 579 application of the standard, 1:202–204 Input Data provisions, 1:245, 248 as drag on liquidity, 4:158 compliance procedures, 1:202 Presentation and Reporting provisions, number of days of, 4:160, 181 guidance, 1:198–202 1:246–248 other, 3:48 CFA designation, 1:199 recommendations, 1:248 payments of, 1:637–638 CFA Institute membership, 1:199 requirements, 1:245–248 trade, 3:48, 225–227 referring to candidacy in CFA real estate investment trust (REIT) receivables turnover, 3:349, 352–353 program, 1:199–200 indexes, 5:101–102; 6:163, 164 recession, 2:164n.15 use of CFA marks, 1:200–202 real estate investment trusts (REITs) defined, 2:201 text of, 1:47, 198 and beta exposure, 6:129 identifying, 2:203–204 referral arrangements equity, 6:162 investor preferences, 2:202–203 disclosure of, 1:190–192 function of, 6:159 recessionary gap, 2:163–167, 205 informing firms of,1: 191 growth in, 6:128 recognition. see also revenue recognition interdepartmental, 1:191 indirect investment with, 5:26 Conceptual Framework on, 3:122 Referral fees [Standard VI(C)], mortgage, 6:162 and derecognition, 3:509–511, 1:190–192 returns on, 6:164–165 615–617 application of the standard, 1:190–192 risk management with, 6:177 expense, 3:16, 152–153, 172–181 compliance procedures, 1:190 shares of, 6:160 of finance leases,3: 625–627, 636–638 guidance, 1:190 tax advantages for, 6:126 of financial report elements,3: 122 text of, 1:47, 190 valuation of, 6:166 tax, 3:576n.3 refinancing rate,2: 284 real estate limited partnerships, 6:160 taxable and accounting profit at,3: 580 refinancing risk,6: 158 real exchange rates, 2:402–406 recognition lag, 2:318 Reg D Offerings,6: 132n.13 real GDP, 2:124–127 recommendation objectivity, 1:68–69 Regional Investment Performance and economic growth, 2:173 recommendations. see also Investment Subcommittees, 1:232 identifying recession with, Analysis, Recommendations, and regional trading agreements (RTAs), 2:203–204 Actions [Standard of Professional 2:362–366 and international trade, 2:344 Conduct V] Regis Corporation, 5:199 in Japan, 2:172–173 defined, 1:271 registered bonds, 5:314 and shifts in aggregate supply/demand, fair dealing in, 1:110–111 registration requirements, of market 2:170–173 from financial statement analysis,3: 34 regulators, 3:686 real income, 2:18–19 in investment policy statements, 1:176 regression analysis, 2:106; 3:347; real interest rate, 2:140 as material nonpublic information, 4:380–381 realizable value, 3:123 1:93–94 regular lines of credit, 4:189, 190 realization multiple (DPI) number of people privy to, 1:112 Regulation D, 6:132n.13 defined, 1:267, 271 reasonable basis for, 1:155 Regulation FD (SEC), 3:112n.13; 5:122 Private Equity (GIPS Section I.7), reconstitution, 5:92–93 Regulation of the European Parliament 1:251 record keeping, supervision of, 1:151 and of the Council on OTC Real Estate (GIPS Section I.6), 1:248 Record Retention [Standard V(C)], Derivatives, Central Counterparties, real money accounts, in FX market, 1:174–176 and Trade Repositories, 6:12–13 2:412 application of the standard, 1:176 regulations real money supply, 2:144–146 compliance procedures, 1:175 and ethics, 1:17–19, 41 real rate duration, 5:574 guidance, 1:174–175 on financial reporting,5: 61 real returns local requirements, 1:175 for futures, 6:21 of asset classes in other countries, new media records, 1:175 for markets, 5:60–63 4:310–311 records as firm property,1: 175 for monopolies, 2:105–106 of asset classes in United States, text of, 1:46, 174 for OTC derivatives market, 6:12–13 4:309–310 records for pension funds, 5:62 defined, 4:302–303 maintenance of, 1:90, 264 for stakeholder management, 4:20 on equity securities, 5:152–154 as property of firm,1: 175, 176 Regulation S ADRs, 5:168 real risk-free interest rate, 1:307; 4:307 retention of, 1:176 Regulation T (Federal Reserve), 5:41

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regulatory authorities (regulators), religious tenets, laws and regulations repurchase date, 5:387 3:108–113. see also US Securities based on, 1:56–57 repurchase price, 5:387 and Exchange Commission (SEC) remaining useful life, 3:519–522 reputational risk, 4:29 for capital markets in Europe, 3:113 remeasurements, pension plan, requested favors, 1:183 discipline for financial reporting 3:641–642 request for proposal (RFP), 1:140 quality from, 3:685–687 remuneration. see compensation required margin, 5:426 International Organization of renewable resources, 2:178 required rate of return Securities Commissions, 3:108–109 renminbi, yuan. see Chinese yuan and cost of equity, 5:177–178 and remuneration policies, 4:18 rent(s) in dividend discount model based S-1 registration statements for, as form of payment, 2:119 approach, 4:92 3:111–112 in GDP, 2:123 and financing costs for capital shareholder conflicts with,4: 13 quota, 2:359 expenditures, 4:50 as stakeholders, 4:10 rent received in advance and market discount rate for bonds, regulatory influences and taxable/deductible temporary 5:402 and fixed-income securities,5: 313–316 differences, 3:579, 580 minimum, 5:177 of government, 5:224–226 and tax bases of liabilities, 3:574, 575 for present value models, 5:254 and industry life-cycle, 5:217 reorganization, 4:146–147; 5:600 required yield, 5:402 and IPSs, 4:425–426 repayment proceeds, bond, 5:306–307 required yield spread, 5:418 in strategic analysis, 5:220 repeat sales indexes (real estate), requirements (term), 1:271 regulatory projects, capital budgeting 6:163–164 research for, 4:49 replacement projects, capital budgeting diligence, 1:158 regulatory risk, 4:29, 263; 6:175 for, 4:49 group, 1:157, 160 reinvested dividends, 5:169–170 replication, 5:35; 6:68–69 independence of, 1:65–66, 68 reinvestment risk, 5:322 repo margin, 5:388 issuer-paid, 1:62–63, 76 REIT indexes. see real estate investment repo rate, 2:284; 5:387 and plagiarism, 1:73–74 trust indexes reporting. see also financial reporting quantiles in, 1:427–430 REITs. see real estate investment trusts incident-reporting procedures, 1:137 quantitatively oriented, 1:156–157 rejection point of material nonpublic information, reasonable basis for, 1:159 for tests on population variance, 1:90 and record retention, 1:176 1:651–652 performance, 1:72–73, 458–459 sampling biases in, 1:608–609 for tests on relative values of of potential unethical actions, 1:57 secondary, 1:155–156 population variances, 1:653–656 requirements for investment supervision of, 1:150–151, 153–154 for test statistic, 1:630–632 personnel, 1:187–188 third-party, 1:155–156, 160 for z-test alternative, 1:639 and stakeholder management, 4:17 research and development (R&D) rejection region, test statistic, 1:631 of violations, 1:55 domestic productivity and foreign, related parties, gifts and entertainment reporting NAV, 6:146 2:344 from, 1:66–67 “Report on Securitization Incentives” goodwill from, 3:240 related-party transactions (Bank for International intangible assets in, 3:238, 479 and controlling–minority shareholder Settlements), 5:476 IRR rule in evaluation of, 1:365–366 relationships, 4:12–13 reports. see also financial reports NPV rule in evaluation of, 1:364 financial reporting quality issues annual, 3:111, 671–672 and technology as source of economic related to, 3:713, 716 corporate governance, 4:20 growth, 2:178 policy development, 4:18 earnings, 3:717 research costs, 3:572, 573, 579, 681 and poor governance, 4:29 facts vs. opinions in, 1:168 research reports, material nonpublic relationships flash, 1:113 information in, 1:88 and conflicts of interest,1: 180, 184 material nonpublic information in, reserve, LIFO, 3:415–421 custodial, 1:60 1:88 converting LIFO to FIFO inventory fund manager, 1:60, 70 performance examination, 1:264, 270 with, 3:416–421 independent contractor, 1:136–137 in portfolio management, 4:226 defined, 3:415 investment banking, 1:60–61 presentation of, 1:168 and LIFO liquidations, 3:421–422 and issuer relationship pressure, research, 1:88 reserve accounts, 5:309 1:65–66 on short-term investment portfolio, reserve banking systems, 2:153–154, relative dispersion, 1:443 4:174 266–268 relative frequency verification, 1:260, 261, 264, 273 Reserve Bank of Australia, 2:280 cumulative, 1:396–400 repos. see repurchase agreements Reserve Bank of India, 2:230 and frequency distributions, repo to maturity, 5:387 Reserve Bank of New Zealand, 2:287, 1:396–400 representation letter, 1:264 289, 290 relative price, 2:231 representative accounts, 1:223 Reserve Bank of New Zealand Act, relative risk objectives, 4:416 representativeness bias, 5:138 2:287, 290 relative strength analysis representative sectors, for commercial reserve funds, 5:309, 385–386 of charts, 1:692–693 industry classifications,5: 193–194 reserve requirements, 2:367 in intermarket analysis, 1:729–730 representative security market indexes, of central banks, 2:268, 284–285 relative strength index (RSI), 1:712–714 5:103–104 and monetary policy, 2:284–285 relative value strategies, with hedge Repsol, 1:425 and money creation, 2:267 funds, 6:135–137 repurchase agreements (repos) residential mortgage-backed securities reliability factors defined, 2:284 (RMBS), 5:490–503; 6:161 basis of computing, 1:600–601 as fixed-income instruments,5: 17 collateralized mortgage obligations, for confidence intervals,1: 596–597, other short-term instruments vs., 4:168 5:496–503 600–601 structure of, 5:386–389 floating-rate tranches,5: 501

bind 78 June 17, 2017 4:16 PM Index I-79

planned amortization class tranches, adequate, 1:148–149 accounting return on equity, 5:499–501 and code of ethics, 1:148 5:172–177 sequential-pay structures, 5:497–499 establishing appropriate incentive active, 5:116 support tranches, 5:499–501 structures, 1:150 in advertisements, 1:291–293 mortgage pass-through securities, implementation of compliance annual, 1:292–293 5:491–496 education and training, 1:149 annualized, 1:291–292; 4:299–301 cash flow construction,5: 493–494 eleventh edition revision, 1:36 arithmetic, 4:294 characteristics, 5:491–492 guidance, 1:146–148 and bank discount yield, 1:378 collateralized mortgage obligations detection as part of supervision, and beta, 4:379–380, 387–388 vs., 5:496–497 1:147–148 capital, 1:246, 265 defined, 5:491 system for supervision, 1:147 on capital market line, 4:369–370 prepayment rate measures, text of, 1:46, 146 CAPM’s prediction of, 4:400 5:492–493 responsibility(-ies) continuously compounded, 1:555–556 prepayment risk, 5:492 accepting, 1:152 covariance of, 4:305 weighted average life, 5:494–495 of employers, 1:134 credit risk vs., 5:628–637 non-agency residential mortgage- execution-only, 1:109 dollar-weighted, 1:370n.9 backed securities, 5:503 responsibility statements, 3:686 expected, 1:499, 504 residential mortgage loans, 5:485–490 responsible investing (RI), 4:36–37 and beta, 4:381–383 amortization schedule, 5:487–488 restaurants CAPM estimation of, 4:388–389 interest rates, 5:486–487 asset-based equity valuation for, and historical mean return, lender’s rights in foreclosures, 5:277–278 4:307–308 5:488–489 barriers to entry for, 5:206 and SML, 4:386–387 maturity, 5:486 restricted lists, creating, 1:64 and strategic asset allocation, prepayment options and penalties, restricted payments covenant, 5:644 4:436–437 5:488 restricted periods, 1:187 Fama and French three-factor model, residential property investments, 6:158, restricted subsidiaries, 5:644 5:133 161 restrictions geometric mean, 1:420–422; residual claim, 3:48–49 on asset disposals, 5:310 4:294–295 residual tranche, 5:504 on debt, 5:310 gross, 4:301–302 residual value on distributions to shareholders, 5:310 gross-of-fees and amortisation/depreciation on international investment, 5:164 Calculation Methodology (GIPS expense, 3:177–180 investment policy, 4:172 Section I.2), 1:238 defined, 1:271 on investments, 5:310 defined, 1:268 Private Equity (GIPS Section I.7), 1:251 on mergers and acquisitions, 5:310 Disclosure (GIPS Section I.4), 1:240 Real Estate (GIPS Section I.6), 1:248 on prior claims, 5:310 GIPS Advertising Guidelines (GIPS resistance, 1:695 trade, 2:356–369 Section III), 1:259 resources capital restrictions, 2:366–369 Presentation and Reporting (GIPS capital spending, 2:205–207 quotas, 2:359–361 Section I.5), 1:243, 244 consumer behavior and use of, tariffs, 2:356–361 Private Equity (GIPS Section I.7), 2:208–210 restructuring events, 3:682, 718 1:250 cyclical use of, 2:204–210 results Real Estate (GIPS Section I.6), 1:246, inventory levels, 2:207–208 overemphasis of, 1:81 248 natural, 2:159–161, 178 quality of, 3:666 historical, 4:311 non-renewable, 2:178 simulated, 1:127–128 estimating cost of equity with, renewable, 2:178 retail accounts, in FX market, 2:413 4:90–92 Responsibilities as a CFA Institute retail currency transactions, 5:20 historical mean return and expected Member or CFA Candidate retail deposits, 5:385 return, 4:307–308 [Standard of Professional Conduct retail investors, 5:358 nominal and real returns of asset VII], 1:193–204 retail method for inventory valuation, classes in other countries, Conduct as Participants in CFA 3:227 4:310–311 Institute Programs [Standard Retail Price Index (RPI), 5:325, 326, 370 nominal returns of major US asset VII(A)], 1:193–197 retail sales, consumer spending and, classes, 4:308–309 application of the standard, 2:209 real returns of major US asset classes, 1:195–197 retained cash flow (RCF),3: 749 4:309–310 eleventh addition revision, 1:36–37 retained earnings, 3:50–51, 70, 248 risk–return tradeoff,4: 311–312 guidance, 1:193–195 retaliation, price collusion and, 2:93 historical mean, 4:307–308 text of, 1:47, 193 retention rate, 3:377, 379 holding period, 4:293 Reference to CFA Institute, retired CFA Institute membership defined, 1:369, 394 Designation and Program [Standard status, 1:203 finding ending value of investment VII(B)], 1:198–204 retracements, 1:694 with, 1:556 application of the standard, retractable term preferred shares, formula, 1:394 1:202–204 5:255–256 and time-weighted rate of return, compliance procedures, 1:202 retraction, 5:256n.2 1:372 guidance, 1:198–202 retrospective application, of accounting income, 1:246, 268 text of, 1:47, 198 policies, 3:184 independently and identically Responsibilities of Supervisors [Standard return(s), 4:292–307. see also specific distributed, 1:556 IV(C)], 1:146–154 types of investments industry classifications based on application of the standard, 1:150–154 abnormal, 5:124 correlations in, 5:191 compliance procedures, 1:148–150 absolute, 6:129–130 law of diminishing, 2:79

