I-1

Index

A accounting costs, 2:28 Revenue from Contracts with AAII. see American Association of accounting equation, 3:12 Customers (ASC 606), 3:112n.25, 114 Individual Investors accounting estimates, 3:640–641 Statement of Cash Flows (ASC 230), AAR. see average accounting rate of return Accounting for Income Taxes (SFAS 109), 3:471n.32 Abbott Laboratories, 4:135–136; 5:213 3:508 Accounting Standards Updates (ASUs), ABG Gas Supply LLC, 3:650 Accounting for the Costs of Computer 3:82, 114 ability to take risk, investors’, 4:371–373. Software to be Sold, Leased, or account reviews see also risk tolerance Otherwise Marketed (SFAS 86), firm policies on,1: 105 AbitibiBowater Inc., 3:462–464 3:431 systematic, 1:114 abnormal returns, 5:124 accounting goodwill, 3:184 accounts ABP (pension fund), 4:388–389 accounting policies balance of payments, 2:368–369, absolute advantage, 2:345–352 changes in, 3:81–83 375–377 absolute dispersion, 1:428 disclosures relating to, 3:79–83 with beneficial ownership,1: 186, 187 absolute frequency, 1:393 retrospective application of, 3:128 contra, 3:169 absolute priority rule, 5:483 accounting profit doubtful, 3:120, 653 absolute return, for alternative defined, 2:28; 3:508 family, 1:108, 186, 188–189 investments, 6:129–130 taxable income vs., 3:508–513 in FX market, 2:410–411 absolute risk objectives, 4:370 and current tax assets/liabilities, in performance calculations, 1:128 absorption approach to trade balance, 3:509–510 representative, 1:221 2:447–448 and deferred tax assets/liabilities, tax asset valuation, 3:654 ABSs. see asset-backed securities 3:510–513 temporary new, 1:237, 270 Abu Dhabi Investment Authority, 4:221 taxable profit vs.,3: 518–523 uncollectible, 3:641–642 academic designations, order of, 1:202 and business combinations/deferred accounts payable, as current liability, 3:176 accelerated book building, 5:50 taxes, 3:523 accounts payable management, accelerated methods of depreciation, and investments in subsidiaries, 4:185–188 3:122–124, 435 branches, associates, and interests, cash disbursements, 4:188 acceptance region, test statistic, 3:523 evaluating, 4:188 1:628–629 temporary differences,3: 519–522 trade discounts, 4:187–188 access, short-term borrowing strategy Accounting Regulatory Committee, accounts receivable and, 4:191 3:55 as current assets, 3:169–171 account information, regular statements accounting risk, 4:427 and financial reporting quality,3: 656 of, 1:105 accounting scandals, 3:608 and taxable/deductible temporary accounting accounting standards. see also specific differences, 3:521 accrual, 3:640–641 standards and tax bases of assets, 3:514, 515 acquisition method of, 3:422 biased application of, 3:624–625 accounts receivable aging schedule, “big bath,” 3:624 convergence of, 3:99–100, 112 4:180–181 cash-basis, 3:640–641 for revenue recognition, 3:112–116 accounts receivable management, “cookie jar” reserve, 3:624–625 and ROE, 3:678–680 4:175–181 Accounting and Auditing Enforcement Accounting Standards Board of Japan, customers’ receipts, 4:177–180 Release (SEC), 3:641–643 3:57 evaluating, 4:180–181 Accounting and Corporate Regulatory accounting standards boards, 3:48–50 trade granting process, 4:176–177 Authority, 3:47, 59, 628 attributes of, 3:50 accounts receivable turnover, 4:160 accounting choices Financial Accounting Standards Board, accredited individuals, 4:236n.20 aggressive 3:49–50 Accredited Investors, 6:133n.14 and bias in application of accounting International Accounting Standards accrual accounting standards, 3:624–625 Board, 3:48–49 cash-basis vs., 3:640–641 conservative vs., 3:620–625 Accounting Standards Codification defined, 1:262 defined, 3:612 (FASB), 3:49–50 Input Data (GIPS Section I.1), 1:235 biased, 3:612–620 Accounting Standards Updates, 3:82, accrued expenses, as current liability, conservative, 3:620–625 114 3:176 aggressive vs., 3:620–625 Business Combinations (ASC 805), accrued interest, 1:376–377; 5:413–417 benefits of,3: 624 3:422n.9 accumulated other comprehensive bias in application of accounting Expenses: Compensation–Retirement income, 3:193 standards, 3:624–625 Benefits (ASC 715),3: 679 Acer Inc., 3:275–277; 5:209 defined, 3:612 Fair Value Measurements and ACH. see Automated Clearing House in extractive industries, 3:621–622 Disclosures (ASC 820), 3:417n.2 acid-test ratio, 4:160 losses in, 3:620–621 General Electric disclosures, 3:82 acquisition and deferred-tax assets, 3:642–643 Income Taxes (ASC 740), 3:508 of businesses, 3:535 earnings management with, 3:618 Interest (ASC 835), 3:428n.11 of long-lived assets, 3:417–435 financial reporting issues,3: 638–655 Leases (ASC 840), 3:467n.29, accounting for, 3:417 cash flow statements,3: 648–651 577n.14 capitalisation of interest costs, earnings and balance sheets, 3:639–648 Leases (ASC 842), 3:468 3:428–431