bind 79 June 17, 2017 4:16 PM I-80 Index

return(s) (continued) Presentation and Reporting (GIPS in monopolistic competition, 2:85–87 leveraged, 4:303 Section I.5), 1:243 in oligopolies, 2:90, 91, 94, 96 and liquidity, 1:428–430 price vs., 5:79 in perfect competition, 2:70, 78–79 marginal, 2:23–28 Real Estate (GIPS Section I.6), 1:246 and price elasticity, 2:73–74 and definition of productivity, on real estate, 6:158 outsized growth of, 3:714 2:23–25 for single period, 5:80–81 total law of diminishing marginal returns, uncorrelated, 4:325 in oligopoly, 2:90 2:23 variance of, 4:305 under perfect and imperfect and total/average product of labor, for portfolio of assets, 4:305, 329–330 competition, 2:35–36 2:25–28 for portfolio of risky assets, 4:363 and price elasticity, 2:73–74 mean, 4:294 for single asset, 4:304 in shutdown analysis, 2:41–42 excess, 1:445–446 and standard deviation, 4:305 unbilled, 3:72 geometric, 1:419–422; 4:294–295 return-generating models for beta, unearned historical, 4:307–308 4:376–377, 399. see also capital accrual accounting for, 3:72 money-weighted, 4:296–297 asset pricing model (CAPM) analysis of, 3:232–234 of mutual funds, 1:636–637, 651–652 decomposition of total risk for, 4:378 on balance sheets, 3:60 net, 4:301–302 market model, 4:378–379 as current liability, 3:232 net-of-fees, 6:142 single-index models, 4:378 on income statements, 3:156 Calculation Methodology (GIPS three- and four-factor, 4:377 revenue bonds, 5:651–652 Section I.2), 1:238 return interval, beta, 4:95 Revenue from Contracts with Customers defined, 1:269 return objectives, on IPSs, 4:421–422 (ASU 2014-09), 3:168n.24, 169 Disclosure (GIPS Section I.4), 1:240 return on assets (ROA), 3:336, 365–366 Revenue from Contracts with Customers GIPS Advertising Guidelines (GIPS and conversion from LIFO to FIFO, (IFRS 15), 3:168n.24, 169 Section III), 1:259 3:421 revenue per employee, 3:380 Presentation and Reporting (GIPS operating, 3:365 revenue recognition Section I.5), 1:243 segment, 3:386–387 completed contract method, 3:160– Private Equity (GIPS Section I.7), return on capital, 3:365, 366, 383 161, 163 1:249, 250 return on common equity, 3:365 and financial reporting issues,3: 698– Real Estate (GIPS Section I.6), 1:246, return on equity (ROE), 3:366 699, 710–711, 713–714 248 accounting, 5:172–177 on income statements, 3:155–171 nominal and accounting method, 5:173 accounting standards issued May of asset classes in other countries, and accounting standards, 3:736–738 2014, 3:168–171 4:310–311 and book vs. intrinsic value, 5:176–177 for barter transactions, 3:165 of asset classes in United States, in company analysis, 5:232 and financial statements,3: 167–168 4:308–309 decomposition of, 3:370–375 general principles, 3:156–159 pre-tax/after-tax, 4:302 defined, 3:365 and gross vs. net reporting of normal distribution as model for, 1:547 formulas, 5:172–173 revenues, 3:165–166 portfolio and justified forward P/E,5: 268–269 for installment sales, 3:164–165 defined, 4:301 for Pfizer, Novartis AG, and for long-term contracts, 3:160–163 expected portfolio returns, 1:504 GlaxoSmithKline, 5:173–175 in special cases, 3:159–166 measurement of returns, 1:369–376, and ratio analysis, 3:336 installment method, 3:164–165 417–418 return on invested capital (ROIC), 5:204 in oil and gas industry, 3:680 for portfolios of risky assets, 4:324, return on investment, 3:365 percentage-of-completion method, 363–364 return on sales. see net profit margin 3:160–162 predictability of, 5:135–136 return on total capital, 3:365, 366 prorated, 3:160, 161 price, 5:79–81 Reuters, 5:386 revenue sufficiency, of tax policy,2: 312 real revaluation model for long-lived assets, reversal, impairment, 3:509 of asset classes in other countries, 3:493, 502–506 reversal patterns, 1:696–703 4:310–311 revenue(s) continuation vs., 1:696 of asset classes in United States, and accounts receivable, 3:714 double tops and bottoms, 1:701–703 4:309–310 accrued, 3:72 head and shoulders, 1:697–701 defined, 4:302–303 average, 2:35 about, 1:697–698 on equity securities, 5:152–154 coefficient of variation for,3: 380 determining price targets from, 1:700 risk and, 4:327–329 (see also risk– and credit sales, 3:698–699 inverse, 1:699–701 return tradeoff) deferred/unearned setting price targets with, 1:698–701 risk-free, 4:367–369 accrual accounting, 3:72 triple tops and bottoms, 1:702–703 to scale, 2:45, 46 analysis of, 3:232–234 reversal size, on point and figure charts, security market indexes as proxies for, balance sheet, 3:60 1:689 5:94 as current liability, 3:232 reverse floating-rate notes,5: 324 single-period, 5:79–81 on income statements, 3:156 reverse mortgage, 4:292n.1 total defined, 3:46 reverse repurchase agreements (reverse Calculation Methodology (GIPS gross vs. net reporting of, 3:165–166 repos), 5:388 Section I.2), 1:237 on income statements, 3:16, 151 reverse stock split, 5:249 defined, 1:272 and interest expense, 5:648 reviewable ARM, 5:487 for equity securities, 5:169–170 inventory, 3:172–174 reviews GIPS Advertising Guidelines (GIPS marginal account, 1:105, 114 Section III), 1:259 and marginal cost/profit of compliance procedures, 1:54 for leveraged stock purchase, 5:42–43 maximization, 2:29–30 for independence/objectivity, 1:64 for multiple periods, 5:81–82 in monopolies, 2:98–102 by market regulators, 3:686

bind 80 June 17, 2017 4:16 PM Index I-81

revolving credit accounts, 4:176 risk allocation, 6:40 and interactions between risks, revolving credit agreements, 4:189–191 risk arbitrage, 6:50n.24 4:266–268 revolving period, 5:508 risk-arbitrage trading, 1:91 non-financial risks,4: 260, 262–266, RFP. see request for proposal risk attitude, clients’, 4:417 268–269 RGS classification. see Russell Global risk averse (term), 4:316 by individuals, 5:9–10 Sectors classification risk aversion, 4:315–324 long-term, 4:35 rho, 4:272 and arbitrage-free pricing, 6:69 metrics for, 4:271–275, 282–283 Rhone-Poulenc, 2:105 in CAPM assumptions, 4:384 normal distribution in, 1:553 RI. see responsible investing concepts, 4:315–316 in portfolio construction, 4:224 Ricardian equivalence, 2:316 and indifference curves,4: 317–319 by portfolio managers, 4:244 Ricardian model, 2:343, 354–355 loss aversion vs., 5:137 practice problems, 4:286–288 Ricardo, David, 2:316, 354 and optimal portfolio, 4:347–348 risk governance, 4:253–260 rights and portfolio selection, 4:321–324 for enterprises, 4:253–255 in contracts, 3:169 and pricing of underlying, 6:63–64 establishing risk tolerance level, employee, 4:19–20 and utility theory, 4:316–324 4:255–257 human, 4:37, 39 risk aversion coefficient,4: 317 example, 4:259–260 lenders’, 5:488–489 risk budgeting, 4:257–259, 439, 440 with risk budgeting, 4:257–259 preemptive, 5:157 risk committee, 4:24 risk management process, 4:245–253 sell-out, 4:16 risk culture, 4:252 benefits from,4: 252 shareholder, 4:34 risk drivers, 4:245n.1, 270–271 for enterprises, 4:249–251 voting, 4:31–32; 5:156, 157 risk exposures, 4:245–246; 5:39 framework for, 4:247–253 rights offerings,5: 52 risk-free assets, 4:339–342 good vs. bad, 4:246–247 Riksbank, 2:289 capital allocation line and optimal risky for individuals, 4:251 Rio Tinto, 5:209, 276 portfolio, 4:339–340 risk exposure in, 4:245–246 risk(s). see also specific types and capital market line, 4:367–369 risk modification methods,4: 275–283 acceptance of, 4:277 combining risky assets with, acceptance of risk, 4:277 accounting, 4:263 4:363–366 example, 4:282–283 with alternative investments, 6:125, and homogeneity of expectations prevention and avoidance of risk, 130–131, 178–179 assumption, 4:365–366 4:275–276 with arbitrage transactions, 6:70 two-fund separation theorem, selecting, 4:281–282 Bloomberg’s statistic for, 5:558 4:340–341 shifting of risk, 4:279–281 on capital market line, 4:369–370 utility theory and selection of, transfer of risk, 4:277–279 defined, 4:245 4:321–324 solutions to problems, 4:289–290 and economic activity, 4:243 risk-free bonds, arbitrage with, systems, 6:147–148 of equity securities, 5:170–171 6:47–49 Risk Management Association, 3:338 identification of,4: 260–269 risk-free interest rate risk management framework, financial risks,4: 260–262, 268–269 and equity risk premium, 4:94n.23 4:247–253 and interactions between risks, and expected return, 4:307 risk managers, 5:6 4:266–268 nominal, 1:307 risk mitigation, 4:248 non-financial risks,4: 260, 262–266, and option pricing/valuation, 6:89 risk modification,4: 275–283 268–269 real, 1:307; 4:307 acceptance of risk, 4:277 in risk management framework, and sovereign debt, 5:645–646 example, 4:282–283 4:247 term structure of, 5:419 prevention and avoidance of risk, with infrastructure investments, risk-free return, capital market line and, 4:275–276 6:175 4:367–369 selecting, 4:281–282 interactions between, 4:266–268 risk governance, 4:253–260 shifting of risk, 4:279–281 of investment analysis, 1:167–168 defined, 4:247 transfer of risk, 4:277–279 investors’ willingness/ability to take for enterprises, 4:253–255 risk monitoring, 4:248 risk, 4:417–419 establishing risk tolerance level, risk neutral (term), 4:316 of major asset classes, 4:311 4:255–257 risk-neutral investors, 6:63 market price of, 4:321 example, 4:259–260 risk-neutral pricing, 6:69–70 measures/measurement of, 4:247–248, with risk budgeting, 4:257–259 risk-neutral probabilities, 6:102–103 271–275, 282–283; 6:130–131 risk infrastructure, 4:248 risk objectives, on IPSs, 4:416–421 Monte Carlo simulation for assessing, risk management, 4:243–290 risk position, 4:245n.1 3:748 with alternative investments, risk premium(s) of mutual funds, 1:636–637, 651–652 6:176–180 asset, 4:216 notification of,1: 173–174 and corporate governance, 4:35 bond yield plus, 4:94 prevention and avoidance of, in decision process, 4:243–244 default, 1:307, 496–497 4:275–276 defined, 4:246 defined, 1:627; 4:311 pricing of, 4:374–376 with derivatives, 6:8, 9, 40 equity, 4:89–92 with real estate investments, and drivers of risk, 4:270–271 expected, 4:307 6:166–167 enterprise historical equity risk premium of relying on credit ratings, 5:605–608 defined, 4:247 approach, 4:90–92 and repo rate, 5:387 process for, 4:249–251 for inflation,2: 275 return and, 4:327–329 (see also risk governance in, 4:253–255 for real returns, 4:302 risk–return tradeoff) risk tolerance in, 4:256 and risk aversion of investors, 6:63 transfer of, 6:8, 40 with forward contracts, 6:17 risk profile of two-asset portfolio, 4:306–307 identification of risks,4: 260–269 investment suitability for, 1:122, 124 risk-adjusted performance, 5:94 financial risks,4: 260–262, 268–269 understanding, 1:119

bind 81 June 17, 2017 4:16 PM I-82 Index

risk–return tradeoff,4: 311–312 Rolex, 2:98 sale(s) and adding assets to portfolios, 4:335 rollover, of futures, 5:101 of assets, 5:639 and investing in portfolios vs. equities, rollover risk, 5:375 available-for-sale securities, 3:202, 4:210–212 roll yield (convenience yield), 6:64–65, 243–245 measures of, 6:178–179 173 comparable sales approach to real for strategic asset allocation, 4:433 Romania, 2:287; 5:96 estate valuation, 6:165 for traditional and alternative Ross, Stephen, 4:401 comparable store sales ratio, 3:379, 380 investments, 6:130–132 row crops, 6:163 and consumer spending, 2:209 risk seeking (term), 4:315–316 Roxburgh, Charles, 5:348n.1 cost of risk-seeking investors, 6:63 Roy, A. D., 1:551n.24 adjusting, with LIFO reserve, risk shifting, 4:279–281 Royal Bank of Scotland PLC, 5:307, 383 3:415–416 risk tolerance, 4:255–257 Royal Dutch Shell PLC and inflation,3: 413–414 defined, 4:316 as commodity-exposed company, and inventory valuation method, in enterprise risk management, 4:253 6:169 3:404, 408–410 and equity ownership, 5:154–155 concentration ratio, 2:107 in perpetual vs. periodic inventory on investment policy statements, decomposition of ROE, 3:374–375 systems, 3:410–412 4:417–419 long-term debt and lease disclosure, credit, 3:698–699 in portfolio management, 4:222 3:630–635 days of sales outstanding, 3:349, and shareholder–manager Royal Numico N. V., 3:386 352–353, 714 relationships, 4:12 Roy’s safety-first rule,1: 551–553 final, 2:207 shareholder vs. creditor interests, 4:13 RPI. see Retail Price Index and finished goods inventory, risk transfer, 4:277–279 RSI. see relative strength index 3:435–436 risky assets RTAs. see regional trading agreements on income statements, 3:151n.4 combining risk-free assets with, rubles, Russian, 2:401 installment, 3:164–165 4:363–366 Rule 10b5-1 (SEC), 5:122n.10 inventory–sales ratio, 2:207, 241 covariance and correlation of risks, Rule 10b5-2 (SEC), 5:122n.10 long and short, 5:50, 123 4:325–327 Rule 144 (SEC), 3:112 of long-lived assets, 3:296, 509–510 efficient frontier of,4: 339 Rule 144A ADRs, 5:168 manufacturing, 2:241 importance of correlation of risks in Rule of 72, 1:334n.9 one-time, 3:716 portfolio, 4:330 Rules of Procedure. see Bylaws and price-to-sales ratio, 3:376, 377; 5:265, portfolio return for, 4:324 Rules of Procedure for Professional 269–270 portfolio risk with, 4:324–330 Conduct repeat sales indexes, 6:163–164 pricing, 6:64 “rules of thumb,” 6:157n.30 return on (see net profit margin) relationship of risk and return, rumors, addressing, 1:138–139 same store sales ratio, 3:379, 380 4:327–329 running yield, 5:304 trade, 2:241 utility theory and selection of, runs test, 1:657 sales and purchases of non-produced, 4:321–324 rupee (Indian), 2:401 non-financial assets sub-account, risky portfolios Russell 2000 Index, 1:446; 5:92 BOP, 2:372 insurance for, 4:335 Russell 3000 Index, 5:92, 95 sales per square meter (sales per square optimal risky portfolio Russell Global Sectors (RGS) foot) ratio, 3:380 and capital market line, 4:368 classification, 5:189, 190, 192 sales pressure, 1:66 and homogeneity of expectations, Russell Investments, 5:192 sales returns and allowances, 3:46 4:365–366 Russia sales risk, 4:95, 128–130 selection for, 4:361–362 and Asian financial crisis,2: 343 sales-type leases Rite Aid Corporation, 4:96 exchange rate regime, 2:436 defined, 3:542, 636 Ritter, Jay, 4:106 foreign bonds, 5:313 financial statement impact of,3: 543, rivalries, 5:205, 612 GIPS country sponsor, 1:233 638–640 RMBS. see residential mortgage-backed import quotas, 2:359 US GAAP on, 3:635, 636 securities MSCI multi-market index, 5:96 salvage value, 3:177 ROA. see return on assets pension fund investment restrictions, SAMA Foreign Holdings, 4:221 “A Roadmap for Convergence between 4:425 same store sales ratio, 3:379, 380 IFRSs and US GAAP” (IASB/FASB), Russian rubles, 2:401 sample excess kurtosis, 1:455–458 3:114 RVPI. see unrealized multiple sample mean, 1:407–409, 590n.4 Robeco Boston Partners Small Cap RWE, 1:425 distribution of, 1:590–593 Value Fund II, 1:435 as point estimator, 1:593, 594 Robert Wood Johnson Foundation, S standard error of, 1:590–591 4:219 S-1 registration statements, samples Robinson, Joan, 2:65 3:111–112 defined, 1:391, 584 Robinson, Thomas,4: 84n.5, 84n.7 SAA. see strategic asset allocation dependent, 1:646–650 robust (term), 1:635 SAC Capital, 1:6 independent, 1:641–646 Roche Group, 3:184 SAFE Investment Company, 4:221 reasons for taking, 1:584 Roche Holding AG, 2:105; 5:189 safety-first risk,6: 179 in statistics, 1:391 Rockwell Automation, 1:702–703 safety-first rules,1: 551–553 sample selection bias, 1:606–607, ROC oscillator. see rate of change safety projects, capital budgeting for, 632–633 oscillator 4:49 sample size Rodman and Renshaw, 1:693 safety stock, of inventory, 4:183 and estimates of population mean, ROE. see return on equity Safeway, Inc., 3:241–242 1:601–603 rogue traders, 4:264 Saint-Gobain, 1:425 and sampling distribution, 1:594–595 ROIC. see return on invested capital Saks Incorporated, 1:414 sample skewness, 1:451–452

bind 82 June 17, 2017 4:16 PM Index I-83

sample standard deviation, 1:437–439; non-current liabilities, 3:245–246 seasoned securities, 5:50 4:305 Sarbanes–Oxley Act (2002) SEC. see US Securities and Exchange sample statistic, 1:391, 584–586 auditing standards, 3:27 Commission sample variance, 1:436–437 in history of corporate governance, 4:7 secondary funds, 1:249, 271 calculating, 1:437–439 internal control systems requirements, secondary markets as point estimator, 1:594 3:29 bond, 5:359, 365–367 sampling, 1:583–622 and SEC authority, 3:110 security, 5:53–58 about, 1:584 share prices and control deficiency defined, 5:15 biases, 1:603–609 disclosures, 1:639–641 execution mechanisms, 5:54–57 data-mining bias, 1:603–606 SASB. see Sustainability Accounting market information systems, 5:58 in investment research, 1:608–609 Standards Board and primary markets, 5:50, 53 look-ahead bias, 1:607, 608 SATC curve. see short-run average total trading sessions on, 5:54 sample selection bias, 1:606–607, cost curve secondary offerings,1: 724 632–633 Satyam Computer Services, 1:6 secondary precedence rules, 5:55 survivorship, 1:606, 608 Saudi Arabia secondary research, 1:155–156 survivorship bias, 1:632–633 exchange rate regime, 2:436 secondary sales, of private equity, 6:154 time-period bias, 1:607, 609, 632, 633 exchange rate targeting, 2:294 secondary sources of liquidity, and central limit theorem, 1:590–593 IFRS adoption, 3:116 4:157–158 distribution of sample mean, MSCI multi-market index, 5:96 second-degree price discrimination, 1:590–593 Saudi Arabian Monetary Agency, 3:116 2:103 estimates of population mean, Savage, Sam, 1:559 second lien debt, 5:596 1:593–603 saving, 5:7–8, 12 second-order conditions, for profit confidence intervals,1: 595–600 household, 2:134, 137 maximization, 2:30 point estimators, 1:593–595 marginal propensity to save, 2:139 second-order risk, 4:272n.28 sample size, 1:601–603 and trade balance, 2:444–445 sector ETFs, 4:234 practice problems, 1:612–616 wealth effect on,2: 152 sector indexes, 5:97 simple random, 1:584–586 saving–investment differential, sectors, economic. see economic sectors solutions to problems, 1:617–622 2:141–143 secured bonds, 5:307, 483 stratified random,1: 586–587 saving rate, household, 2:134, 152, 209 secured debt, 5:595, 596 of time-series and cross-sectional data, Say, J. B., 2:213 securities. see also specific types of 1:587–589 say on pay, 4:18–19 securities sampling biases, 1:603–609 Say’s law, 2:213 asset-backed, 5:473–525 data-mining bias, 1:603–606 scale about, 5:473–474 in investment research, 1:608–609 chart, 1:690–691 collateralized debt obligations, look-ahead bias, 1:607, 608 as credit analysis factor, 3:749 5:512–515 sample selection bias, 1:606–607, diseconomies of, 2:44–47 commercial mortgage-backed 632–633 economies of, 2:44–47 securities, 5:503–508 survivorship, 1:606, 608 and profit maximization for firms, creation of, 5:31–32 survivorship bias, 1:632–633 2:43–48 economic benefits of securitization, time-period bias, 1:607, 609, 632, 633 project, 4:62–63 5:474–476 sampling distribution, 1:586, 594 scaling down, 2:44 non-mortgage asset-backed sampling error, 1:585–586 scaling up, 2:44 securities, 5:508–512 sampling plans, 1:585 Scania AB, 3:18 as pooled investments, 5:19 Sampo, 4:423–424 scenario analysis (scenario testing) practice problems, 5:519–522 Sam’s Club, 1:406 forecasts from, 3:388 residential mortgage-backed Samsung Electronics Co. Ltd., 5:209, 306 sufficient, 1:159 securities, 5:490–503 Samurai bonds, 5:313 and VaR, 1:553; 4:273; 6:179 residential mortgage loans, sanctions, 1:38, 43 scenario loss, 4:258 5:485–490 Sandoz, 5:209 schedules securitization process, 5:474–485 San Marino, 2:436 accounts receivable aging, 4:180–181 solutions to problems, 5:523–525 Sanofi, 1:426 amortization, 5:487–488 dealing, 3:275 Sanofi-aventis S.A.,5: 189 call, 5:330 defined, 5:16–17 Santander UK plc, 5:306 demand, 2:71–73 description of, 1:169–170 SAP Group fee, 1:240, 267 in markets, 5:16–19 accounts receivable, 3:225, 226 investment opportunity, 4:82 for security market indexes, 5:82–83 balance sheet components, 3:219–220 marginal cost of capital, 4:102–105 selection of, 4:395–396, 440 common-size analysis, 3:255 short-run cost, 2:80 short positions in, 5:39–41 current assets, 3:223–224 supplementary, 3:24–25 trading, 3:202, 275 current liabilities, 3:231 Schlumberger, 5:219–221 valuation of, 4:82–84 deferred revenue, 3:232–234 Schneider Electric, 1:426 Securities Act (1933), 3:110; 4:236; deferred tax assets, 3:230 Schumpeter, Joseph A., 2:83, 213–214 6:132n.13 deferred tax liabilities, 3:247 Schwab, Charles M., 2:96 Securities and Exchange Board of India, equity, 3:249–250 SCL. see security characteristic line 3:109n.9 financial assets,3: 245 scope paragraph, of audit report, 3:27 Securities and Exchange Commission, goodwill, 3:242 screening, of equity investments, Brazil, 3:105 inventories, 3:227 3:752–756 Securities and Futures Commission, marketable securities, 3:225 SDR. see special drawing right 5:41 market capitalization, 1:426 Sears, Roebuck and Co., 1:414; 3:691 Securities Exchange Act (1934), 1:683; non-current assets, 3:234–235 seasoned offering,5: 50 3:110

bind 83 June 17, 2017 4:16 PM I-84 Index

Securities Industry and Financial sellers settlement date, 5:413 Markets Association (SIFMA), derivatives, 6:7 settlement date accounting, 1:271 5:493 number/size of, 2:93 settlement price, 6:18 Securities Offerings Registration in securitization process, 5:478 settlement risk, 4:262 Statement, 3:110 selling short, 1:480n.2 settlement value, 3:123 securitization, 5:474–485 sell-out rights, 4:16 SFAS. see Statement of Financial for asset-backed securities, 5:299 sell-side firms,4: 225 Accounting Standards defined, 5:473 sell-side participants, FX market, 2:412, shakeout stage (industry life-cycle), economic benefits of,5: 474–476 414–415 5:215 and financial markets,5: 474–476 semiannual bond basis yield, 5:421 Shanghai Stock Exchange, 4:367; 5:151, of mortgages, 6:160–163 semiconductor industry, 5:200–202 152 parties’ roles in, 5:478–480 semideviation, 1:439, 440 Shanghai Stock Exchange Composite special purpose entities, 5:482–485 semilogarithmic scale, 1:458–459 Index (SSE), 5:95 of structured financial instruments, semi-strong-form efficient markets, shaping risk, 5:549 5:349 5:125–128 shareholder(s) structure of, 5:481–482 semivariance, 1:439–440, 440 activist, 6:136 transaction example, 5:476–478 seniority ranking, 5:307, 595–597 board member relationships with, securitization markets, sustainable, senior tranche, 6:34 4:8–9, 12–13 5:476 Sensex Index, 5:83 bondholders vs., 5:610–611 securitized assets, 5:474 sensitivity analysis, 3:388; 5:268–269 conflicts with governments or securitizers, 5:31–32 sentiment indicators, 1:717–720 regulators, 4:13 security (of electronic information), separately managed accounts (SMAs), controlling, 4:9 1:130 4:235 creditor interests vs., 4:13 security analysis, 3:75–76; 4:223 sequential comparisons, 1:486n.6 customer conflicts with,4: 13 Security Analysts Association of Japan, sequential-pay tranches, 5:497–499 equity of, 3:218, 485; 5:174 (see also 1:233 Serbia, 2:287; 3:115; 5:96 equity) security characteristic line (SCL), serial correlation, 5:125n.16 legal protections for, 4:27 4:394–395 serial maturity structures, 5:378 manager/director relationships, security lending agreements, 5:40 series of cash flows 4:11–12 security market indexes, 5:77–114 future value, 1:316–318 minority (non-controlling), 4:9, 12, 16 for alternative investments, 5:101–104 with equal cash flows,1: 317–318 voting rights of, 5:156, 157 construction of, 5:82–91 with unequal cash flows,1: 318 shareholder activism, 4:25–26, 34 defined, 5:78 present value, 1:322–330 shareholder engagement, 4:25 equity indexes, 5:95–97 with equal cash flows,1: 322–327 shareholder rights, 4:34 fixed-income indexes,5: 98–100, 357 infinite series of equal cash flows, shareholder rights plan (poison pill), index values over multiple time 1:327–328 4:26 periods, 5:81–82 at other times than t = 0, 1:328–329 shareholder theory, 4:7 management, 5:91–93 with unequal cash flows,1: 330 share repurchase (buyback), 5:249 origins of, 5:78 service(s) shares. see also earnings per share (EPS) practice problems, 5:106–111 additional, for select clients, 1:116 American depositary, 5:167 representative, 5:103–104 bank sweep, 4:168 blue-chip, 5:121n.7 single-period returns for, 5:79–81 change in CPI for, 2:242 bonus issue of, 5:249 solutions to problems, 5:112–114 consumer spending on, 2:209 cash flow per share,3: 377 uses of, 5:93–95 credit, 5:32 common, 3:188, 248, 297; 5:156–159 security market line (SML), 4:385–388 custodial, 5:36–37 callable, 5:158–159, 171 and expected return, 4:386–387 GDP and value of, 2:123–124 for commodities investing, 6:169 portfolio beta, 4:387–388 government, 2:123 as component of equity, 3:248 and security selection, 4:395–396 level of, 1:114 and corporate governance, 4:31–32 segment debt ratio, 3:386 of similar companies, 5:189–190 defined, 5:156 segment margin, 3:386–387 Service Corporation International, 5:199 and fixed-income securities,5: 298 segment ratios, 3:386–387 service fees, 1:68 at Ford Motor Company, 5:157–158 segment ROA, 3:386–387 service providers, selecting, 1:163–164 and long-term debt, 3:297 segment turnover, 3:386–387 servicers, in securitization process, and preference shares, 5:159–160 seigniorage, 2:439 5:478 preferred vs., 5:17–18 Selected American Shares (SLASX) fund services sub-account, BOP, 2:371 putable, 5:159, 171 geometric and arithmetic mean servicing fee, mortgage pass-through in US GAAP, 3:188 returns, 1:420–422 security, 5:491 at Viacom Corporation, 5:156–157 range and mean absolute deviation, SET. see Stock Exchange of Thailand defined, 5:18 1:432–433 settlement diluted, 3:18 sample variance and sample standard cash, 6:20, 26 dividend per share, 3:377; 5:278–280 deviation, 1:437–439 clearing instructions for, 5:49–50 dual-class structure for, 4:12–13, Sharpe ratio, 1:447, 448 of contracts, 5:20 31–32 selective disclosure, 1:92, 114, 116 of corporate notes and bonds, 5:380 dual listing of, 5:164–165 self-dealing, 1:135 daily, 6:18, 19 global registered, 5:168 self-insurance, 4:277 defined, 6:11 multiple-class structure for, 4:12–13 self-investment limits, 4:425–426 by financial intermediaries,5: 36–37 no par, 3:248 self-regulation of GIPS standards, 1:232 physical, 5:20 ordinary, 3:188 self-regulatory organizations (SROs), in secondary bond markets, 5:366 preference (preferred), 5:159–161 3:109; 5:62 T + 1, 5:366 callable, 5:160, 171, 254

bind 84 June 17, 2017 4:16 PM Index I-85

common vs., 5:17–18 short-run marginal cost (SMC), 2:30, similar companies, 5:189–191 convertible, 5:161 36–37 simple capital structures, 3:188 cost of, 4:87–88 short-run total cost (STC) curve, simple interest, 1:308 cumulative, 5:160, 171 2:43–44 simple random sample, 1:585 diluted EPS for company with, short selling simple random sampling, 1:584–586 3:190–192 clearing instructions for, 5:50 simple yield, 5:423 fixed rate perpetual,4: 87 defined, 1:480n.2; 4:384n.4 simulated results, 1:127–128 non-callable, non-convertible and limits to arbitrage, 6:70 simulations, 3:388 perpetual, 5:254–255 restrictions on, 5:123 back, 1:564–565 non-cumulative, 5:160 using puts vs., 6:93 historical, 1:564–565 non-participating, 5:160 short-term borrowing, 4:167 Monte Carlo, 1:559–565 in owners’ equity, 3:248 short-term cash flows,4: 165–166 of capital expenditures, 1:591–592 participating, 5:160 cash forecasting systems, 4:166 historical simulation vs., 1:564–565 retractable term, 5:255–256 identifying typical cash flows,4: 165–166 number of trials for, 1:561 risk of, 5:171 minimum cash balances, 4:165 potential gains from market timing, valuation of, 5:254–256 short-term financing,4: 189–194 1:562–564 small-cap, 5:121, 133 asset-based loans, 4:192 process, 1:560–561 treasury, 3:248 borrowing approaches, 4:191–192 random observations in, 1:561–562 value of, for three-year investment costs of borrowing for, 4:193–194 for risk assessment, 3:748 horizon, 5:252 sources of, 4:189–191 simulation trials, 1:560 Shari’a, 4:426 short-term funding for banks, 5:384–390 simultaneous dissemination, 1:113 Sharpe, William, 1:430–431, 445; 4:216, repurchase and reverse repurchase since inception (term), 1:271 383 agreements, 5:386–389 since inception distributions, 1:251 Sharpe ratios, 1:445–448 retail deposits, 5:385 since inception internal rates of return calculating, 1:588–589 wholesale funds, 5:385–386 (SI-IRR) confidence interval for population short-term funds management, defined, 1:271 mean, 1:597–598, 600 4:167–174 gross-of-fees, 1:247, 251 and downside risks, 6:130–132 evaluating, 4:174 net-of-fees, 1:247, 251 evaluating new assets with, 4:335 investment instruments, 4:168–171 Private Equity (GIPS Section I.7), formula for, 1:445–447 strategies for, 4:171–174 1:249, 251 and portfolio performance, 4:390 short-term investment portfolio reports, Real Estate (GIPS Section I.6), 1:247 as risk–return measure, 6:178 4:174 since inception paid-in capital, 1:251 shelf registration, 5:52, 362 short-term investments, 4:168–171 Singapore Shell. see Royal Dutch Shell PLC examples, 4:168–169 Asian financial crisis,2: 343 shifting interest mechanism, 5:503 investment risks, 4:170–171 cumulative voting rules, 4:16 Shiller, Robert J., 1:681 managing cash positions with, 4:167 discipline for financial reporting shipping, financial reporting quality and, yields of, 4:169–170 quality, 3:686 3:696 short-term trading index (TRIN), effects of global recession,2: 165, 166 shoe leather costs, 2:282 1:720–722 exchange rate regime, 2:437 short (term), 6:7 should (term), 1:271 external trade sector, 2:211 short bias strategies, for hedge funds, shutdown analysis, 2:28–43 GIPS country sponsor, 1:233 6:138 breakeven analysis, 2:38–41 IFRS adoption, 3:116 shortfall risk, 1:551–553; 6:179 economic vs. accounting cost, 2:28 mean and standard deviation of stock short hedge fund strategies, 4:236 interaction of costs and output, returns, 1:444, 445 short interest, 1:719–720 2:31–35 in MSCI EAFE, 1:408 short positions, 5:39–41; 6:41, 47 marginal revenue, marginal cost, and MSCI multi-market index, 5:96 short rebate rates, 5:40 profit maximization,2: 29–30 sovereign ratings, 5:368 short-run aggregate supply, 2:157–158 profit maximization, breakeven, and Singapore dollar, 2:401 business taxes and subsidies, 2:158 shutdown points, 2:36–37 Singapore interbank offered rate (Sibor), defined, 2:148–149 revenue under perfect vs. imperfect 5:301, 353 exchange rate, 2:158 competition, 2:35–36 Singapore Stock Exchange, 5:29, 167 expectations about future prices, 2:158 shutdown decision, 2:39–40 Singha Co., 2:88 input prices, 2:158 shutdown point, 2:36–37, 40 single cash flow nominal wages, 2:157 SI. see sustainable investing future value, 1:308–316 short-run aggregate supply (SRAS) Sibor. see Singapore interbank offered rate with continuous compounding, curve, 2:148–149, 157–158 SIC system. see Standard Industrial 1:314–315 short-run average total cost (SATC) Classification system frequency of compounding, curve, 2:44, 45 Siegel, Jeremy, 4:90n.18 1:312–314 short-run cost curves Siemens, 1:426 with interim cash reinvested at same average total cost curve, 2:44, 45 SIFMA. see Securities Industry and rate, 1:309–310 profit maximization for firms on, Financial Markets Association for lump sum, 1:311–312 2:43–44 signal line, MACD oscillator, 1:716 stated and effective rates for, time frame for, 2:43 significant cash flows 1:315–316 total cost curve, 2:43–44 Composite Construction (GIPS without interim cash, 1:310 short-run cost schedule, in perfect Section I.3), 1:239 present value, 1:319–322 competition, 2:80 defined, 1:271 finding, 1:319–321 short-run demand, elasticity of, 2:12 Disclosure (GIPS Section I.4), 1:242 frequency of compounding, 1:321–322 short-run equilibrium, in perfect SI-IRR. see since inception internal rates for future lump sum, 1:319–321 competition, 2:81 of return for lump sum, 1:319–321

bind 85 June 17, 2017 4:16 PM I-86 Index

single-factor models of beta, limitations SMM rate. see single monthly mortality sovereign bonds, 5:370 of, 4:400 rate turnover, 3:151n.4 single-index models for beta, 4:378. see smoothing techniques, for beta, 4:95 South African rand, 2:401 also capital asset pricing model social influences South America, 3:685–686; 5:475. see (CAPM) in industry analysis, 5:203, 226–227 also specific countries calculation and interpretation of beta and industry life-cycle, 5:217 Southeast Asia, 2:368–369. see also with, 4:379–380 in strategic analysis, 5:220 specific countries decomposition of total risk for, 4:378 social infrastructure assets, 6:174 Southern Cone Common Market defined, 4:377 socially responsible investing (SRI), 4:37, (MERCOSUR), 2:362 single mean hypothesis tests, 1:634–641 426–427 South Korea and effect of disclosures on share Socially Responsible Investment (SRI) Asian financial crisis,2: 343 prices, 1:639–641 Composite, 1:294–295 business investment, 2:177 and payments of receivables, social media coefficient of variation,1: 444 1:637–638 disclosure of confidential information disinflation, 2:227 and risk/returns of mutual funds, on, 1:132–133 domestic and international debt 1:636–637 and duties to employer, 1:136 securities, 5:315 single monthly mortality (SMM) rate, limited disclosures on, 1:117 effects of global recession,2: 166 5:492–494 and material nonpublic information, exchange rate regime, 2:437, 441 single-period models of beta, limitations 1:87 foreign bonds, 5:313 of, 4:400 misrepresentation on, 1:73 as GIPS country sponsor, 1:233 single-period returns, for security retention of information on, 1:175 government spending, 2:129 market indexes, 5:79–81 and stakeholder relationships, 4:27 IFRS adoption, 3:116 single price auctions, 5:54 social policies, taxes and, 2:313 inflation-linked bonds,5: 326 single-step format, for income Société Française des Analystes inflation targeting,2: 287, 289 statements, 3:154 Financiers, 1:232 international investment, 5:164 single variance hypothesis tests, Société Générale, 1:425 labor productivity, 2:181 1:650–652 society, benefit of ethics to,1: 40 MSCI multi-market index, 5:96 sinking fund arrangements, 5:321–323, soft commissions, 1:104 national debt, 2:309 378–379 “soft” costs, 6:166 natural resources, 2:178 situational influences,1: 12–13, 21–22 soft dollars, 1:104 residential mortgage loans, 5:486, 487 SIX Swiss Stock Exchange, 3:108, 115 soft hurdle rate, 6:139 risk tolerance and equity ownership, size effect,5: 133 software, GIPS-compliant, 1:224 5:154–155 skewness, 1:448–454 software development costs, 3:480, securities backed by quasi-government of binomial distribution of discrete 489–492 entities, 5:490 random variables, 1:535 solicitation, of former clients, underground economy, 2:124 defined, 1:451 1:137–142 South Korean won, 2:401 as investment characteristic, Solow, Robert, 2:175 sovereign bonds, 5:367–371 4:312–313 solvency credit quality, 5:368–369 of mutual funds, 1:452–454 defined, 3:8, 252, 360, 643 legal issuers, 5:305–306 of normal distribution, 1:546 of non-current liabilities, 3:643–647 names of, 5:367–368 sample, 1:451–452 solvency ratios, 3:360–364 sources of repayment, 5:306 skewed distributions, 1:448–451 calculation, 3:361–362 types, 5:369–370 of S&P 500, 1:452 in company analysis, 5:231 sovereign debt, 5:645–650 Skilling, Jeffery K.,1: 13 defined, 3:260, 348, 361–362, 644 flexibility and performance profile, SLASX fund. see Selected American evaluation, 3:363–364, 645–647 5:647–648 Shares fund interpretation, 3:362–364 political and economic profile,5: 647 Slovak Republic, 2:362n.18, 436 leverage/coverage ratios, 3:644–647 in Portugal, 5:649–650 Slovenia, 2:362n.18, 436; 5:96 as risk metrics, 4:274 sovereign debt defaults, 5:645–646 Small, Medium, and Micro Enterprises solvency risk, 4:265, 267 sovereign governments, 5:299, 475 (SMME), 3:580 Sony Corporation, 3:613–615, 717 sovereignty, regional trade agreements small-capitalization stocks, beta Sony Electronics, 5:209, 315, 316 and, 2:365 adjustments for, 4:95 Sortino ratios, 6:130–132, 179 sovereign wealth funds (SWFs), 2:414; small-cap shares, 5:121, 133 Sotheby’s, 5:199 4:221; 5:358 small country (term), 2:356 source country, FDI, 2:341 sovereign yield spread, 4:101 small-denomination negotiable CDs, South Africa SOX. see Sarbanes–Oxley Act (2002) 5:386 commodities and economy of, 1:730 S&P. see Standard & Poor’s Corporation SMA portfolios. see Wrap Fee/SMA equity risk premiums, 4:91 S&P 500 Index Portfolios (GIPS Section I.8) exchange rate regime, 2:437 Arms index, 1:720–721 SMAs. see separately managed executive remuneration plans, 4:18 as benchmark, 4:421 accounts exports, 2:337 CBOE Volatility Index, 1:718 SMC. see short-run marginal cost GIPS sponsor, 1:233 Chebyshev’s inequality for, 1:442–443 Smith, Adam, 2:354 IFRS adoption, 3:117 common-size analysis of, 3:198–199, Smith, Clifford W.,4: 175n.5 inflation-linked bonds,5: 326 256–257 Smith, Donald J., 5:541n.3, 560n.6 inflation targeting,2: 287 co-movement patterns, 4:213–215 Smith & Nephew, 5:209, 213 in MSCI multi-market index, 5:96 consensus current P/E, 1:412, 413 Smithsonian Agreements, 2:435 returns correlations of stocks, 4:332, 380 SML. see security market line on bonds and bills, 5:152–153 cumulative relative frequency and SMME. see Small, Medium, and Micro on equities, 5:152–153 relative frequency of, 1:404–405 Enterprises real equity returns, 1:401 and data mining, 1:605