Cumulative_Ind_L1 1 August 1, 2018 7:45 PM I-2 Index

acquisition (Continued) guidance, 1:144 African Development Bank (AFDB), capitalisation of internal development text of, 1:46, 144 2:411; 5:372 costs, 3:431–435 additional information, 1:262 after-tax cost of debt, 4:85 capitalising vs. expensing costs, additional services, for select clients, after-tax nominal return, 4:254 3:423–428 1:116 agency bonds, 5:372–373 and financial reporting issues,3: 648 addition rule for probabilities, agency relationship, 4:11; 5:61. see also intangible assets, 3:420–423 1:481–482 principal–agent relationship property, plant, and equipment, add-on rates, 5:429–431 agency RMBS, 5:490–491, 503. see also 3:417–420 adequate compliance procedures, collateralized mortgage obligations acquisition method of accounting, 1:147–149 (CMOs); mortgage pass-through 3:422 Adidas AG, 5:657–658 securities action lag, 2:316 adjustable-rate mortgages (ARMs), 5:487 agent options, 1:182 actions adjusted consolidated segment operating agents, trustee, 5:479 investment (see also Investment income (adjusted CSOI), 3:635–638 age ratios, asset, 3:460–464 Analysis, Recommendations, and adjusted EBITDA, 3:634 aggregate demand (AD), 2:137–148 Actions [Standard of Professional adjusted funds from operations (AFFO), and AD curve, 2:145–148 Conduct V]) 6:166 and business cycle, 2:202–203 fair dealing in, 1:111–112 adjustments defined, 2:136 firm policies on,1: 105–106 financial statement,3: 698–713 and fiscal policy,2: 300–301 impact of, 1:40–41 to debt, 3:710–712 and global recession (2007-2009), unethical, 1:57 framework for, 3:698 2:165–167 personal, 1:83 for goodwill, 3:704–706 and imports/exports, 2:336–337 unethical, 1:57 for inventory, 3:699–702 and inflationary gap,2: 167–168 active crawling peg currency regime, and current ratio, 3:701–702 investment strategies for decrease in, 2:437–438 with LIFO accounting, 3:699–701 2:164–165 active investment strategies for investments, 3:698 investment strategies for increase in, industry analysis in, 5:188–189 for off-balance-sheet financing, 2:168 information-acquisition costs for, 3:706–713 IS curve, 2:137–144 5:123–124 for plant, property, and equipment, LM curve, 2:144–145 and market efficiency,5: 117 3:703–704 and recessionary gap, 2:163–167 active management inventory, 3:368–375 shifts in, 2:150–157 of alternative investments, 6:124, 129 declines and recoveries of inventory capacity utilization, 2:153 of portfolios value, 3:369–370 consumer and business expectations, capital market line for, 4:318 inventory write-downs and financial 2:153 information-motivated trading in, ratios, 3:370–375 economic growth, 2:155 5:10 administrative costs, 2:366 exchange rate, 2:155 manager performance in, 5:129 administrative fees, 1:262 fiscal policy,2: 153 manager selection for, 5:116 ADRs. see American depositary receipts household wealth, 2:151–152 security market indexes in, 5:94 ADSs. see American depositary shares monetary policy, 2:153–154 of stock mutual funds, 4:232 ADT Security Services, Inc., 5:199, 200 shifts in supply and, 2:170–173 active returns, 5:116 advanced economies, trade-to-GDP aggregate demand curve (AD curve) active strategies ratio for, 2:338 example, 2:147–148 borrowing, 4:192 Advanced Micro Devices, 5:209 features of, 2:145 short-term investing, 4:171–172 adverse audit opinion, 3:28 interest rates and income effects, activist shareholders, 6:136. see also adverse selection, with insurance, 5:34 2:146–147 shareholder activism advertisements. see also GIPS investment strategies based on, activity ratios, 3:291–298 Advertising Guidelines (GIPS 2:171–172 calculation of, 3:292–294 Section III) aggregate expenditures, 2:119 in company analysis, 5:230–231 defined, 1:256 aggregate income, 2:119–136 defined, 2:220; 3:292–293 information included in, 1:256 in economy, 2:119–120 evaluation of, 3:295–298 adviser-assisted digital wealth managers, and expenditures, 2:137–144 interpretation of, 3:294–298 4:468 in gross domestic product, 2:120–136 fixed asset turnover,3: 297 advisers, selecting, 1:157 components of, 2:127–131 inventory turnover and DOH, Aegis Value Fund, 1:433 external sector, 2:130–131 3:294–295 aerospace industry, governmental government sector, 2:129–130 payables turnover and number of influences on,5: 225–226 household and business sectors, days of payables, 3:296 AFC. see average fixed cost 2:128 receivables turnover and DSO, AFDB. see African Development Bank measuring, 2:120–123 3:295–296 affiliated stockholders, as takeover nominal and real, 2:124–127 total asset turnover, 3:297 defense, 4:34 and other income measures, 2:131–136 working capital turnover, 3:297 affirmative covenants,3: 559; 5:310, 626 values of goods and services, AD. see aggregate demand Afghanistan, 3:59 2:123–124 ADB. see Asian Developmental Bank Africa. see also specific countries and real personal, 2:239 ADC Telecommunications, 4:209–210 regions aggregate indexes, fixed-income,5: 99 AD curve. see aggregate demand curve debt and equity outstanding, 5:350 aggregate output, 2:119–136 Additional Compensation Arrangements and IFRS, 3:59 in economy, 2:119–120 [Standard IV(B)], 1:144–145 industrial comparative ratio, 5:617 in gross domestic product, 2:120–136 application of the standard, 1:144–145 REIT returns, 6:164–165 components of, 2:127–131 compliance procedures, 1:144 terms of trade for, 2:335, 336 external sector, 2:130–131