bind 86 June 17, 2017 4:16 PM Index I-87

distribution of annual returns, 1:464 SPDR Gold Shares ETF, 6:169 S&P/MSCI Global Industrial diversification with stocks, SPDRs. see Standard & Poor’s Classification System. see Global 4:396–397 Depositary Receipts Industry Classification Standard earnings, 2:400 SPDR S&P 500 (GICS) equity market returns, 1:439 Sharpe ratio, 1:446 sponsored depository receipts, 5:166 expected value from, 1:418 Vanguard Total World Stock Index sponsors, GIPS, 1:232–233 frequency distribution for holding ETF vs., 1:649–650 spot assets, pricing, 6:66 period returns, 1:394–400 SPDR© S&P Energy Sector Exchange- spot commodities markets, 5:25, 26 frequency polygon, 1:403–404 Traded Fund, 5:103 spot contracts, 5:20 histogram, 1:402–403, 406 Spearman rank correlation coefficient, spot currency transactions, 5:20 implied volatility and, 6:41 1:657–660 spot curve, 5:434–435 as indicator, 1:584 special dividend (extra dividend), spot exchange rates, 2:410–412, intermarket analysis, 1:728–730 5:248–249 428–430; 5:20 as leading indicator, 2:240, 242 special drawing right (SDR), spot markets, 5:10, 15; 6:5 margin debt vs., 1:719 2:387n.29 spot prices, 6:5 as market index, 4:366 specialization, international trade and, for commodities, 6:171, 173 as market proxy, 4:367–369 2:343 and futures price, 6:40–41 mean returns on, 1:642–644 Specialized Consumer Services sub- spot rates, 5:411–413 modal interval, 1:414 industry, 5:199 spot transactions, in FX market, number of securities in, 5:82 special purpose companies (SPCs), 2:407 portfolio expected return and variance 5:306, 477 spread(s) of return, 1:498, 499, 502, 503 special purpose entities (SPEs) benchmark, 5:442 private equity returns vs., 6:155 and bankruptcy, 5:483–485 and benchmark yield, 5:574–575 as proxy for market portfolio, 5:94 defined, 5:31, 306, 477 bid–ask, 4:314; 5:44, 365–366 range, 1:431 obligations of, 5:306 bid–offer, 5:365–366 relative strength analysis, 1:692, 693 as party to securitization, 5:478 credit, 5:419, 482–483, 607 reported returns, 4:293 role of, 5:482–485 excess, 5:309, 509 return and risk of two-asset portfolio, as securitizers, 5:31–32 G-, 5:442, 445 4:306–307 special purpose vehicles (SPVs) interpolated, 5:443 returns for Enron vs., 4:208–209 as financial intermediaries,5: 31–32 option-adjusted, 4:86n.10, 88n.13; securities selection for, 5:83 legal obligation of, 5:306 5:445, 631 skewness and kurtosis, 1:452 in securitization transaction, 5:477 TED, 6:24 and SPDR S&P 500, 1:446, 648–649 special situations strategies, for hedge yield, 5:441–445 tail risk with, 4:263 funds, 6:136 and benchmark rates, 5:441–443 volatility of, 6:89 specific identification method of and benchmark yield curve, weighted averages on, 1:418 inventory valuation, 3:174, 228, 5:443–445 Spain 407–410 and credit risk/return, 5:630–637 bonds Spectrem Group, 6:127 required, 5:418 bonds outstanding, 5:354, 360 speculation, 2:407; 6:21, 42–43 sovereign, 4:101 foreign, 5:313 speculative demand for money, 2:271 zero-volatility, 5:443, 445 sovereign, 5:368, 369 speculative money balances, 2:271 spread over the benchmark, 5:418 business investment, 2:177 speculators spread risk, 5:593 cumulative voting rules, 4:16 in commodities market, 6:167 spreadsheet modeling, 5:232 disinflation, 2:227 in energy markets, 6:43n.20 springs, 1:704 domestic and international debt in exchange-traded derivatives market, Sprint, 5:217 securities, 5:315 6:10–11 S&P/TSX Capped Income Trust Index, equity risk premiums, 4:91 forward contracts for, 6:17 5:225 EU membership, 2:362n.18 gambling by, 6:43 S&P/TSX Composite Total Return exchange rate regime, 2:436 spending Index, 1:415–416 GIPS sponsor, 1:233 business, 2:153, 202 SPVs. see special purpose vehicles gold standard for, 2:434n.11 capital, 2:205–207, 314 SRAS curve. see short-run aggregate government spending, 2:130 consumer, 2:153, 202, 208–210 supply curve Greek fiscal crisis 2010,2: 365, 366 consumption, 2:138–139 SRATC. see short-run average total cost inflation targeting,2: 287 government, 2:129–130 curve labor productivity, 2:181 and aggregate demand, 2:137–138, SRI. see socially responsible investing MSCI multi-market index, 5:96 155 SRI Composite. see Socially Responsible residential mortgage loans, 5:486, 487 current, 2:311 Investment Composite returns and fiscal policy,2: 153 Sri Lanka, 1:233; 5:96 on bonds, bills, and equities, 5:153 and taxes, 2:314–315 SROs. see self-regulatory organizations real equity returns, 1:401 investment, 2:139–140, 146–147 SSE. see Shanghai Stock Exchange total returns, 1:408, 411 public sector, 2:263 Composite Index underground economy, 2:124 SPEs. see special purpose entities stable industries, 5:190, 191 wealth effect,2: 152 S&P Global REIT Index, 6:165 stacked column graphs, 3:346 Spartan 500 Index fund, 4:389–390 S&P GSCI (Goldman Sachs Commodity Stackelberg model, 2:94 S&P/ASX 200 Index, 1:444 Index), 5:101; 6:170 stagflation SPC. see Standards of Practice Council spillover effect, of education,2: 176 and aggregate supply, 2:169–170 SPCs. see special purpose companies S&P infrastructure index, 6:175 defined, 2:226 S&P Developed Ex-US BMI Energy spin-offs, 3:510–511 and inflation expectations,2: 236 Sector Index, 5:103 split coupon bonds, 5:325 staggered boards, 4:21–22, 26

bind 87 June 17, 2017 4:16 PM I-88 Index

stakeholder(s), 4:8–14 population, 1:434–436 adoption of, 1:38 defined, 1:6 for portfolio of two assets, 4:325 and applicable law, 1:50–53 impact of ethical practices on, 1:6–9 risk budgeting with, 4:258 conflicts of interest [Standard VI], stakeholder groups, 4:8–11 of risk-free asset, 4:368 1:177–192 board of directors, 4:9–10 as risk metric, 4:271–272 disclosure of conflicts [Standard creditors, 4:9 sample, 1:437–439 VI(A)], 1:46, 177–184 customers, 4:10 of standard normal distribution, 1:546 priority of transactions [Standard employees, 4:9 and variance of returns, 4:305 VI(B)], 1:46–47, 185–190 governments, 4:10 and volatility, 6:89 referral fees [Standard VI(C)], 1:47, managers, 4:9 standard error 190–192 regulators, 4:10 in confidence interval construction, text of, 1:46–47 shareholders, 4:8–9 1:596 duties to clients [Standard III], suppliers, 4:10 of the sample mean, 1:590–591, 601 1:101–133 stakeholder management, 4:5–36, 14–20 of test statistic, 1:628 fair dealing [Standard III(B)], 1:45, about, 4:14 Standard Industrial Classification (SIC) 110–118; 5:51 analyst considerations, 4:31–36 system, 5:197 loyalty, prudence, and care [Standard board of directors representation, standardization III(A)], 1:45, 101–109 4:32 of exchange-traded derivatives, 6:11 performance presentation [Standard composition of investors, 4:33–34 of futures contracts, 6:17–18 III(D)], 1:45, 125–129 economic ownership and voting of random variables, 1:548–549 preservation of confidentiality control, 4:31–32 standardized yield measures, 5:420 [Standard III(E)], 1:45, 129–133 long-term risk management, 4:35 standard normal distribution, 1:546, suitability [Standard III(C)], 1:45, remuneration and company 742–743 118–125 performance, 4:32–33 standard normal variables, probability text of, 1:45 shareholders’ rights, 4:34 of, 1:549 duties to employers [Standard IV], defined, 4:14 Standard & Poor’s Corporation (S&P), 1:133–154 mechanisms, 4:15–20 4:274 additional compensation audit function, 4:17 commercial paper ratings, 5:375 arrangements [Standard IV(B)], board of directors, 4:17 company classifications,5: 192, 1:46, 144–145 contractual agreements with 201–202 loyalty [Standard IV(A)], 1:45–46, creditors, 4:19 coverage ratios for capitalized interest, 133–143 contractual agreements with 3:488 responsibilities of supervisors customers/suppliers, 4:20 credit ratings [Standard IV(C)], 1:36, 46, 146–154 employee laws/contracts, 4:19–20 in Greek financial crisis,2: 365 text of, 1:45–46 general meetings, 4:15–16 investment-grade, 5:99, 299n.2, 350 evolution of, 1:34 laws and regulations, 4:20 ordinal scales for, 1:392 integrity of capital markets [Standard related-party transaction policies, process for generating, 3:383 II], 1:84–101 4:18 transition rates of, 5:606–607 market manipulation [Standard remuneration policies, 4:18 types of, 1:393n.3 II(B)], 1:45, 96–101 reporting and transparency, 4:17 for United Rentals, Inc., 5:604–605 material nonpublic information say on pay, 4:18–19 default rates by credit category, [Standard II(A)], 1:44–45, 84–95 risks and benefits,4: 28–31 5:605–606, 635–636 text of, 1:44–45 benefits of effective governance, funds from operations, 5:615 investment analysis, recommendations, 4:29–31 industrial comparative ratio analysis, and actions [Standard V], risks of poor governance, 4:28–29 5:617 1:154–176 stakeholder relationships, 4:11–14, long-term ratings matrix, 5:602–603 communication with clients and 25–28 municipal debt ratings, 5:651 prospective clients [Standard V(B)], controlling shareholder–minority notching guidelines, 5:604–605 1:36, 46, 165–174 shareholder relationships, 4:12–13 role in credit markets, 5:601, 602 diligence and reasonable basis factors affecting,4: 25–28 sovereign credit analysis, 5:646–648 [Standard V(A)], 1:42, 46, 154–165; market factors, 4:25–26 sovereign ratings, 5:368 5:49 non-market factors, 4:27–28 Standard & Poor’s Depositary Receipts record retention [Standard V(C)], manager–board relationships, 4:13 (SPDRs), 5:68, 74 1:46, 174–176 principal–agent relationship, 4:11 Standards Advice Review Group, 3:113 text of, 1:46 shareholder–manager/director Standards and Financial Marketing notification of,1: 142 relationships, 4:11–12 Integrity Division, 3:135 practice problems, 1:205–214 shareholder vs. creditor interests, 4:13 standards of conduct (term), 1:8 and principle-based standards, 1:10 various conflicts,4: 13 Standards of Practice Council (SPC), and Professional Conduct Program, stakeholder theory, 4:7 1:38–39, 43 1:37–38 stand-alone mortgage loans, 6:160–161 Standards of Practice Handbook, 1:3, professionalism [Standard I], 1:49–84 standard costs, 3:227 33–37, 39, 42 independence and objectivity standard deviation. see also variance on communicating recommendations, [Standard I(B)], 1:44, 58–70 and coefficient of variation,1: 443–444 3:34 knowledge of the law [Standard I(A)], and correlation, 4:325 eleventh edition, 1:35–37, 39 1:44, 49–57 defined, 1:272, 433 revisions to, 1:34 misconduct [Standard I(D)], 1:44, of expected total return, 5:170 Standards of Professional Conduct, 81–84 expected value of, 1:491–492 1:8, 33–47, 49–222. see also Asset misrepresentation [Standard I(C)], of investment classes, 6:126 Manager Code of Professional 1:44, 71–81 of normal distribution, 1:545, 547–548 Conduct (AMC) text of, 1:44

bind 88 June 17, 2017 4:16 PM Index I-89

responsibilities as a CFA Institute statements of financial position,3: 12, statutory voting, 5:156 member or CFA candidate 218. see also balance sheets Staunton, Mike, 4:90 [Standard VII], 1:193–204 State Street, 5:209 STC curve. see short-run total cost curve conduct as participants in CFA Statistical Classification of Economic Steiner, Fabian, 4:106 Institute programs [Standard Activities in the European step-up coupon bonds, 5:324 VII(A)], 1:36–37, 47, 193–197 Community (NACE), 5:196 Sterling exchange rate, 2:418 reference to CFA Institute, statistical discrepancies, in GDP, 2:132 Sterling–yen exchange rate, 2:419 designation and Program [Standard statistical factor models, 4:377 STMicroelectronics, 5:210 VII(B)], 1:47, 198–204 statistical inference, 1:391, 593, 624 stochastic oscillator, 1:714–716 text of, 1:47 statistical significance,1: 630 stock(s). see also equity securities solutions to problems, 1:215–222 statistical similarities, of similar (equities); shares and Standards of Practice Council, companies, 5:191 arbitrage with, 6:47–49, 67, 68 1:38–39 statistics, 1:389–473. see also test capital, 2:176–177 in Standards of Practice Handbook, statistic correlation of T-bills/bonds with, 1:3, 33–37 about, 1:390 4:333 text of, 1:44–47 defined, 1:391, 584 defined, 4:307 and values of CFA Institute, 1:43 dispersion, 1:430–448 downside frequencies, 6:131 standing limit orders, 5:45–46 absolute, 1:430 employee stock options, 4:208–210, Stanford Financial Group, 1:6 Chebyshev’s inequality, 1:441–443 334, 427 Stanford University, 4:218 coefficient of variation,1: 443–445 growth, 5:97 Stanley Gibbons, 6:175 mean absolute deviation, 1:431–433 historical returns, 6:126 Stanley Security Solutions, 5:199, 200 population variance and standard historical risk and correlation, 4:333 The Stanley Works,5: 199, 200 deviation, 1:433–436 nominal returns, 4:307–310 stated annual interest rate, 1:312 range, 1:431–433 ownership of, 1:179–181 stated rates, for single cash flow, sample variance and standard performance of, 6:134–135 1:315–316 deviation, 1:436–439 real returns, 4:309–310 “Statement in Support of Convergence semivariance and semideviation, returns on commodities vs., 6:170 and Global Accounting Standards” 1:439–440 returns on hedge funds vs., 6:139 (SEC), 3:115 Sharpe ratio, 1:445–448 risk and return, 4:307–308 statement of cash flows. see cash flow frequency distributions, 1:393–401 Sharpe and Sortino ratios, 6:131 statements construction of, 1:394–396, 400–401 skewness of stock returns, 4:312–313 Statement of Cash Flows (ASC 230), cumulative, 1:403–405 small-capitalization, 4:95 3:529n.32 defined, 1:393 subdivisions and combinations of, Statement of Cash Flows (IAS 7), and holding period formula, 1:394 5:157 3:529n.32, 709 and relative frequency, 1:396–400 treasury stock method for diluted EPS, statement of changes in equity graphic presentations of data, 3:193–195 of Apple Inc., 3:251–252 1:401–405 value, 5:97, 133 and balance sheet, 3:250–252 frequency polygons and cumulative volatility of, 6:126 defined, 3:12 frequency distributions, stock analysts, 5:6 in financial statement analysis,3: 20, 1:403–405 stock dividend (bonus issue of shares), 21 histograms, 1:402–403 5:249 statement of comprehensive income, kurtosis, 1:454–458 Stock Exchange of Thailand (SET), 3:12, 16–20 measurement scales, 1:392–393 1:478 Statement of Duties and Responsibilities, identifying, 1:393 stock funds, 4:229 IPS, 4:415 types of scales, 1:392 stock mutual funds, 4:232 Statement of Financial Accounting measures of central tendency, stock options, 3:195; 6:36n.15 Standards (SFAS) 1:406–424 stock-out costs, 4:184 Accounting for Income Taxes (SFAS arithmetic mean, 1:406–410 stock-out losses, 4:182 109), 3:566 geometric mean, 1:418–422 stock price(s) Accounting for Leases (SFAS 13), harmonic mean, 1:422–423 and aggregate demand, 2:155 4:87n.11 median, 1:411–413 as Bernoulli random variable, Accounting for the Costs of Computer mode, 1:413–415 1:532–533 Software to be Sold, Leased, or weighted mean, 1:415–418 binomial model, 1:540–541 Otherwise Marketed (SFAS 86), nature of, 1:391 and control deficiency disclosures, 3:489 populations and samples, 1:391–392 1:639–641 Employers’ Accounting for Defined practice problems, 1:463–469 lognormal distribution for, 1:555–556 Benefit Pension and Other quantiles, 1:423–430 and net present value, 4:67–68 Postretirement Plans (SFAS 158), calculating, 1:425–427 stock screens, 1:486–487 3:737 in investment practice, 1:427–430 stock splits, 5:83, 85, 157, 249 statement of operations, 3:17, 586–587. types of, 1:423–427 stop-buy orders, 5:48, 49 see also income statement sample, 1:391, 584–586 stop-loss orders, 5:48–49 statement of owners’ equity, 3:70 sampling distribution of, 1:586 stop orders, 5:48–49 Statement of Purpose, IPS, 4:415 solutions to problems, 1:470–473 storage statement of retained earnings, 3:50–51, symmetry, 1:448–454 in derivatives pricing, 6:46–47 70 using geometric and arithmetic means, and holding of assets, 6:65 statements of account information, 1:458–459 theory of, 6:173 1:105 Statistics Canada, 2:121, 132, 133 Stowe, John, 4:84n.5, 84n.7 statements of financial condition,3: 218. Statistics New Zealand, 5:196 Straight from the Gut (Welsh), see also balance sheets status, client, 1:130 3:717–718

bind 89 June 17, 2017 4:16 PM I-90 Index

straight-line depreciation method Fundamentals of Compliance (GIPS sum of value added method, for GDP, and balance sheet, 3:702–705 Section I.0), 1:236 2:121–122, 132 bond premium/discount amortisation, selecting, 1:157, 164 Sunbeam, 3:344–345, 677, 684, 716 3:609 Subaru, 2:86 sunk costs, 2:28; 4:51 calculation, 3:494 subdivisions, of stock, 5:157 superannuation funds, 5:546 defined, 3:493 sub-indexes, price, 2:231 supervision depreciation/amortisation, 3:177–178 subjective probability, 1:478 detection as part of, 1:147–148 double-declining and units-of- submanagers, 1:124, 160–161 inadequate, 1:152–153 production methods vs., 3:494–498 subminuette, Elliott wave, 1:726 of research activities, 1:150–151, straight voting, 4:12 subordinated debt, 5:596–597 153–154 Straits Times Index, 1:444 subordination, 5:308–309, 481, 503 system for, 1:147 stranded assets, 4:39 subprime loans, 5:486 of trading activities, 1:151 strategic analysis, 4:248 Subrahmanyam, Marti G., 1:644–645 supervisors. see Responsibilities of strategic asset allocation (SAA), Sub-Saharan Africa, 2:340, 364 Supervisors [Standard IV(C)] 4:431–439 subscription accounting, 3:185–186 supervisory board, 4:10 for European charity, 4:441–443 subsidiaries supplemental information, 1:272 objective of, 4:434–435 captive finance,4: 175 supplementary information, for financial for private investor, 4:438–439 high-yield credit analysis for, statement analysis, 3:11–12 specifying asset classes for, 4:431–433 5:642–643 supplementary prospectus, 5:478n.3 strategic default, 5:488 of income statements, 3:17 supplementary schedules, 3:24–25 strategic groups, analysis of, 5:202–203 of Nestlé, 5:159 suppliers strategic industry analysis, 5:204–222 restricted vs. unrestricted, 5:644 cash to, 3:292–293 barriers to entry in, 5:206–208 temporary differences on financial contractual agreements with, 4:20 example, 5:219–222 statements for, 3:581 customer conflicts with,4: 13 five forces framework,5: 205–206 subsidies power of, 5:205, 612 industry capacity in, 5:211–212 export, 2:356, 359–361 as stakeholders, 4:10 industry concentration in, 5:208–211 in monopolies, 2:104 supply. see also demand and supply industry life-cycle model in, and short-run aggregate supply, 2:158, analysis 5:213–218 160 aggregate example, 5:217–218 substitutes and AS curve, 2:148–150 limitations of, 5:217 and cross-price elasticity of demand, defined, 2:136 stages of industry life cycle, 2:15, 16 and global recession, 2:165–167 5:213–216 in industry structure, 5:612 and imports/exports, 2:338–339 using, 5:216–217 in perfect competition, 2:71, 73 investment strategies for shifts in, market share stability in, 5:212–213 in strategic analysis, 5:205 2:169–170 price competition in, 5:218–219 substitution, import, 2:352n.10 long-run, 2:148–150, 159–161 stratified random sampling,1: 586–587 substitution bias, 2:228 in perfectly competitive market, 2:81 Stratton Small-Cap Value Fund, 1:435 substitution effects in real business models, 2:218–219 stratum, 1:586 on elasticity of demand, 2:12 shifts in, 2:150–151, 157–162 Strauss-Kahn, Dominique, 2:386 on Giffen and Veblen goods,2: 21 shifts in demand and, 2:170–173 street conversion, 5:422 and law of demand, 2:18–19 short-run, 2:148–149, 157–158 stress testing, 1:553; 4:273; 6:179 on normal and inferior goods, 2:19–23 and stagflation,2: 169–170 stretching payables, 4:187 in perfectly competitive markets, 2:69 of commodities, 6:171 strike price. see exercise price with price decrease, 2:20–23 in company analysis, 5:230 strip curve, 5:434 substitution risk, 5:612 elasticity of, 2:8 strong-form efficient markets,5: 128 suitability, 1:124–125 excess, 2:339 structural budget deficit,2: 317 for entire portfolio, 1:122–123 for fixed- vs. floating-rate debt,5: 352 structural subordination, 5:604 for investor risk profile,1: 122, 124 money, 2:154 structured finance CDOs,5: 513 Suitability [Standard III(C)], 1:118–125 changes in, 2:272–274 structured finance sector,5: 349 application of the standard, 1:122–125 and interest rates, 2:275 structured financial instruments, compliance procedures, 1:121–122 M2, 2:242, 243 5:381–384 investment policy statements, 1:121 real, 2:144–146 capital protected instruments, 5:382 regular updates, 1:122 in monopolies, 2:99–100 leveraged instruments, 5:383 suitability test policies, 1:122 in monopolistic competition, 2:85 participation instruments, 5:382–383 guidance, 1:118–121 in oligopolies, 2:94–95 yield enhancement instruments, 5:382 addressing unsolicited trading in perfect competition, 2:76–77 structured interest-only tranches, requests, 1:120–121 and spread on corporate bonds, 5:631 5:497n.11 developing investment policies, supply chains, global, 2:343 structured products, 5:381–382 1:119 supply curves structuring process, 5:496–497 managing to indexes or mandates, aggregate, 2:148–150, 157–162, Strum Ruger & Co., Inc., 3:422–424 1:121 171–172 Stryker, 5:213 need for diversification,1: 120 in monopolistic competition, 2:85 Student’s t-distribution. see understanding client’s risk profile, supply shock to inflation rate,2: 297 t-distribution 1:119 support, 1:695 style indexes, 5:97 updating investment policies, 1:120 support tranches, 5:499–501 sub-advisors text of, 1:45, 118 supranational bonds, 5:372–373 defined, 1:272 suitability test policies, 1:122 supranational organizations, 5:299, Disclosure (GIPS Section I.4), 1:241, summaries, attributing, 1:75 601n.10 242 Summer Olympics (1980), 4:279n.36 surety bonds, 4:279; 5:309

bind 90 June 17, 2017 4:16 PM Index I-91

surpluses disinflation, 2:227 in Jensen’s alpha, 4:391 budget, 2:304 equity risk premiums, 4:91 proxies, 5:94 consumer exchange rate regime, 2:437 for single-index model of beta, 4:379 and alternative trade policies, 2:357, GIPS sponsor, 1:233 and strategic asset allocation, 4:430 360 government spending, 2:130 in Treynor ratio, 4:390 in monopoly, 2:102–104 inflation-linked bonds,5: 326, 327 systematic sampling, 1:585 in perfect competition, 2:74–76 inflation targeting,2: 287, 289 systemic risk, 5:334; 6:32, 43–44 and tariffs,2: 357 labor productivity, 2:181 in current account, 2:377, 379–381 MSCI multi-market index, 5:96 T of money, 2:235–236 returns T. Rowe Price Corporate Income Fund, producer, 2:357, 360 on bonds and bills, 5:152–153 4:231–232 trade, 2:338 on equities, 5:152–153 T. Rowe Price Equity Income fund survey approach, for cost of equity, 4:92 real equity returns, 1:401 geometric and arithmetic mean Survey of Current Businesses (US total returns, 1:408, 412 returns, 1:420–422 Department of Commerce), 2:121 risk tolerance and equity ownership, kurtosis, 1:456–458 survivorship bias 5:154–155 range and mean absolute deviation, for alternative investments, 6:125n.3 sovereign bonds, 5:369, 370 1:432–433 and back-testing, 3:754 underground economy, 2:124 sample variance and sample standard and GIPS standards, 1:224 Swedish Financial Supervisory deviation, 1:437–439 and hypothesis testing, 1:632–633 Authority, 2:279 Sharpe ratio, 1:447, 448 in investment research, 1:608 Swedish krona, 2:401; 5:351 skewness of, 1:452–454 and performance of hedge funds, Swedish Society of Financial Analysts, T. Rowe Price Small Cap Value Fund, 5:102; 6:143 1:233 1:435 and sample selection bias, 1:606 SWFs. see sovereign wealth funds T + 1 settlement, 5:366 sustainability Swiss Bankers Association, 1:233 T206 Honus Wagner baseball card, of capital markets, 1:40–41 Swiss franc 6:176n.39 of earnings, 3:668–670 currency code, 2:401 T-accounts, 3:78–94 Sustainability Accounting Standards exchange rate quotes with, 2:418, 420 tactical asset allocation, 4:439–440 Board (SASB), 4:38 international bonds outstanding in, Tai, Jackson, 5:161 sustainable growth, 2:173, 179–185 5:351 tail events, 6:179 and fixed-income investments, as reserve currency, 5:19 tail risk, 4:263–264 2:184–185 Swiss GAAP FER, 3:108 Taiwan and labor productivity, 2:181–182 Swiss National Bank, 2:413 Asian financial crisis,2: 343 measures of, 2:182 Switzerland comparative advantage, 2:352–353 rate of growth in potential GDP, banking supervision, 2:279 effects of global recession,2: 165, 166 2:183–184 equity risk premiums, 4:91 globalization of production, 2:342 sustainable growth rate, 3:377, 379; 4:93 exchange rate regime, 2:437 MSCI multi-market index, 5:96 sustainable investing (SI), 4:36–37 flotation costs,4: 106 Taiwan Semiconductor Manufacturing sustainable securitization markets, 5:476 foreign bonds, 5:314 Company Ltd., 5:200, 201 Sviluppo Mercato Fondi Pensione, 1:233 GIPS sponsor, 1:233 takeover defenses, 4:26, 33–34 swap funding, 2:409–410 growth spillover, 2:364 takeover market, 4:26 swap points, 2:426 IFRS adoption, 3:115 takeovers, 4:12 swap rates, 2:426–430 MSCI multi-market index, 5:96 taking a market, 5:46 swaps (swap contracts), 6:21–25 pension fund investment restrictions, tangible assets, 6:129, 175–176 asset, 5:443 4:425 Tankan Survey, 2:242, 244 basis, 6:24 regulatory authorities, 3:108 Tanzania, 3:117 commodity, 6:169 residential mortgage loans, 5:487 Target, 4:162–163, 184 in contract markets, 5:23–24 returns target balance, 4:167 credit default on bonds, bills, and equities, 5:153 target capital structure, 4:80 contracts for, 5:25 real equity returns, 1:401 target companies, for leveraged buyouts, credit as underlying for, 6:37 total returns, 1:409, 412 6:151–152 as credit derivatives, 6:31–33 risk tolerance and equity ownership, target independence, 2:288 defined, 4:274n.32 5:155 target market, for security market as insurance contracts, 5:34 sovereign bonds, 5:368, 369 indexes, 5:82–83 currency, 5:24; 6:23n.12, 37 symmetrical triangle pattern, 1:705 target semideviation, 1:440 defined, 6:21–22, 61 symmetry, 1:448–454, 535 target semivariance, 1:440 equity, 5:24; 6:36 Synchrony Bank, 5:512 target zone currency regimes, 2:436, 439 FX, 2:409–410 syndicated loans, 5:364, 374 tariffs, 2:356–361 index, 6:36 syndicated offerings,5: 361 analysis of, 2:358–359 interest rate, 5:23–24; 6:22–23 syndicates, 4:278–279 defined, 2:356 long and short side of, 5:39 Syngenta, 3:132 GATT, 2:382, 385 overnight indexed, 6:24 synthetic CDOs, 5:513 and quotas/VERs, 2:360–361 plain vanilla, 6:22–23, 37 synthetic leases, 3:525, 623 two-part tariff pricing,2: 103–104 pricing and valuation of, 6:82–85 Syria, 2:436 taxable income, 3:566–571 total return, 6:30 systematic account reviews, 1:114 taxable profit, accounting profit vs., swarming, 2:83 systematic risk, 4:374–376 3:576–581 Swaziland, 3:117 for alternative investments, 6:129 taxable temporary differences, in Sweden and calculation of beta, 4:379–380 taxable/accounting profit, banking supervision, 2:279 drivers of, 4:271 3:577–580

bind 91 June 17, 2017 4:16 PM I-92 Index

tax-advantaged securities, 4:169 and estimation of normal sampling television broadcasting, 2:65 tax asset valuation accounts, 3:712 distribution, 1:597 Temasek Holdings, 4:221 tax bases, 3:571–576 normal distribution vs., 1:598–599 temporary differences, in accounting/ of assets, 3:571–573 table, 1:744 taxable profit,3: 566, 577–580 and changes in tax rates, 3:575–576 Tech Data Corporation, 3:284–286 deductible differences,3: 577–580 defined, 3:567 technical analysis, 1:679–740 examples, 3:578–580 of liabilities, 3:573–575 defined, 1:680 at initial recognition, 3:580 taxes Elliott Wave Theory,1: 725–728 taxable differences,3: 577–580 and aggregate demand, 2:140, 153, 155 fundamental vs., 1:682–684 temporary new accounts, 1:239, 272 attributes of tax policy, 2:311–312 implications of efficient market temporary workers, use of, 2:224 capital gains, 4:302 hypothesis for, 5:129 10-K, Form. see Form 10-K in CAPM assumptions, 4:384 intermarket, 1:728–730 tender offers,4: 26 and cost of capital, 4:79–80 practice problems, 1:733–737 tenor, 5:300, 438 current, 3:582–585 principles and assumptions, 1:680–682 TEPCO. see Tokyo Electric Power deferred, 3:582–585, 591–594 solutions to problems, 1:738–740 Company direct, 2:311, 314 tools for, 1:684–725 terminal stock value (terminal value), on dividend income, 4:302 chart patterns, 1:696–707 5:251, 261 and fiscal policy,2: 303–304, 312 charts, 1:684–693 Terminated Composites. see US Core and fixed-income securities, market cycles, 1:724–725 Equity Composite 5:316–318 technical indicators, 1:707–724 termination policies, 1:137 and government spending, 2:314–315 trends, 1:693–696 term maturity structures, 5:378 income, 3:565–602 and weak-form efficient market term of repurchase agreement, 5:387 and accounting profit vs. taxable hypothesis, 5:125 term repo, 5:387 income, 3:566–571 technical indicators, 1:707–724 terms of trade, 2:337–338 cash for, 3:295 flow-of-funds, 1:720–724 term structure disclosure of tax information, Arms index, 1:720–722 of credit spreads, 5:419 3:586–591 margin debt, 1:722 of interest rates, 5:433–441, 568; 6:78 IFRS vs. US GAAP, 3:566, 591–594 and market indicators, 1:723 of risk free rates, 5:419 practice problems, 3:596–600 mutual fund cash position, 1:722–723 of yield volatility, 5:568–569 presentation, 3:586–591 new equity issuance, 1:723–724 Tesco, 3:47–48; 5:362 solutions to problems, 3:601–602 secondary offerings,1: 724 Tesoro Público, 5:368 and taxable vs. accounting profit, momentum oscillators, 1:710–717 test statistic 3:576–581 about, 1:710–712 acceptance region for, 1:630–631 tax bases for, 3:571–576 MACD oscillator, 1:716–717 calculating, 1:632–633 unused tax losses and credits, relative strength index, 1:712–714 defined, 1:627–628 3:581–582 ROC oscillator, 1:710–712 rejection point for, 1:630–632 and income trusts in Canada, 5:225 stochastic oscillator, 1:714–716 rejection (critical) region for, 1:631 indirect, 2:311, 313 price-based, 1:707–710 in tests concerning difference between and inventory method changes, 3:426 Bollinger bands, 1:709–710 variances, 1:653 and IPSs, 4:425 moving average, 1:707–709 in tests concerning value of population in lease versus buy decision, 3:525 sentiment, 1:717–720 variance, 1:651 and LIFO method, 3:415 calculated statistical indexes, in tests of difference between net tax rate, 2:314 1:717–720 population means, 1:642–646 on REITs, 6:126 opinion polls, 1:717 in tests of mean differences,1: 647–650 reporting of depreciation methods, technical model requirements, in tests of single population mean, 3:499 understanding, 1:164–165 1:635–638 and short-run aggregate supply, 2:158, technology Teva Pharmaceutical Industries, 5:209 160 and aggregate supply, 2:160 Texas, 5:651 and social policies, 2:313 and comparative advantage, 2:354 Texas A&M University System, 4:218 and yield-to-maturity, 5:433 and economic growth, 2:175–178 Texas Instruments, 5:210 tax-exempt bonds, 5:355 in industry analysis, 5:203, 222–223 textile industry, 2:345–346 tax expense, 3:426, 567 on industry life-cycle, 5:217 TFC. see total fixed cost tax loss carry forward, 3:567 and labor productivity, 2:180 TFP. see total factor productivity tax-loss selling hypothesis, 5:131 and long-term aggregate supply, 2:160 ThaiBev, 2:88 tax rates, changes in, 3:575–576 in strategic analysis, 5:221 Thailand tax recognition, 3:576n.3 and substitution risk, 5:612 Asian financial crisis,2: 343 tax reform, 2:312 Technology sector, 5:193 beer industry, 2:87, 88 tax risk, 4:263 Teck Resources Ltd., 3:10–11 currency regime, 2:437 Taylor, Owen, 1:688 TED spread, 6:24 exchange rate targeting, 2:294 T-bills. see US Treasury bills telecommunications industry, structure globalization of production, 2:342 T-bonds. see US Treasury bonds of, 5:217 IFRS adoption, 3:116 TCs. see total costs Telecommunications sector, 5:193 inflation targeting,2: 287 TD Ameritrade Holding Corporation, Telefónica Group, 3:282–284 MSCI multi-market index, 5:96 3:763–764 Telefónica S.A., 1:426; 5:192, 272–273 non-domestic equity securities, 5:164 TD Bank. see Toronto-Dominion Bank Teléfonos de México, S.A.B. DE C.V., Thaler, Richard,5: 132 t-distribution 3:736–738 Thatcher, Margaret,2: 276 and confidence interval for population Tele Norte Leste Participações S.A., thematic investing, 4:40 mean, 1:599–600 3:736–738 theory of storage, 6:173 defined, 1:634–635 telephone utilities, 2:100, 105 theory of the consumer, 2:5