Cumulative_Ind_L1 2 August 1, 2018 7:45 PM Index I-3

government sector, 2:129–130 notes to consolidated financial performance and diversification household and business sectors, 2:128 statements, 3:385–386 benefits, 6:163–165 measuring, 2:120–123 solvency ratio evaluation, 3:306 risks with, 6:166–167 nominal and real, 2:124–127 Alcoa, 5:276 valuation, 6:165–166 and other income measures, Alcon, 3:685 returns from, 6:129–132 2:131–136 Algeria, 2:435 risk management, 6:176–180 values of goods and services, algorithmic trading, 4:469 due diligence with, 6:178–180 2:123–124 algorithms, 4:462 process, 6:177 aggregate price, supply of money and, Alibaba, 4:13, 32 risk–return measures, 6:178–179 2:271–272 Allianz SE, 1:424; 5:165 security market indexes for, 5:101–104 aggregate real personal income, 2:239 all-in fees, 1:263 solutions to problems, 6:189–193 aggregate supply (AS) allocation(s) structures for, 6:132–133 and AS curve, 2:148–150 asset, 1:549–551 and traditional investments, 6:132 defined, 2:136 minimum lot, 1:116–117 alternative trading systems (ATSs), and global recession, 2:165–167 with safety-first rules,1: 549–551 5:29–30 and imports/exports, 2:336–337 trade allocation procedures, 1:113, 114 Altria Group Inc., 3:453 investment strategies for shifts in, transaction, 1:115–116 Amaranth Advisors LLC, 6:171 2:169–170 allocationally efficient financial systems, AMC. see Asset Manager Code of long-run, 2:148–150, 159–161 5:59 Professional Conduct in perfectly competitive market, 2:81 allocative efficiency,5: 116n.2 Ameren, 5:255 in real business cycle models, all-or-nothing orders (AONs), 5:47 American Association of Individual 2:216–217 allowance Investors (AAII), 1:715 shifts in, 2:150–151, 157–162 for doubtful accounts, 3:653 American depositary receipts (ADRs), shifts in demand and, 2:170–173 for loan loss reserves, 3:653 1:681–682; 5:167–168 short-run, 2:148–149, 157–158 Aloha Airlines, 4:438n.30 American depositary shares (ADSs), 5:167 and stagflation,2: 169–170 alpha, 5:94 American Express, 1:544n.17 aggregate supply curve (AS curve) Alpha Natural Resources, 4:334–335 American options (American-style about, 2:148–150 alternative data, 4:457, 460 options) investment strategies based on, alternative hypothesis, 1:624–625, callable, 1:539; 5:330 2:171–172 651–652 defined, 6:26, 85 long-run, 2:148–150 alternative inventory costing, 3:118–120, pricing, 6:104–107 short-run, 2:148–149, 157–158 654 putable, 5:332n.6 aggressive accounting choices Alternative Investment Fund Managers American Stock Exchange (AMEX), and biased application of standards, Directive (AIFMD), 6:144 5:168 3:624–625 alternative investments, 6:123–193 American-style contracts, 5:24 conservative vs., 3:620–625 categories of, 6:128–129 Americas, 6:164–165 defined, 3:612 collectibles, 6:175–176 AmeriCredit Automobile Receivable and non-GAAP measures in reports, commodities, 6:167–173 Trust 2013–4, 5:509–511 3:612, 615 derivatives and indexes, 6:168–169 AmeriGas, 5:210 aging schedule, 4:180–181 investment vehicles, 6:169–170 AMEX. see American Stock Exchange AGM. see annual general meeting performance and diversification Amgen, 5:209 Agnelli Industries, 5:484–485 benefits, 6:170–171 amortisation (amortization) agriculture, 2:68–69; 6:167, 168 prices of, 6:171–173 of asset-backed securities, 5:512 AI. see artificial intelligence common characteristics, 6:124–128 of bonds, 3:550–554 AIG, 6:32, 33 defined, 6:123–124 amortisation of discounts, 3:551–553 AIMR. see Association for Investment hedge funds, 6:133–148 amortisation of premiums, 3:553–554 Management and Research about, 6:133–135 and interest expense/interest AIMR Performance Presentation diversification benefits,6: 138–139 payments, 3:550–554 Standards (AIMR-PPS®), 1:226 due diligence, 6:146–148 defined, 3:121 Airbus fees and returns, 6:139–143 and expense recognition on income governmental influences on,5: 225–226 investment strategies for, 6:135–138 statements, 3:124 in method of comparables, 5:270–271 and leverage, 6:143–144 of intangible assets, 3:121, 181 strategic analysis with, 5:207–209, 218 and redemptions, 6:144–145 of long-lived assets, 3:443–444 Aircastle Limited, 5:27 valuation issues, 6:145–146 amortisation expenses, 3:444 aircraft manufacturing industry, historical records of, 6:126 amortised costs, 3:66, 168–169, 186, 188 strategic analysis of, 5:207–208, 218 infrastructure investments, 6:173–175 amortization schedule, residential airline industry markets for, 5:15–16 mortgage loan, 5:487–488 asset-based equity valuation for, 5:278 portfolio diversification with,6: 132 amortizing bonds, 5:318–320 life-cycle stage and business cycle practice problems, 6:184–188 amortizing loans, 5:487, 508 sensitivity, 5:227–228 private equity, 6:148–158 AMR Corporation, 3:707–710 market structure for, 2:66 diversification benefits,6: 155–156 Amtrak, 2:104 Air Liquide, 1:424 due diligence, 6:158 analysis of variance (ANOVA), 1:632n.16 Air Products and Chemicals, 5:209 investment strategies, 6:150–154 analyst adjustments, 3:698–713 AirTran Airways, 2:88 portfolio company valuation, to debt, 3:710–712 Akerlof, George A., 1:679 6:156–157 framework for, 3:698 Alcatel-Lucent, 3:383–388 structure and fees, 6:149–150 for goodwill, 3:704–706 consolidated balance sheet, 3:384 real estate, 6:158–167 for inventory, 3:699–702 consolidated income statement, forms of investment, 6:159–161 and current ratio, 3:701–702 3:383–384 investment categories, 6:161–163 with LIFO accounting, 3:699–701