bind 92 June 17, 2017 4:16 PM Index I-93

theory of the firm,2: 5 interest rates and growth rates, and other costs/output, 2:31–35 third-degree price discrimination, 2:103 1:331–333 of production, 2:24 third-party custodians, 1:60 number of periods, 1:333–334 variable, 2:31–35, 41–42 third-party research, 1:155–156, 160 size of annuity payments, 1:334–338 total debt to total debt plus equity ratio, Thomson Reuters,3: 337 spot rates, 5:411–413 3:384 threat of entry, 5:205, 612 yield to maturity, 5:406–407 total expenditure(s) three-factor models for beta, 4:377 time value of options, 6:90 and aggregate income, 2:137–144 three-stage dividend discount model, Time Warner, 1:702 and consumer surplus, 2:75–76 5:262 time-weighted rate of return and own-price elasticity of demand, Tibor. see Tokyo interbank offered rate Calculation Methodology (GIPS 2:13–14 tight fiscal policy,2: 321 Section I.2), 1:237 total factor productivity (TFP), 2:174, tight monetary policy, 2:321 defined, 1:272 178 TIIS. see Treasury inflation-indexed linked, 1:246 total firm assets securities money- vs., 1:374–376 defined, 1:272 Timber Hill, 5:30 for portfolios, 1:371–376 Disclosure (GIPS Section I.4), 1:240 timberland, investing in, 6:158–159, 163 Real Estate (GIPS Section I.6), 1:246, Fundamentals of Compliance (GIPS time 247 Section I.0), 1:236 on point and figure charts,1: 688 TIPS. see Treasury inflation-protected Presentation and Reporting (GIPS present value of cash flows at times securities Section I.5), 1:243 other than t = 0, 1:328–329 titles, real estate, 6:158 Verification (GIPS Section IV),1: 261, time frame TMV. see time value of money 262 of decision and dissemination, T-notes. see US Treasury notes total fixed cost (TFC) 1:112–113 to-arrive contracts, 6:39–40 interactions of other costs and output for market efficiency,5: 117 tobacco industry, 2:87–88; 5:225, 226 with, 2:31–35 and performance calculation, Tokyo, Japan, 5:650 in shutdown analysis, 2:41–42 1:126–127 Tokyo Agreement, 3:115 total invested capital, 3:739n.4 time horizon Tokyo Electric Power Company total leverage, 4:140–143 for cash forecasting, 4:166 (TEPCO), 5:608 total liabilities-to-equity ratio, 3:421 for forward contracts, 6:74 Tokyo Electron, 5:209 total market capitalization, 5:89 for portfolio management, 4:222 Tokyo interbank offered rate (Tibor), total market value, ROE and, 5:175 and portfolio planning, 4:424–425 5:353; 6:78n.11 total probability rule, 1:488–490, 507 and risk tolerance, 4:417 Tokyo Stock Exchange, 1:407; 6:9 total product of labor, 2:25–28 time intervals, chart, 1:692 as exchange, 5:29 total return(s). see also holding period time period(s) information availability, 5:122 return (HPR) and GIPS standards, 1:224 intermarket analysis, 1:728 Calculation Methodology (GIPS security index values over multiple, ROC oscillator, 1:711 Section I.2), 1:237 5:81–82 and TOPIX, 5:103 defined, 1:272 time-period bias, 1:607, 609, 632, 633 Tokyo Stock Exchange Group, 5:151, 152 for equity securities, 5:169–170 time-series data, 1:407–408, 587–589 Tokyo Stock Price Index (TOPIX) GIPS Advertising Guidelines (GIPS time-series pricing anomalies, as benchmark, 4:417 Section III), 1:259 5:130–132 estimating risk premium with, 4:90 for leveraged stock purchase, 5:42–43 time to expiration, option pricing and, features of, 5:103 for multiple periods, 5:81–82 6:88–89 number of securities in, 5:82 Presentation and Reporting (GIPS time-to-maturity, 5:551 as proxy for market portfolio, 5:94 Section I.5), 1:243 time tranching, 5:482 weighting of stocks on, 1:418 price vs., 5:79 time value decay, 6:90 tolerance for leverage, 3:749 Real Estate (GIPS Section I.6), 1:246 time value of money (TMV), 1:305–359; top-down analysis, for security selection, on real estate, 6:158 5:402–413 3:752 for single period, 5:80–81 cash flow additivity principle,1: 340 top-down approach to equity valuation, total return index, 5:79–82 defined, 1:306 5:244 for multiple periods, 5:81–82 and discounted cash flows,1: 361 top-down portfolio analysis, 4:223, 443 for single period, 5:80–81 future value top down strategies, 6:136, 137 value of, 5:79–81 equivalence of present and, top heavy capital structure, 5:642 total return swaps, 6:30 1:338–339 TOPIX. see Tokyo Stock Price Index total revenue (TR) of series of cash flows,1: 317–318 TORM A/S, 3:618–619 in oligopoly, 2:90 of single cash flow,1: 308–316 Toronto-Dominion Bank (TD Bank), under perfect and imperfect and interest rates, 1:306–307 1:692, 720; 5:209 competition, 2:35–36 market discount rate, 5:402–406, Toshiba Corporation, 3:331–333 and price elasticity, 2:73–74 407–411 Total (company), 1:426 in shutdown analysis, 2:41–42 practice problems, 1:342–346 total asset turnover, 3:350, 354 total risk present value total comprehensive income, 3:201 decomposition of, 4:378 equivalence of future and, total costs (TCs) in Sharpe ratio, 4:390 1:338–339 average Total S. A., 5:250, 258–259 of series of cash flows,1: 322–330 with economies of scale, 2:45–46 total value of single cash flow,1: 319–322 interactions of other costs and output and consumer surplus, 2:75 and required rate of return, 6:63 with, 2:31–35 defined, 1:272 solutions to problems, 1:347–359 in perfect competition vs. monopoly, Private Equity (GIPS Section I.7), solving problems for variables, 2:36–37 1:251 1:330–340 fixed, 2:31–35, 41–42 Real Estate (GIPS Section I.6), 1:247

bind 93 June 17, 2017 4:16 PM I-94 Index

total variable cost (TVC) alternative systems, 5:29–30 with derivatives, 6:41, 70 interactions of other costs and output continuous trading markets, 5:54 and financial risks,4: 261–262 with, 2:31–35 on contract/secondary security and market efficiency,5: 123 in shutdown analysis, 2:41–42 markets, 5:54 transaction expenses “toxic waste,” 5:32 contrarian trading strategies, defined, 1:273 Toyota Motor Corporation 1:709–710 Private Equity (GIPS Section I.7), financial reporting,3: 669–670 cost of, 4:314, 335 1:249, 250 growth rate, 1:332–333 excessive, 1:108, 117 Real Estate (GIPS Section I.6), 1:245, international trade, 2:86 held for, 3:243 246 method of comparables, 5:270 information-motivated, 5:10–12, 26 transaction price, 3:169, 170 ROC oscillator, 1:711–712 insider, 1:681; 5:61, 122 transactions similar companies to, 5:189 multilateral facilities, 5:29–30 BOP, 2:369 two-factor analysis, 5:209 personal new, 3:133 TR. see total revenue and conflict of interest,1: 183 transactions-based indexes (real estate), tracking error, 1:538; 4:416n.3 disclosure of, 1:189 6:163–164 tracking objective, 1:538 limitations on, 1:90 transactions money balances, 2:271 tracking risk, 1:538; 4:416n.3 and market manipulation, 1:97–98 transactions motive, 4:182 track record priority of transactions for, 1:185 transfer, risk, 4:277–279 as company fundamental, 5:613 proprietary trading procedures, 1:91 transfer payments, 2:129, 310–311 of hedge funds, 6:147 risk-arbitrage, 1:91 transition probability, 1:540 tradable assets, 4:367 spot market, 5:10 Transocean, 1:705 trade. see also international trade supervising trading activities, 1:151 transparency and alternative trade policies, 2:360 unsolicited requests for, 1:120–121 corporate, 4:17 free, 2:338, 343–344 trading blocs, 2:362–366 of exchange-traded derivatives market, gains from, 2:349–352 trading expenses 6:11 inter-temporal, 2:377, 378 Calculation Methodology (GIPS of futures market, 6:21 intra-industry, 2:343 Section I.2), 1:238 of inflation targeting,2: 289–291 terms of, 2:337–338 defined, 1:272 of markets, 5:58 trade agreements Disclosure (GIPS Section I.4), 1:240 transportation assets, 6:174 common markets, 2:362 trading limits, 5:123 travel expenses, 1:64–65, 67–68 economic unions, 2:362 trading NAV, 6:146 travel funding, 1:63 export subsidies, 2:359–361 trading securities, 3:202, 275 Treasury bills, 1:307n.3, 379n.16; 4:307. trading blocs, 2:362–366 trading volume, 1:98 see also US Treasury bills (T-bills) trade allocation procedures, 1:113, 114 on charts, 1:691–692 Treasury debt, 1:307 trade balance and head and shoulders pattern, 1:698 Treasury inflation-indexed securities absorption approach, 2:449–450 trends in, 1:681 (TIIS), 5:326 balance of trade deficit,2: 130, 338 traditional bonds, ABSs vs., 5:299 Treasury inflation-protected securities in business cycles, 2:211–212 traditional investment markets, 5:15 (TIPS), 2:230; 5:326, 328, 329 and capital account, 2:444 traditional investments, 6:124 treasury shares, 3:248 elasticities approach, 2:445–449 integration of alternative investments treasury stock method, 3:193–195 and GDP, 2:130–131 with, 6:132 tree diagrams (binomial trees), 1:493– and saving/expenditures, 2:444–445 Sharpe ratios for, 6:131 494, 540 trade creation, 2:363 trailing twelve months (TTM) ratio, trend analysis, 3:342–344 trade credit, 4:185, 186 3:338 trends trade date accounting, 1:237, 272 training, compliance, 1:149 recognizing, 1:693–696 trade discounts, 4:187–188 tranches in technical analysis, 1:682–683 trade diversion, 2:364 for asset-backed securities, 6:34 Treynor, Jack, 4:216, 383 trade granting process, 4:176–177 for collateralized debt obligations, Treynor ratio, 4:390 trade organizations, 2:381–388 5:513 trials, number of (for Monte Carlo function and objectives, 2:386–388 for collateralized mortgage obligations, simulation), 1:561 International Monetary Fund, 5:497–501 triangle patterns, 1:704–706 2:382–384 defined, 5:32 triangular arbitrage, 2:423 World Bank Group, 2:384–385 equity, 5:504 trimmed mean, 1:410n.14 World Trade Organization, floating-rate, 5:501 TRIN. see short-term trading index 2:385–386 loss severity and credit risk for, Trinidad & Tobago, 5:96 trade payables. see accounts payable 5:593n.1 triple bottoms, 1:702–703 trade pricing rules, 5:56 for mortgages, 6:160–161 triple tops, 1:702–703 trade protection, 2:338 planned amortization class, 5:499–501 trough phase (business cycle), 2:200, 201 trade receivables, 3:48, 225–227 residual, 5:504 true yield, 5:422 trade restrictions, 2:356–369 sequential-pay, 5:497–499 true yield-to-maturity, 5:422–423 capital restrictions, 2:366–369 structured interest-only, 5:497n.11 Trump Hotels & Casino Resorts, quotas, 2:359–361 support (companion), 5:499–501 3:672–673, 716 tariffs, 2:356–361 tranching, 5:308–309, 481–482 trust deeds, 5:305, 626 traders, rogue, 4:264 transaction allocation, 1:115–116 trustee agents, 5:479 trade sales, 2:241; 6:154 transaction-based manipulation, 1:97 trustees, 5:305, 479 trade sector, 2:130–131, 211–212 transaction costs trust law, 5:484 trade surplus, 2:338 with active portfolios, 4:396n.6 trust preferred securities, 5:596n.4 trade-to-GDP ratio, 2:339–342 assumptions of CAPM about, 4:384 trust receipt agreements, 4:192 trading for borrowing, 5:9 trusts, in securitization process, 5:478

bind 94 June 17, 2017 4:16 PM Index I-95

Tsingtao Brewery, 3:735 two-sided (two-tailed) hypothesis test, unearned revenue TSX Group, 5:152 1:626 accrual accounting for, 3:72 t-test, 1:634–638 two-sided prices, 2:419–420 analysis of, 3:232–234 nonparametric test vs., 1:656, 657 two-stage dividend discount model, on balance sheets, 3:60 risk/return characteristics of mutual 5:261–264 as current liability, 3:232 fund, 1:636–637 2001 Venture Capital Composite, 1:296 on income statements, 3:156 and slowdown in payments of 2006 Buyout Strategy Fund of Funds unemployed, 2:222 receivables, 1:637–638 Composite, 1:296–297 unemployment and Spearman rank correlation, two-tier board structure, 4:10 analyzing, 2:224–225 1:658–660 two-week repo rate, 2:284 and business cycles, 2:221–225 and test static for difference between Tyco International, Ltd., 3:718; 5:199, and international trade, 2:344 population means, 1:642–646 200 natural rate of, 2:150, 234 and test static for single population Type I error, 1:629 non-accelerating inflation rate of,2: 234 mean, 1:635–638 Type II error, 1:629 and overall payroll employment, 2:224 for test statistic for tests of mean typical cash flows, identifying, and real business cycle models, 2:218 difference, 1:647–650 4:165–166 and regional trade agreements, z-test vs., 1:638, 641, 656, 657 2:364–365 TTM ratio. see trailing twelve months U in stagflation,2: 169–170 ratio UBS, 2:412, 414; 5:209 unemployment insurance, 2:240 Tunisia, 5:96 Uganda, 3:117 unemployment rate, 2:223–224 Turkey Ukraine unequal cash flows business investment, 2:177 exchange rate regime, 2:437 future value of series with, 1:318 cumulative voting rules, 4:16 GIPS country sponsor, 1:233 present value of series with, 1:330 exchange rate regime, 2:437 hyperinflation, 2:226 unethical actions, reporting, 1:57 IFRS adoption, 3:116 MSCI multi-market index, 5:96 unexpected inflation,2: 281–283 inflation-linked bonds,5: 326 Ukrainian Association of Investment Unibail-Rodamco, 1:425 inflation targeting,2: 287 Business, 1:233 UniCredit, 1:425 labor productivity, 2:181 ULC. see unit labor cost uniform distribution MSCI multi-market index, 5:96 unbiased estimators, 1:594 continuous, 1:542–545 sovereign bonds, 5:369 unbilled revenue, 3:72 discrete, 1:530–532 turn-of-the-month effect,5: 132 uncertainty uniform pricing rule, 5:56 turn-of-the-year effect,5: 131 about future cash flows,1: 459 unilateral transfers sub-account, BOP, turnover inflation, 2:282–283 2:371 accounts receivable, 4:160 unclassified balance sheets,3: 58 Unilever, 1:426; 5:210 annual share, 1:428 uncollectible accounts, 3:699–700 Unilever Group, 3:279–282 asset, 3:350, 354, 520–522, 714 uncommitted lines of credit, 4:189, 190 unintentional errors, correction of, 1:76 fixed asset turnover ratio unconditional probability, 1:480 Union Electric Company, 5:255–256 and average age of depreciable assets, unconditional variance, 1:494n.9 unions, 4:19 3:520–522 Unconstrained Activist UK Equity United Agri-Products (UPI), 3:699–700 calculating, 3:350 Composite, 1:294 United Arab Emirates, 5:96 interpreting, 3:354, 518 uncorrelated random variables, 1:506 United Kingdom in FX market, 2:415–416 uncorrelated returns, 4:325 banking supervision, 2:279 on income statements, 3:151n.4 underemployed, 2:222 bankruptcy, 5:600 inventory, 4:160, 184–185 underground economy, 2:123–124 benchmark rate, 5:442 inventory turnover ratio, 3:351–352 underinvestment, in inventory, 4:183 bonds and activity ratio, 3:350–351 underlying (underlying assets), 6:5 bonds outstanding, 5:354, 360 activity ratio definition,3: 349 defined, 6:7 consol, 1:327 calculation, 3:414 and derivatives valuation, 6:46–47 foreign, 5:313, 314 and conversion from LIFO to FIFO, hedging of, 6:67–68 inflation-linked, 5:326, 327, 370 3:420 payments on, 6:90–91 non-sovereign government, 5:371 and DOH, 3:351–352 performance of, 6:6 perpetual, 5:300 inventory management with, pricing, 6:62–66 sovereign, 5:305–306, 367–370 3:434–435 in pricing of European options, 6:87, budget deficit,2: 379 inventory ratios, 3:715 89–91 business investment, 2:177 and inventory write-downs, 3:432 for puts, 6:95 capitalization level and contributions payables, 3:349, 353 risk budgeting based on, 4:258 to global GDP, 5:151 portfolio, 1:434–436 storage of, 6:46–47 commercial paper, 5:374 receivables, 3:349, 352–353 types of, 6:36–39 common law system, 4:27 segment, 3:386–387 value of, 6:87 comparative advantage, 2:348–351, total asset, 3:354 and value of contract, 5:20 355 working capital, 3:349, 354 volatility of, 6:89–90 “comply or explain” codes, 4:34 Turquoise, 5:30 underlying risk exposures, of options, corporate governance systems, 4:14 TVC. see total variable cost 5:39 coupon payment structures, 5:323 TVPI. see investment multiple undervalued (term), 5:245 covenant-strengthening investor 2 and 20 fee structure, 6:139,140 underwater mortgages, 5:488 groups, 5:627 two-asset portfolio, risk of, 4:306–307 underwriters, 5:360, 479 currency regime, 2:434, 435, 437 two-fund separation theorem, underwritten offerings,5: 50, 51, cyclically adjusted budget deficit,2: 317 4:340–341 360–362 disclosure requirements, 3:686 two-part tariff pricing,2: 103–104 unearned fees, 3:60 disinflation, 2:227

bind 95 June 17, 2017 4:16 PM I-96 Index

United Kingdom (continued) bankruptcy, 5:600 potential, 2:183 domestic and international debt banks and banking hedge fund registration, 6:144,145 securities, 5:315 portfolio management, 4:220, 221 imports in, 2:337 EAR, 1:315n.6 regulation, 3:105 industrial comparative ratio analysis, equity risk premiums, 4:91 sources of credit, 4:189 5:617 excess demand/supply of cars, 2:339 supervision of, 2:279 and inflation targeting,2: 292 exchange rate targeting, 2:293, 294 benchmark rate, 5:442 international investments, 5:165 expected inflation,2: 282 bond mutual funds, 4:231n.16 investment spending, 2:140 fiscal policy,2: 314 bonds and ITO charter, 2:382 flotation costs,4: 106 bonds outstanding, 5:354, 360 labor productivity, 2:181 frequency of capital budgeting, 4:67 and corporate notes, 5:377 labor supply, 2:176 GIPS country sponsor, 1:233 foreign, 5:313, 314 LIFO method and taxes, 3:415 government inflation-linked, 5:326, 327, 370 liquidity representations on balance cash flows,2: 305–306 municipal, 4:425; 5:355 sheets, 3:15 liabilities/debt, 2:262, 308 non-sovereign government, 5:371 manipulation of financial reporting, revenues/expenditures, 2:303, 304 sovereign, 5:367–370 3:666 hedge fund registration, 6:145 tax considerations with, 5:316 money market funds, 4:230–231 housing prices and saving rate, 2:152 yields and credit risk/return, 5:629–630 money measures, 2:269 inflation targeting,2: 287–289 business investment, 2:177 money-weighted return, 1:370n.9 international investments in BASF, capital budgeting, 4:67 MSCI multi-market index, 5:96 5:165 capital goods expenditures, 2:128 mutual funds, 4:230–231 investment spending, 2:140 capitalization level and contributions NAFTA, 2:362, 364 IPS requirement, 4:414 to global GDP, 5:150–151 national debt, 2:309 labor productivity, 2:181 capital-to-labor ratio, 2:175 national income, 2:133n.6 monetary policy, 2:276, 293 cash underwritten offers,4: 106 natural monopolies, 2:104 money measures, 2:270 CEO duality, 4:21 net borrowing/lending, 2:305 MSCI multi-market index, 5:96 commercial mortgage-backed nominal returns of major asset classes, national debt, 2:307, 309 securities, 5:504 4:308–309 net borrowing/lending, 2:305 commercial paper in, 5:374 non-sovereign government debt, 5:650 one-tier boards, 4:10 common law system, 4:27 OCI statement format, 3:19 overconfidence and mispricing in company activities of government one-tier boards, 4:10 markets, 5:137 industries, 5:197 operating vs. capital leases, 4:87n.11 public sector spending, 2:263 consumption expenditures, 2:139 overconfidence and mispricing in residential mortgage loans, 5:486–488 correlation of equities, 4:432–433 markets, 5:137 returns coupon payment structures, 5:323 pension fund investment restrictions, on bonds, bills, and equities, 5:153 covenant-strengthening investor 4:425 real equity returns, 1:401 groups, 5:627 presidential cycle, 1:725 total returns, 1:409, 411 CPI, 2:229, 230 proxy for market portfolio, 5:94 risk tolerance and equity ownership, currency regime, 2:434, 437 PSA prepayment benchmark, 5:493 5:155 current account deficit,2: 377, 380, 381 public sector spending, 2:263 say on pay, 4:18 cyclically adjusted budget deficit,2: 317 quantitative easing, 2:298, 299 sinking fund arrangements, 5:322 debt and equity outstanding, 5:350 residential mortgage loans, 5:486–489 social influences on tobacco industry, deflation/disinflation, 2:226, 227 returns 5:226 depreciation methods in, 3:486 by asset class, 5:644–645 Treasury bills, 1:307n.3 development of NAICS system, 5:197 on bonds and bills, 5:152–153 wealth effect,2: 152 domestic and international debt on equities, 5:152–153 UK Debt Management Office,5: 306, 315 securities, 5:315 real equity returns, 1:401 UK Financial Reporting Council (FRC), economic indicators, 2:240–242, on real estate, 6:164–165 3:26 244–245 real returns of major asset classes, UK Investment Performance Committee, equity risk premium, 4:90, 91 4:309–310 1:233 ETFs, 4:233 on reinvested dividends, 5:170 UK Liquidity Plus Composite, 1:294 expected inflation,2: 282 risk diversification by insurance United Nations, 4:38; 5:196 external trade sector, 2:211–212 companies, 4:278 United Nations Conference on Trade on fiscal policy in 2009-2010,2: 314 risk of asset classes, 4:311 Employment, 2:382 floating-rate notes,5: 323 risk tolerance and equity ownership, UN Global Compact, 4:39 flotation costs,4: 106 5:154–155 United Nations Monetary and Financial foreign direct investment, 2:341, 342 say on pay, 4:18 Conference, 2:382 four-factor model use, 4:402 securities backed by quasi-government United Rentals, Inc., 5:604–605, GIPS sponsor, 1:233 entities, 5:490 642–643 globalization of production, 2:342 securities ranked lower than United States global recession, 2:165–167 subordinated debt, 5:596 ACH system, 4:178 government securitization market, 5:474 ADRs, 5:167–168 government-sponsored enterprises, sinking fund arrangements, 5:322 alternative investors, 6:133n.14 5:490 stagflation, 2:169, 236 antitrust violations, 2:105 liabilities/debt, 2:262, 308 tax and financial regulations,3: 525 APY, 1:315n.6 revenues/expenditures, 2:303, 304 taxes and cost of capital, 4:79 auctions, 5:362–364 spending, 2:129 television broadcasting, 2:65 auditing standards, 3:27 gross domestic product, 2:120–121 textile industry, 2:345–346 balance of payments, 2:372–373 forecasts, 2:184–185 tobacco industry, 2:87–88

bind 96 June 17, 2017 4:16 PM Index I-97

transition rates of credit ratings, 5:606 for capitalisation of interest costs, Form 4, 3:112 trust law in, 5:484 3:486n.11, 488 Form 5, 3:112 underground economy, 2:123–124 for cash flows,3: 22, 276, 279, 284–288 Form 6-K, 3:111 unemployment rate, 2:223 and completed contract method, Form 8-K, 3:112 VERs in, 2:359 3:160–161 Form 10-K, 3:110–111, 422–423 wealth effect,2: 152 for comprehensive income, 3:201, 204 Form 10-Q, 3:111 US Aggregate Bond Index, 5:357 for debt issuance costs, 3:615 Form 11-K, 3:112 US Air Force, 5:226 on decision-useful information, Form 20-F, 3:110–111 US Bankruptcy Code, 4:146 3:668n.2 Form 40-F, 3:110–111 US Bureau of Labor Statistics (BLS), for deferred tax assets/liabilities, 3:568, Form 144, 3:112 2:223, 345 569, 583 Form DEF-14A, 3:111 US Census Bureau, 5:197 for depreciation, 3:499 and GAAP, 3:108, 129, 131–132 US commercial paper (USCP) market, on disclosure of operating segment, 5:200 and Groupon, 3:693 5:376–377 fair value definition,3: 475n.2 hedge fund registration, 6:144,145 US Consumer Price Index (US CPI) and FASB, 3:108 and IASB, 3:106 commodities returns vs., 6:170 financial statement elements under, on management reporting, 3:26 and inflation-indexed bonds,5: 325, 3:45n.1 MD&A requirements, 3:26, 615n.5 326, 328, 329 for financial statement ratios,3: 735–736 on non-GAAP measures in financial US Core Equity Composite (Terminated and global reporting standards, reports, 3:673, 693 Composites), 1:297 3:114–115, 127–129, 131–132 on non-recurring restructuring events, US Department of Commerce, for gross vs. net reporting, 3:166 3:682 2:120–121 and IFRS and PACCAR, 3:670–671 US Department of Housing and Urban conservatism in, 3:680–682 prospectuses filed with,5: 478n.3 Development, 5:490 on financial reporting standards, on reconciliations with US GAAP, US dollar, 2:401 3:131–133 3:505n.17 CAD/USD currency pair, 2:416 frameworks of, 3:127–129 registration with, 5:168 CNY/USD exchange rate, 2:403–404 on income taxes, 3:566, 591–594 Regulation FD, 3:112n.13; 5:122 cross-rate calculations with, 2:421–422 for impairments, 3:506–509, 512 as regulatory body, 3:105 as currency anchor, 2:436–437, 439, 440 income statement standards, 3:150 reporting of internal control exchange rate quotes with, 2:418–421 income taxes, 3:566 deficiencies to,1: 640 as exchange rate target, 2:294 for intangible assets, 3:478n.4, 479, 480 reporting requirements, 3:687; 4:235 foreign exchange gains, 5:169 for interest, 3:294, 477, 529n.32, 612 revenue recognition standards, 3:158 foreign exchange reserves, 2:413–414 for inventory valuation, 3:404–408, Rule 10b5-1 and 10b5-2, 5:122n.10 forward calculations with, 2:425–426 426–428, 435 Rule 144, 3:112 gold standard for, 2:434 for investment property, 3:525 Rule 144A, 5:168 international bonds outstanding in, 5:351 for leases, 3:526, 534, 538, 542, 624, on sponsored DRs, 5:166 JPY/USD currency pair, 2:416 627, 635, 636, 640 and stakeholder relationships, 4:28 as reserve currency, 5:19 for LIFO reserve, 3:415 and WorldCom financial reports,3: 76 spot market trading of, 5:10 for long-lived assets, 3:512 United States Steel Corporation (US USD/AUD currency pair, 2:416 for pension plans, 3:642 Steel), 2:96 USD/EUR currency pair, 2:416 policy disclosure requirements, 3:135 US Territories, ACH system, 4:178 USD/EUR exchange rate, 2:409 for revaluation, 3:493, 502, 505–506 US Treasury, 2:167; 5:362–364 USD/GBP currency pair, 2:416 for revenue recognition, 3:156–158, US Treasury bills (T-bills) US Federal Reserve 168, 169, 680 bank discount yield, 1:377–378 banking supervision by, 2:279 and ROE, 3:736–738; 5:173n.29 as benchmark, 4:171 “Beige Book,” 2:244 SEC on reconciliations with, 3:505n.17 characteristics of, 5:368 CPI-U use by, 2:230 for segment reporting, 3:385 correlation of stocks/bonds with, 4:333 and dollarized currency regimes, and Syngenta, 3:132 discount rate, 5:429 2:437–438 and taxable profit v. accounting profit, expected value, 1:496–497 funds and fund rate of, 5:385 3:576–578 historical risk and correlation, 4:333 independence of, 2:288 on tax-related issues, 3:573, 581 maturity of, 5:351 inflation targeting by,2: 292 and WorldCom financial reports,3: 76 money market yield, 1:379 initial margin requirement of, 5:41 US Investment Performance Committee, nominal returns, 4:308–309 insurance for money markets from, 1:233 nominal risk-free interest and liquidity 4:231 US Securities and Exchange Commission premium, 1:307 intervention in FX market, 2:440 (SEC), 5:29 as proxy of risk-free return, 4:367–369 measures of money, 2:269 Accounting and Auditing Enforcement pure discount instrument, 1:377 monetary policy, 2:153–154, 169, 185 Release, 3:699–701 quoting for, 1:377 objectives of, 2:280 adoption of IFRS, 3:415 real returns, 4:309–310 quantitative easing by, 2:298, 299 and convergence of global reporting returns on, 1:379 in recession (2007-2009), 2:167 standards, 3:114–115 returns on equities and bonds vs., Regulation T, 5:41 on “cookie jar” reserve accounting, 5:152–153 stress testing required by, 4:274 3:683 risk–return tradeoff,4: 309, 311 US Federal Trade Commission (FTC), discipline for financial reporting by, Sharpe ratio, 1:446–448 5:127 3:685, 686 short-term investment, 4:168 US GAAP disclosure regulations, 5:122 in short-term portfolio report, 4:174 for barter transactions, 3:165 financial reporting standards of, and TED spread, 6:24 for bonds, 3:608, 609, 612, 613 3:109–113 transaction costs with, 5:123 for borrowed funds, 3:477 Form 3, 3:112 yield, 4:169–170

bind 97 June 17, 2017 4:16 PM I-98 Index

US Treasury bonds (T-bonds) valuation. see also GIPS Valuation of bonds payable, 3:612–615 characteristics of, 5:368 Principles (GIPS Section II) Conceptual Framework on, 3:123 convexity adjustment for, 5:560–561 adjustments in, 3:73 defined, 1:267; 3:218n.1, 225, 475n.2 correlation with other asset classes, of alternative investments, 6:125 financial assets at,3: 243 4:432 binomial, 6:100–104 of financial liabilities,3: 612–613 in cost of equity, 4:89, 91 of derivatives, 6:45–52, 73–85 Fundamentals of Compliance (GIPS relative strength of, 1:729 and arbitrage, 6:47–52 Section I.0), 1:236 US Treasury notes (T-notes), 5:368, forward commitments, 6:73–85 GIPS Valuation Principles (GIPS 547–548 options, 6:100–104 Section II), 1:254–255 US v. DuPont, 2:73n.4 pricing vs. valuation, 6:72–73 Input Data (GIPS Section I.1), 1:237 unit elastic (unitary elastic), 2:71 and storage, 6:46–47 and long-term asset acquisition, unit elastic demand (unitary elastic of equities (see equity valuation) 3:475 demand), 2:10 of fixed-income securities (see fixed- Private Equity (GIPS Section I.7), unit labor cost (ULC), 2:234, 241 income valuation) 1:249 unit normal distribution, 1:546 of hedge funds, 6:145–146 Real Estate (GIPS Section I.6), 1:245 units (term), 5:18 inventory, 3:406–426 fairly valued, 5:245 units-of-production depreciation changes in, 3:425–426 fundamental, 5:119, 244 method, 3:493–498, 702–705 comparison of, 3:412–414 future univariate distribution, 1:546 cost of sales, gross profit, and ending defined, 1:308 universal owners, 4:38 inventory, 3:408–410 future value of series of cash flows, university endowment funds, 4:218; first-in, first-out,3: 174, 228, 407–410 1:316–318 6:127 last-in, first-out,3: 175, 228, 407–410, future value of single cash flow, University of Michigan, 4:218 415–425 1:308–316 University of Texas System, 4:218 LIFO liquidation, 3:421–425 present and, 1:309, 338–339 University of Virginia, 4:224 LIFO reserve, 3:415–421 of goods and services in GDP, unlimited funds, 4:52 periodic vs. perpetual inventory 2:123–124 unqualified audit opinion,3: 27–28 systems, 3:410–412 of growth opportunities, 5:258n.3 unrealized capital gains and losses, 5:569 retail method, 3:227 intrinsic unrealized multiple (RVPI) specific identification,3: 174, 407–410 book vs., 5:176–177 defined, 1:271, 273 weighted average cost, 3:407–410 deviations from, 1:682 Private Equity (GIPS Section I.7), 1:251 weighted average cost method, from dividend discount model, 5:251 Real Estate (GIPS Section I.6), 1:248 3:174–175 in equity valuation, 5:244 unrestricted subsidiaries, 5:644 market-based, 3:740–745 of European options, 6:86 unsecured debt, 5:595, 596 of non-traded investments, 6:146 market vs., 5:119–120 unsolicited trading requests, 1:120–121 principles in capital budgeting, 4:48 inventory, 3:427–428 unsponsored depository receipts, 5:166 of private equity, 6:156–157 justified values of price multiples, unsystematic risk, 4:272n.27 of real estate, 6:162, 165–166 5:266–269 unused tax credits, 3:581–582 valuation allowance, 3:567, 583, 700 liquidation, 6:157 unused tax losses, 3:581–582 valuation ratios, 3:376–379 loan-to-value ratio, 5:486, 504; 6:162 unusual items, on income statements, calculation, 3:376–378 marginal value curve, 2:75 3:183–184 defined, 3:348, 376–378 market updates, 1:122, 159–160 dividend-related quantities, 3:379 and asset-based valuation, 5:276; UPI. see United Agri-Products interpretation of EPS, 3:378–379 6:157 UPM-Kymmene Corporation, 3:520–522 value. see also present value; time value and book value, 5:172 upper Tier 2 securities, 5:596n.4 of money (TMV) of debt, 5:274–275 UPS, 5:209 basis point, 5:558 defined, 1:269 up transition probability, 1:540 book, 5:172–173, 176–177, 247 of derivatives, 6:38–39 uptrends, 1:694 carrying, 5:247, 533 GIPS Valuation Principles (GIPS Uranium Energy Corporation, 5:92–93 company, 4:78 Section II), 1:254 Uruguay, 2:362, 439–440; 3:116 and consumer surplus, 2:74–76 Input Data (GIPS Section I.1), US CPI. see US Consumer Price Index conversion, 5:333 1:237n.2 USCP market. see US commercial paper critical, 1:630–632 intrinsic vs., 5:119–120 market enterprise, 5:247, 273–276, 645 Real Estate (GIPS Section I.6), useful life, 3:177–180 estimated, 5:245–246 1:245n.6 US Steel. see United States Steel exercise, of European options, 6:86 total, 5:175 Corporation expected, 1:490–494 market value to book value ratio, Utilities sector, 5:193 of bonds and T-bills, 1:496–497 3:763–764 utility, 4:317, 435–436 conditional, 1:492 measure of, 2:266 computation of, 4:320 defined, 1:489–491 net asset and risk seeking, 4:315 of product of uncorrelated random breaking the buck, 4:231 utility assets, 6:174 variables, 1:506 closed-end investment fund, 5:134 utility maximization, 4:384 properties of, 1:498–499 and drawdown, 6:144 utility theory, 4:316–324 standard deviation, 1:491–492 mutual fund, 4:226–227 Uzbekistan, 3:116 total probability rule for, 1:492–494 of REITs, 6:166 tree diagrams, 1:493–494 trading vs. reporting, 6:146 V and weighted mean, 1:418 net book, 3:179 Vale, 5:209 face, 1:377, 497; 3:604–607 net realisable, 3:227–228, 426 Valero, 5:209 fair no-arbitrage, 5:411 validity instructions, 5:44, 48–49 in asset-based valuation, 6:157 par, 3:248; 5:300, 403–406