Cumulative_Ind_L1 3 August 1, 2018 7:45 PM I-4 Index

analyst adjustments (Continued) cash flow analysis of comparables, with market-based valuation, for investments, 3:698 3:256–257 3:682–687 for off-balance-sheet financing, change in accounting standards, for multiple periods, 3:687–690 3:706–713 3:129–130 practice problems, 3:715–716 for plant, property, and equipment, cross-sectional common-size analysis, solutions to problems, 3:717 3:703–704 3:200, 203–204 Applied Materials, 5:209 analysts current assets, 3:168 appraisal indexes (real estate), 6:163 areas of concern about financial current liabilities, 3:175 appraisals, asset revaluation, 3:446 reporting quality, 3:652–655 deferred revenue, 3:176–178 appreciation, currency, 2:418 corporate governance considerations, deferred tax assets, 3:174 approval, for outside compensation, 4:31–36 deferred tax liabilities, 3:192 1:145 board of directors representation, earnings announcements, 3:8–9 approximate modified duration, 4:32 equity, 3:194–195 5:543–545 composition of investors, 4:33–34 expected return, 4:334–335 APR. see annual percentage rate economic ownership and voting financial assets,3: 189 a priori probability, 1:476 control, 4:31–32 goodwill, 3:186 APs. see authorized participants long-term risk management, 4:35 inventory valuation, 3:171, 172 APY. see annual percentage yield remuneration and company and Logitech, 2:342 AR. see average revenue performance, 4:32–33 marketable securities, 3:169 arbitrage shareholders’ rights, 4:34 non-current assets, 3:179 bounds of, 5:123 estimates of value by, 4:48 non-current liabilities, 3:190–191 commodities, 6:172 natural language processing for and revenue recognition on income convertible, 4:236 monitoring, 4:466 statements, 3:111–112 defined, 6:47 nonpublic information from, 1:93–94 statement of changes in equity, in derivatives pricing, 6:47–52, 66–72 analytical tools, 4:456 3:195–196 executing, 6:67 anchor, underwritten offerings,5: 361 strategy and financial performance, with forward contracts, 6:49–50 Andrew W. Mellon Foundation, 4:219 3:273–274, 673–677 frequency of arbitrage opportunities, Anglo American, 5:276 war chests, 3:677 6:67 AngloGold Ashanti, 5:276 Apple TV, 3:129–130 and hedge funds, 6:136 Anheuser-Busch, 3:423 applicable law limits to, 6:70 Anheuser-Busch InBev SA/NV, 1:424; and Code/Standards, 1:50–53 and market efficiency,5: 123 3:684–686; 5:200 on confidentiality,1: 130 and put–call parity, 6:97 annual coupon rate, 5:404 in firm policy,1: 105 and relative valuation, 6:47–49 annual general meeting (AGM), 4:15 global, 1:52–53 and replication, 6:68–69 annualized convexity, 5:561–562 and investment products, 1:51–53 risk, 1:91; 6:50n.24 annualized returns, 1:289–290; providing information on, 1:55 with stocks and risk-free bonds, 4:251–253 staying informed about, 1:54 6:47–49 annualized yield measures, 5:420 applications of financial statement triangular, 2:421 annual modified duration,5: 542–544 analysis, 3:671–717 arbitrage-free pricing, 6:70 annual percentage rate (APR), 1:313n.6 analyst adjustments, 3:698–713 arbitrage pricing theory (APT), 4:353 annual percentage yield (APY), 1:313n.6 to debt, 3:710–712 arbitrageurs, 5:34–36, 123 annual reports, 3:53, 613–614 framework for, 3:698 ArcelorMittal, 1:423; 5:622–623, 625 annual returns, advertisements with, for goodwill, 3:704–706 Archer Daniels Midland Company, 1:290–291 for inventory, 3:699–702 1:733, 737; 2:105 annual share turnover, 1:426 for investments, 3:698 Argentina Annual Statement Studies (Risk for off-balance-sheet financing, exchange rate regime, 2:434, 437–438 Management Association), 3:282 3:706–713 financial reporting quality in,3: 628 annuities. see also ordinary annuities for plant, property, and equipment, foreign direct investment, 2:339, 340 defined, 1:314 3:703–704 IFRS adoption, 3:58 future value of, 1:314–316 credit risk assessments, 3:691–694 inflation-linked bonds,5: 326, 370 lump sums to fund, 1:333–336 Moody’s rating factors, 3:692–693 MERCOSUR, 2:360 size of annuity payments, 1:332–336 peer comparison ratios, 3:694 MSCI multi-market index, 5:96 annuity due, 1:314, 321–323 equity screening, 3:694–697 non-sovereign government debt, 5:650 anomalies, market. see market anomalies example, 3:695 Ariane space program, 5:225 ANOVA. see analysis of variance ratio-based, 3:697 arithmetic mean, 1:404–408 anticipation stock, of inventory, 4:183 financial performance evaluations, and coefficient of variation,1: 441–442 antidilutive securities, 3:139–140 3:673–681 as cross-sectional mean, 1:405–407 Antigua, 2:434 accounting standards and ROE, defined, 1:398n.9, 404 antitrust policies, 2:92, 105–106 3:678–680 and geometric, 1:418–420 ANZSIC. see Australia and New Zealand and changes in business strategy, and median, 1:410–411 Standard Industrial Classification 3:673–677 as population mean, 1:404–405 AONs. see all-or-nothing orders and war chests, 3:677 properties, 1:407–408 APC. see average propensity to consume financial performance projections, sample mean, 1:405–407 APL. see average product of labor 3:681–690 using, 1:456–457 Apollo Group, 5:210 consistency of forecasts, 3:690 and weighted mean, 1:414n.19 Appendices, IPS, 4:369 example, 3:687–689 arithmetic return, 4:246 Apple Inc. forecasting operating profit, Armenia, 3:59 accounts receivable, 3:169–170 3:683–684 Armitage, Seth, 4:105 balance sheet components, 3:164 issues with, 3:684–687 ARMs. see adjustable-rate mortgages