bind 98 June 17, 2017 4:16 PM Index I-99

parity, 5:333 tests with known variance, 1:596, Viacom Corporation, 5:156–157 price to book value ratio, 3:376, 638–641 Vidal-Garcia, Javier, 1:482–483 377–378 tests with single variance, 1:650–652 Vietnam, 2:436; 3:116; 5:96 realizable, 3:123 tests with unknown variance, VINCI, 1:425 relative, 6:135–137 1:635–638, 641–650 vintage year residual of lognormal distribution, 1:555, defined, 1:273 and amortisation/depreciation 558–559 Private Equity (GIPS Section I.7), expense, 3:177–180 of normal distribution, 1:545 1:250–252 defined, 1:271 population, 1:433–434 Real Estate (GIPS Section I.6), 1:247, Private Equity (GIPS Section I.7), and portfolio expected return, 1:504 248 1:251 in probability, 1:476 violations of ethical standards Real Estate (GIPS Section I.6), 1:248 reliability factors with known vs. detection of, 1:147–148 salvage, 3:177 unknown, 1:600–601 dissociating from, 1:55–56 settlement, 3:123 of returns, 1:499–504; 4:305 lists of, 1:82 store of, 2:265–266 for portfolio of assets, 4:305, 329–330 notification of known,1: 55 terminal, 5:251, 261 for portfolio of risky assets, 4:363 by others, participation or association time value of options, 6:90 for single asset, 4:304 with, 1:51 total, 1:247, 251, 272; 2:75 and standard deviation, 4:305 reporting, 1:55 total market, 5:175 sample, 1:436–437 sanctions, 1:43 undervalued (term), 5:245 semivariance, 1:439–440, 440 supervisor’s response to, 1:149 Value-Added Strategy Closed-End Real for single-index model of beta, 4:378 virtuous circle, 2:352 Estate Composite, 1:297 variation, coefficient of,1: 443–445; Visa, 5:206, 209 Value-Added Strategy Non-Closed-End 3:380 Viskanta, Tadas, 4:102n.36 Real Estate Composite, 1:297 variation margin payments, for futures Vivendi, 1:425 value at risk (VaR), 4:416n.2; contracts, 5:22 VIX. see CBOE Volatility index 6:178–179 variety, monopolistic competition and, Vodafone Group Plc, 3:513–518 conditional, 4:273 2:86, 87 volatility defined, 1:553 VC. see venture capital and arbitrage, 6:50 and kurtosis, 4:313 Veblen, Thorstein,2: 21 artificial asset price,1: 98–100 Monte Carlo simulation for estimating, Veblen goods, 2:21 CBOE Volatility Index (VIX), 1:718 1:559 vega, 4:272 of derivative expiration days, risk budgeting with, 4:258 velocity of money, 2:144, 236 1:655–656 as risk metric, 4:272–274 vendors, number, size, location of, 4:186 in equity markets, 5:153–154 value effect,5: 133 Venezuela, 2:436; 3:116 of exchange rates, 2:432, 435 value investors, 3:754; 4:37 venture capital (VC), 6:152–153 and global financial crisis of late 2000s, Value Line, 5:262–264 defined, 5:15, 162; 6:129, 148 1:654–655 value of final output method,2: 121–122, downside frequencies, 6:131,132 implied, 6:41 132 expansion, 6:153 of investment classes, 6:126 values, CFA Institute, 1:43 mezzanine, 6:153 in option pricing models, 1:557–558 value stocks, 5:97, 133 returns, 6:126, 155–156 and portfolio management, 4:210–212 value strategies, for hedge funds, 6:137 Sharpe and Sortino ratios, 6:131 of underlying, 6:89–90 value tilt, of indexes, 5:91 volatility, 6:126 yield, 5:568–569 value weighting. see market- Vereinigung Österreichischer volatility strategies, for hedge funds, capitalization weighting Investmentgesellschaften, 1:232 6:137 van Gelderen, Jacob, 1:724 verification, 1:273; 3:679 Volkswagen AG Vanguard Group, 4:232 Verification (GIPS Section IV),1: 225– as bond issuer, 5:306 Vanguard Total World Stock Index ETF, 226, 260–264 emissions scandal, 4:37 1:649–650 and compliance, 1:231 in foreign exchange markets, 5:10 vanilla swaps, 6:22–23, 37 and performance examinations, 1:264 market capitalization, 1:425 VaR. see value at risk required procedures, 1:261–264 similar companies to, 5:189 variable consideration, 3:170 pre-verification procedures, and variety in automobile market, 2:86 variable costs, 3:360, 405n.7 1:261–262 Volkswagen Group average, 2:30, 36–37, 39–40 verification procedures,1: 262–264 auditor’s reports, 3:28–29 defined, 2:30 scope and purpose, 1:260–261 balance sheets, 3:13–15 and degree of operating leverage, verification report cash flow statements,3: 22–23 4:133–135 defined, 1:273 disclosures, 3:136–137 and leverage, 4:126–128 Verification (GIPS Section IV),1: 260, financial notes,3: 25 of production, 3:405n.7 261, 264 income statements, 3:17–18 total, 2:31–35, 41–42 Verizon Communications Inc., MD&A, 3:26 variable-rate mortgages, 5:487 3:736–738 statement of changes in equity, 3:20, 21 variable-rate notes, 5:323 VERs. see voluntary export restraints statement of comprehensive income, variance vertical common-size balance sheet, 3:19–20 of binomial random variables, 1:539 3:339 volume. see trading volume conditional, 1:494–497 vertical common-size income statement, voluntarily unemployed (term), 2:223 covariance, 1:499–504 3:340–341 voluntary exchange, 2:343 defined, 1:433, 491 vertical common-size ratio analysis, voluntary export restraints (VERs), hypothesis testing with, 1:650–656 3:197n.50, 252, 339–341 2:356, 359–361 tests about equality of two variances, vertical demand schedule, 2:72 volunteers, compromising of CFA 1:652–656 vertical equity, 2:312 Institute integrity, 1:197

bind 99 June 17, 2017 4:16 PM I-100 Index

Volvic, 3:387 weak-form efficient markets,5: 125, 128, working capital Volvo, 5:189 129 defined, 3:222, 354, 747n.7 Volvo Group wealth and issuer liquidity, 5:639 consolidated balance sheet, 3:429–430 household, 2:151–152 net, 5:618 consolidated income statement, 3:429 store of, 2:265–266 working capital management, 4:155–201 inventories of Caterpillar Inc. and, wealth effect,2: 151–152 about, 4:155–156 3:436–439 weather accounts payable management, inventory write-downs, 3:428–433 derivatives on, 6:38 4:185–188 MD&A, 3:439–440 risk associated with, 4:264 cash disbursements, 4:188 notes to consolidated financial webpages, maintaining, 1:75 evaluating, 4:188 statements, 3:430–431 Webvan.com, 4:147 trade discounts, 4:187–188 von Hayek, F., 2:214 weekend effect,5: 132 accounts receivable management, von Mises, L., 2:214 weighing 4:175–181 vote by proxy, 5:156 for cost of capital, 4:80–82 customers’ receipts, 4:177–180 voting of nonmarket securities in portfolio, evaluating, 4:180–181 cumulative, 4:16; 5:156 4:398 trade granting process, 4:176–177 proxy, 1:104, 106; 4:16, 28 weighted average cost, 3:228 cash flows,4: 164–167 statutory, 5:156 weighted average cost method, 3:174– forecasting short-term, 4:165–166 straight, 4:12 175, 407–410 monitoring cash uses and levels, voting rights weighted average cost of capital 4:166–167 in dual-class share structure, 4:31–32 (WACC) cash position, 4:164–167 shareholder, 4:31–32; 5:156, 157 in capital budgeting decisions, 4:82–83 defined, 1:362; 4:155 vulture investors, 6:153 computing, 4:79 inventory management, 4:182–185 cost of debt and cost of equity in, 5:178 approaches, 4:183–184 W defined, 1:363n.2; 4:79 evaluating, 4:184–185 WAC. see weighted average coupon estimations, 4:99–101 financial impact of inventory rate and raising of additional capital, methods, 4:185 WACC. see weighted average cost of 4:102–105 and inventory costs, 4:184 capital and return on invested capital, 5:204 liquidity, 4:156–164 wage-push inflation (cost-push risk factors in, 4:94 drags and pulls on, 4:158–159 inflation), 2:233–235 weighted average coupon rate (WAC), liquidity management, 4:157–159 wages, nominal, 2:157, 161 5:491–494 measuring, 4:159–164 Wagner, Honus, 6:176n.39 weighted average life, 5:494–495 primary sources, 4:157 Waha Capital, 5:27 weighted average maturity (WAM), secondary sources, 4:157–158 Walgreens, 4:96 5:491–494 practice problems, 4:196–198 Wall Street Journal, 5:103 weighted averages, total probability rule short-term financing,4: 189–194 Wall Street Reform and Consumer and, 1:489 asset-based loans, 4:192 Protection Act (2010), 4:18; weighted mean, 1:415–418 borrowing approaches, 4:191–192 6:12–13 formula, 1:416–417 costs of borrowing for, 4:193–194 Wal-Mart Stores, Inc. portfolio return as, 1:417–418 sources of, 4:189–191 balance sheets, 3:15–16 Wellcome Trust, 4:220 short-term funds management, as bond issuer, 5:306, 315, 316 Wells Fargo Advantage Small Cap Value 4:167–174 cash flows from operating activities, Fund, 1:435 evaluating, 4:174 3:287–289 Welsh, Jack, 3:717–718 investment instruments, 4:168–171 economies of scale, 2:46 Western Europe, 5:350. see also specific strategies for, 4:171–174 industry life cycle of, 5:216–217 countries solutions to problems, 4:199–201 inventory management, 4:184 Wharf Holdings Ltd., 1:688 working capital turnover, 3:349, 354 liquidity management, 4:161–163 whistleblowing, 1:18, 136, 141 work-in-progress inventory, 3:404, 435 and market model, 4:378–379 White, Harry Dexter, 2:434 workout period, 5:505 operating leverage, 4:135–136 wholesale funds, 5:385–386 World Bank. see International Bank for population mean of sales, 1:406 wholesale price index (WPI), 2:230 Reconstruction and Development population variance of sales, 1:434 Wilcoxon signed-rank test, 1:657 World Bank Group two-factor analysis of, 5:210 Wilder, Welles, 1:712 foreign currency of, 2:413 wage/hour discrimination suit, 4:37 William and Flora Hewlett Foundation, founding of, 2:382 Walt Disney Company, 5:377 4:219 and globalization, 2:339 WAM. see weighted average maturity willingness to take risk, investors’, and IMF, 2:382 war chests, 3:735 4:417–419 mandates of, 2:384 warehouse receipt agreements, 4:192 Wilshire 5000 Total Market Index, 5:95 World Development Report, 2:340 warranties, 3:176 window dressing, 5:131 WorldCom warrants Winsorized mean, 1:410n.14 capitalization policies, 3:706 bonds with, 3:621–622 “Within GAAP, but biased choices” credit ratings, 5:608 conversion options vs., 5:333, 334 financial reports,3: 670–676 financial reporting quality,3: 677 and equities, 5:18; 6:36 “Within GAAP, but ‘earnings manipulation of accounting earnings, warranty reserves, 3:713 management’” financial reports, 3:76 Wataniya, 4:12 3:676–677 technical vs. fundamental analysis of, waterfall structures, 5:308, 481 W.K. Kellogg Foundation, 4:219 1:684 Watson Pharmaceuticals Inc. case study, women, in workforce, 5:226–227 World Development Report, 2:340, 364 5:618–625 won, South Korean, 2:401 World Investment Indicators, 2:342 The Wave Principle (Elliott), 1:725 work, misrepresentation of, 1:74 The World Is Flat (Friedman), 2:64

bind 100 June 17, 2017 4:16 PM Index I-101

world price, 2:338, 339, 349 international bonds outstanding in, based on spot rates, 5:412–413 World Trade Organization (WTO) 5:351 and bond equivalent yield, 1:381 agreements under, 2:363 JPY/USD currency pair, 2:416 for bond vs. money market, 5:429 founding of, 2:382 as reserve currency, 5:19 building blocks of, 5:441–442 functions of, 2:385–386 yield(s), 5:420–433 calculation of, 5:406–407 and globalization, 2:339 annual percentage, 1:315n.6 and cost of debt, 4:84–85 quotas on non-members, 2:359 bank discount, 1:377–378, 380 defined, 5:304, 407 termination of Multi Fiber Agreement, benchmark, 5:574 differences in,5: 433–435 2:345 bond equivalent, 1:381; 4:170; and Macaulay duration, 5:551 World War I, 2:226, 307, 367 5:431–433 and rate of return, 5:531–532 World War II, 2:226, 307 cash flow,5: 555 true, 5:422–423 WPI. see wholesale price index CD equivalent, 1:379 yield to redemption, 5:304 wrap accounts, 4:235 collateral, 6:173 yield-to-worst, 5:425 wrap fee, 1:273 and credit risk/return, 5:629–630 yield volatility, 5:568–569 Wrap Fee/SMA Portfolios (GIPS Section current, 5:423 YPG Holdings, 5:256 I.8), 1:252–254 defined, 4:169–170 YTM. see yield-to-maturity about, 1:235 discount, 1:377–378, 380 yuan, Chinese (yuan renminbi), 2:401 compliance with, 1:231 of discounted securities, 4:169–170 CNY/USD exchange rate, 2:403–404 Composite Construction provisions, effective annual,1: 379–381 exchange rate regime, 2:437 1:253 of fixed-income securities,5: 304 international bonds outstanding, Disclosure provisions, 1:253 of fixed-rate bonds,5: 420–433 5:351 Presentation and Reporting provisions, of floating-rate notes,5: 425–429 Yue Yuen Industrial, 4:210–213 1:254 forward, 5:438 Yugoslavia, 2:226 requirements, 1:253–254 government equivalent, 5:423 write-downs, inventory holding period, 1:378, 380 Z in financial analysis,3: 436 horizon, 5:532–536, 571 Zambia, 3:117 and financial ratios,3: 428–433 money market, 1:376–381; 4:170 zero-coupon bonds, 5:301, 378 US GAAP vs. IFRS on, 3:426–427 for money market instruments, with call options, 5:382 write-offs, private equity,6: 154 5:429–433 convexity adjustment for, 5:560–563 writers, derivatives, 6:7 option-adjusted, 5:425 default risk premium for, 1:496–497 writing, after exam period, 1:196 redemption, 5:304 (see also as deferred coupon bonds, 5:325 written material, brought into exam yield-to-maturity) sovereign, 5:369 room, 1:195 required, 5:402 spot curve for, 5:434 “wrong-way” risk, 4:267 roll (convenience), 6:64–65, 173 zero-coupon indexed bonds, 5:327 WTO. see World Trade Organization running, 5:304 zero curve, 5:434 W.W. Grainger, 5:210 semiannual bond basis yield, 5:421 zero rates, 5:411 on short-term investments, 4:169–170 zero-sum game, 6:15 X simple, 5:423 zero-volatility spread (Z-spread), 5:443, XBRL. see eXtensible Business Reporting sovereign yield spread, 4:101 445 Language true, 5:422 Zhao, Quanshui, 4:106 yield curves Zimbabwe, 2:226–227; 3:117 Y benchmark, 5:443–445 Zimmer, 5:209, 213 Yahoo!, 5:40 inverted, 5:434 Z-score, 3:384 Yahoo! Finance, 4:293 yield duration, 5:538, 545, 548, 562 z-test alternative Yale University, 4:218–220, 224; 6:127 yield enhancement instruments, 5:382 confidence intervals for population Yankee bonds, 5:313 yield maintenance charges, 5:505 mean, 1:597–599 yen, Japanese yield spreads, 5:441–445 for disclosures and share prices, cross-rate calculations with, and credit risk/return, 5:630–637 1:639–641 2:422–423 over benchmark rates, 5:441–443 hypothesis testing with, 1:638–641 currency code, 2:401 over benchmark yield curve, 5:443–445 nonparametric test vs., 1:656, 657 exchange rate quotes with, 2:418–419 required, 5:418 rejection points for, 1:632, 639 foreign exchange gains, 5:169 yield-to-maturity (YTM) t-test vs., 1:638, 641, 656, 657

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