Cumulative_Ind_L1 4 August 1, 2018 7:45 PM Index I-5

Arms index, 1:718–720 financial, 5:14 in portfolio management, 4:223 Arngrove Group Holdings, 3:127 income tax bases of, 3:513–515 safety-first rules for,1: 549–551 Arthur Andersen, 1:6 intangible, 5:277–278 tactical, 4:393–394 Articles of Incorporation, 1:51 acquisition of, 3:420–423 asset-backed securities (ABSs), artificial intelligence (AI),4: 456, on balance sheets, 3:181–186 5:473–525 460–462. see also machine learning from business combinations, about, 5:473–474 Art Market Research, 6:176 3:422–423 auto loan, 5:508–511 Artpiece, 6:176 capitalization of, 3:647–648, 653 collateral backing for, 5:308 AS. see aggregate supply depreciation/amortisation of, 3:121, collateralized debt obligations, ASA, 3:651 181 5:512–515 Asahi Breweries, 3:677 identifiable, 3:182–183 structure, 5:513 ascending triangle pattern, 1:702 impairment of, 3:181, 450–451 transaction example, 5:513–515 AS curve. see aggregate supply curve on income statements, 3:124 commercial mortgage-backed ASEAN. see Association of Southeast internally-developed, 3:420–422 securities, 5:503–508 Asian Nations long-lived, 3:416 balloon maturity provisions, 5:505 Asia. see also specific countries and not from business combinations, call protection, 5:504–505 regions 3:420 credit risk, 5:504 capitalization level and contributions and research, 3:182, 421 structure, 5:504–508 to global GDP, 5:151 lease versus buy decision for, as contingent claims, 6:33–35 current account imbalance, 2:378 3:467–470 creation of, 5:31–32 debt and equity outstanding, 5:350 liquid asset requirement, 3:322 credit card receivable, 5:511–512 effects of global recession,2: 165 liquidity and sales of, 5:639 defined, 5:474 financial crisis (1997-1998),2: 292, 341 long-lived (see long-lived assets) economic benefits of securitization, and IFRS, 3:59 market efficiency and prices of, 5:474–476 institutionally owned real estate, 6:159 5:118–120 in global debt, 5:349, 350 market regulatory bodies, 3:627 in markets, 5:14–20 legal identity of issuers, 5:306 natural resources, 2:178 non-current, 3:165, 178–189 non-mortgage asset-backed securities, returns on REITs, 6:164–165 physical, 4:472; 5:14 5:508–512 terms of trade, 2:335 quick, 4:160 auto loan ABS, 5:508–511 trade-to-GDP ratio, 2:338 real, 5:14, 26–28 credit card receivable ABS, Asia 50 ADR Index Fund, 5:169 recoverable amount of, 3:449 5:511–512 Asian call options, 1:558–559 return on, 3:280, 308–309, 363 as pooled investments, 5:19 Asian Developmental Bank (ADB), 5:372 risk-free, 4:291–294 practice problems, 5:519–522 Asian Financial Crisis (1997-1998), and capital allocation line, 4:291–292 repayment sources for, 5:307 5:164 and capital market line, 4:319–321 residential mortgage-backed securities, Asian Market Neutral Composite, 1:294 combining risky assets with, 4:315–318 5:490–503 Asian-Pacific Aggregate Bond Index, and homogeneity of expectations collateralized mortgage obligations, 5:357 assumption, 4:317–318 5:497–503 Asia Pacific Association for Fiduciary two-fund separation theorem, mortgage pass-through securities, Studies, 1:231 4:292–293 5:491–496 ask prices, 5:44; 6:10n.3, 145 utility theory and selection of, non-agency residential mortgage- ask sizes, 5:44 4:273–276 backed securities, 5:503 ASML Holdings NV, 1:423; 5:200–202 risk of two-asset portfolio, 4:258–259 residential mortgage loans, 5:485–490 Asociación Española de Presentación de risky amortization schedule, 5:487–488 Resultados de Gestión, 1:231 combining risk-free assets with, interest rates, 5:486–487 asset(s). see also investment 4:315–318 lender’s rights in foreclosure, characteristics of assets covariance and correlation of risks, 5:488–489 average age of depreciable, 3:462–464 4:277–279 maturity, 5:486 on balance sheets, 3:162, 186–189 efficient frontier of,4: 291 prepayment options and penalties, and classification of markets,5: 14–16 importance of correlation of risks in 5:488 as collateral, 5:626 portfolio, 4:282 securitization, 5:474–485 in Conceptual Framework, 3:64 portfolio return, 4:276 economic and market benefits, currencies, 5:19–20 portfolio risk, 4:276–282 5:474–476 current risk and return relationship, 4:279–281 parties’ roles in transaction, and accounting profit vs. taxable utility theory and selection of, 5:478–480 income, 3:509–510 4:273–276 special purpose entities, 5:482–485 on balance sheets, 3:165, 167–174 securities, 5:16–19 structure of securitization, 5:481–482 debt-to-assets ratio, 3:304, 305, 586, equities, 5:17–18 transaction example, 5:476–478 587 fixed-income, 5:17 solutions to problems, 5:523–525 deferred tax pooled investments, 5:18–19 as structured financial instruments, accounting choices about, 3:642–643 securitized, 5:474 5:381 accounting profit vs. taxable income tradable, 4:319 traditional bonds vs., 5:299 for, 3:510–513 underlying, 5:20 asset-based equity valuation models, changes in tax rates, 3:517–518 variance of return for single, 4:256 5:276–280 current assets, 3:174 asset age ratios, 3:460–464 for airline industry, 5:278 defined, 3:509 asset allocation. see also strategic asset defined, 5:247 and timing, 3:508 allocation (SAA) for family-owned laundry, 5:277 unused tax losses/credits, 3:523–524 indices as proxies for asset classes in, other models vs., 5:246–248, 279–280 defined, 3:9, 162 5:94 for restaurant, 5:278

Cumulative_Ind_L1 5 August 1, 2018 7:45 PM I-6 Index

asset-based loans, 4:192 Association of Southeast Asian Nations in MSCI EAFE, 1:406 asset-based valuation approach (ASEAN), 2:88 MSCI multi-market index, 5:96 for private equity, 6:157 L’Associazione Bancaria Italiana, 1:231 natural resources, 2:178 for REITs, 6:166 L’Associazione Italiana degli Analisti net borrowing/lending, 2:303 asset beta, 4:95–98 Finanziari, 1:231 real estate property AUM, 6:159 asset class(es) Assogestioni, 1:231 residential mortgage loans, 5:487 adding to investment opportunity set, assumptions returns 4:289 CAPM, 4:335–337, 348n.6 on bonds and bills, 5:152–153 correlation matrix, 4:386–387 Cournot, 2:90–91 on equities, 5:152–153 correlation of risk among, 4:285 for financial reports,3: 65 on real equity, 1:398 defining, 4:384 of Gordon growth model, 5:259–260 risk tolerance and equity ownership, diversification with,4: 286 heterogeneous beliefs, 4:347, 350–351 5:154 nominal returns, 4:260–262 homogeneity of expectations, robo-advisory services in, 4:466 real returns, 4:261–262 4:317–318, 336–337, 352 sovereign bonds, 5:370 returns by, 5:644–645 infinite divisibility,4: 337 Australia and New Zealand Standard risk and return of, 4:260, 263 in technical analysis, 1:678–680 Industrial Classification (ANZSIC), robo-advisory services to manage, Astra International, 1:555–556 5:196 4:467–468 AstraZeneca PLC, 4:246 Australian Bureau of Statistics, 5:196 security market indexes as proxies for, ASUs. see Accounting Standards Australian dollar 5:94 Updates AUD/HKD exchange rate, 2:402–404, in strategic asset allocation, 4:385–387 asymptotic properties, estimators’, 1:592 408–410 asset management company, sample ATC. see average total cost currency code, 2:399 presentation of, 1:273–274 ATSs. see alternative trading systems exchange rate quotes with, 2:416, Asset Manager Code of Professional AT&T 417n.4 Conduct (AMC), 1:38, 55, 157 credit curves for, 5:636–637 international bonds outstanding in, asset price(s) industry classification of,5: 192 5:351 artificial volatility in,1: 98–100 and industry structure, 5:217 trade balance and exchange rate for, and capital flows,2: 442 monopolistic structure of, 2:105 2:448–451 and head and shoulders patterns, restructuring charges of, 3:633 USD/AUD currency pair, 2:414 1:696–699 at the money, 6:27, 87 Australian Federal Reserve, 2:287 normal distribution as model for, auctions, 5:54, 360, 362–364 Australian Financial Services license, 1:545 audit committee, 4:23 4:466 and oscillators, 1:708 audit function, 4:17 Australian Securities and Investment trends in, 1:679–681 auditors, financial reporting quality and, Commission, 4:466 and volume, 1:689–690 3:629–630 Australian Securities Exchange, 5:154 asset risk premium, 4:216 audits Austria assets under management (AUM) adverse opinions, 3:28 employee laws in, 4:19 alternative investments, 6:123–124 auditor’s reports, 3:27–29 EU membership, 2:360n.18 global, 6:125 qualified and unqualified opinions, exchange rate regime, 2:434 growth of, 6:134–135 3:27–28 GIPS sponsor, 1:230 hedge funds, 6:134–135 standards for, 3:27 government debt, 2:260 institutionally owned real estate, 6:159 audit systems, 4:22 MSCI multi-market index, 5:96 by strategy, 6:135 AUM. see assets under management public sector spending, 2:261 asset swaps, 5:443 Aussie exchange rate, 2:416 total returns, 1:406, 410, 422 asset turnover Australia Austrian school of economic thought, and financial reporting quality,3: 656 bonds outstanding, 5:354, 360 2:212 fixed, 3:293, 297, 462–464 business investment, 2:177 autarkic price, 2:336, 347 total, 3:293, 297 commodities and economy of, 1:728 autarky, 2:336, 347 asset utilization ratios, 3:292. see also current account imbalance, 2:378 authorities, investment policy, 4:172 activity ratios cyclically adjusted budget deficit,2: 315 authorized participants (APs), 5:19 asset weighing, 1:127 disinflation, 2:225 auto loan asset-backed securities, Assicurazioni Generali, 1:423 domestic and international debt 5:508–511 assignments of accounts receivable, securities, 5:315 automated advice, 4:457 4:192 equity risk premiums, 4:90 Automated Clearing House (ACH), Assirevi, 1:231 exchange rate regime, 2:435 4:177–178 Associação Portuguesa de Analista export subsidies, 2:357 automated trading, 4:456 Financeiros, 1:231 foreign bonds, 5:313 automatic stabilizers, 2:140, 302, associate businesses, investments in, foreign investment, 5:164 317–318 3:523 GIPS sponsor, 1:230 automobile industry Association for Investment Management government liabilities/debt, 2:306 and GDP, 2:122–123 and Research (AIMR), 1:226 government revenues/expenditures, monopolistic competition in, 2:86, 100 Association for Savings and Investment, 2:301, 302 similar companies in, 5:189 South Africa, 1:231 IFRS adoption, 3:59 available-for-sale securities Association Française de la Gestion inflation-linked bonds,5: 326, 327 defined, 3:187 Financière, 1:230 inflation targeting,2: 285, 287 as financial assets,3: 187–189 Association of British Insurers, 1:231 liquidity representations on balance on income statements, 3:146 Association of Hungarian Investment sheets, 3:15 AVC. see average variable cost Fund and Asset Management mean and standard deviation of stock average accounting rate of return (AAR), Companies, 1:231 returns, 1:442 4:57–58

Cumulative_Ind_L1 6 August 1, 2018 7:45 PM Index I-7

average age of depreciable assets, balance of payments (BOP) system, balloon payments, 5:318 3:462–464 2:367–379 balloon risk, 5:505 average bank prime lending rate, 2:239 accounts in, 2:368–369, 375–377 Bancel, Franck, 4:108 Average Consumer Expectations for components of, 2:369–371 Banco Central del Uruguay, 3:51n.10 Business and Economic Conditions, imbalances since 1996, 2:377–379 BancoFinansur, 5:509 2:239 paired transactions in, 2:372–374 Banco Santander, 5:306 average costs for United States, 2:370–371 Bangladesh, 5:323 average fixed cost,2: 31–35 balance of trade deficit,2: 130, 336 bank certificates of deposit (CDs),4: 168 average total cost balance sheet equation, 3:12 bank discount basis, 1:375 with economies of scale, 2:45–46 balance sheet ratios, 3:204–206 bank discount yield, 1:375–376, 378 and other costs/output, 2:31–35 balance sheets, 3:161–216 banker’s acceptances (BAs), 4:168, 190; in perfect competition vs. monopoly, about, 3:162 5:430–431 2:36–37 analysis of, 3:13–16, 196–206 Bank for International Settlements (BIS) average variable cost balance sheet ratios, 3:204–206 FX market survey by, 2:413–414 defined, 2:30 common-size, 3:196–204, 282–283, on OTC derivatives market value, 6:39 in perfect competition vs. monopoly, 285–287 and preference shares issued by DBS, 2:36–37 and capitalising vs. expensing of costs, 5:161 and shutdown decision, 2:39–40 3:423 on securitization incentives, 5:476 in perfectly competitive markets, and cash flow statements,3: 169, bank guarantees, 5:309 2:36–37, 79–80 232–233 Banking and Finance Commission, 2:276 average daily rate, 3:323 cash on, 5:618, 639 bank loans, 5:349, 350, 373–374 Average Duration of Unemployment, classified, 3:166 Bank of Canada, 2:184, 287, 438 2:239 components of, 3:163–165 Bank of England average fixed cost (AFC),2: 31–35 consolidated in FX market, 2:438 average inventory days outstanding. see Alcatel-Lucent, 3:384 independence of, 2:286 days of inventory on hand (DOH) Micron Technology, Inc., 3:529–530 monetary policy, 2:274, 277, 287 average inventory period, 4:161 Volvo Group, 3:371–372 quantitative easing, 2:296–297, 321 average life, mortgage pass-through current assets, 3:167–174 two-week repo rate, 2:282 securities, 5:495 Apple Inc., 3:168 Bank of Italy, 2:243, 276 average product of labor (APL), 2:25–28 cash and cash equivalents, 3:168–169 Bank of Japan average propensity to consume (APC), inventories, 3:171–173 in FX market, 2:411, 438 2:139 marketable securities, 3:169 monetary policy, 2:290, 297–299 average quote, for hedge fund valuation, other, 3:173–174 and money measures in Japan, 2:268 6:145 SAP Group, 3:167–168 Bank of Korea, 2:279, 287 average revenue (AR), 2:35 trade receivables, 3:169–171 Bank of Montreal, 6:171 average total cost (ATC) current liabilities, 3:174–178 Bank of Netherlands, 2:277 with economies of scale, 2:45–46 Apple Inc., 3:175 Bank of New York Mellon, 5:166 and other costs/output, 2:31–35 deferred revenue analysis, 3:176–178 bank runs, 4:429n.24 in perfect competition vs. monopoly, SAP Group, 3:175 bankruptcy 2:36–37 defined, 3:12, 162 and business risk, 4:145–147 average variable cost (AVC) equity, 3:192–196 priority of claims in, 5:599–600 defined, 2:30 components of, 3:192–195 regulations for bankrupt traders, 5:63 in perfect competition vs. monopoly, statement of changes in equity, and special purpose entities, 2:36–37 3:195–196 5:483–485 and shutdown decision, 2:39–40 financial assets on,3: 186–189 and technical analysis, 1:682 average weekly claims for format of, 3:165–167 bankruptcy risk, 4:29 unemployment insurance, 2:238 interest costs, 3:428 banks average weekly hours, manufacturing, inventories, 3:171–173 aggregate demand and reserves of, 2:238 leases, 3:471 2:153–155 A.W. Jones & Co., 4:235 LIFO liquidation, 3:364–365 benefits of securitization for,5: 475 AXA, 1:424 non-current assets, 3:165, 178–189 as brokers, 5:29 Azerbaijan, 2:434; 3:59 Apple Inc., 3:179 capital adequacy ratios, 3:322 financial assets,3: 186–189 credit cycle assessments by, 5:598n.7 B goodwill, 3:183–186 credit from, 4:189–190 Baby Boom, 5:223, 224 intangible assets, 3:181–186 depository, 5:166 backfill bias,6: 125n.3 investment property, 3:180–181 as financial intermediaries,5: 32, 33 back simulation, 1:562–563 property, plant, and equipment, in FX market, 2:412–413 back-testing, 3:696; 4:469 3:179–180 portfolio management for, 4:220 backup lines of credit, 5:375 SAP Group, 3:178–179 regulation of, 3:47 backwardation, 6:173 non-current liabilities, 3:190–192 risk management for, 4:410 Bahamas, 2:293 Apple Inc., 3:190–191 short-term funding for, 5:384–390 Bahrain, 5:96 deferred tax liabilities, 3:191–192 repurchase and reverse repurchase Baidu, 3:683, 684; 4:244 long-term financial liabilities,3: 191 agreements, 5:386–389 Baker, James, 2:438 SAP Group, 3:190 retail deposits, 5:385 Baker Hughes, 5:219–221 practice problems, 3:209–213 wholesale funds, 5:385–386 balanced budget multipliers, 2:313–314 quality of reporting on, 3:639–648 bank sweep services, 4:168 balanced budgets, 2:302 solutions to problems, 3:214–216 Barbados, 2:292 balanced funds, 4:229–230, 232–233 vertical common-size, 3:282–283 bar charts, 1:683–684 Balanced Growth Composite, 1:293 balloon maturity provisions, 5:505 Barclays plc, 1:732–733, 737

Cumulative_Ind_L1 7 August 1, 2018 7:45 PM I-8 Index

Barings Bank, 4:428 exchange rate regime, 2:434 return-generating models, 4:328–329 Barrick Gold, 5:276 floating-rate bonds,5: 369 risk budgeting with, 4:422 barriers to entry GIPS sponsor, 1:230 as risk metric, 4:436; 6:129 in credit analysis, 5:612 government debt, 2:260 and security characteristic line, 4:346 and market structure, 2:67, 97 MSCI multi-market index, 5:96 and security market indexes, 5:94 in strategic industry analysis, public sector spending, 2:261 B+H Ocean Carriers, 3:558–561 5:206–208, 219 returns BHP Billiton, 3:683, 684; 5:276 barriers to exit, 5:208 on bonds, bills, and equities, 5:153 biased accounting choices, 3:612–620 barriers to success, 5:207 real equity, 1:398 biases. see also sampling biases Barron’s, 1:715 total, 1:406, 410 in accounting standard application, barter economy, 2:123, 263 beliefs, investors’, 4:336–337, 347, 3:624–625 barter transactions, revenue recognition 350–351 backfill, 6:125–126 for, 3:109, 655 Belize, 2:293 behavioral, 5:137–139 BAs. see banker’s acceptances benchmark description in equity screening, 3:696 base currency, 2:399, 416 defined, 1:263 price index, 2:226 Basel Accords, 3:47 Disclosure (GIPS Section I.4), 1:238 survivorship, 5:102; 6:125–126, 143 Basel Committee on Banking GIPS Advertising Guidelines (GIPS bid–ask spread, 4:266; 5:44, 365–366 Supervision, 3:47, 48, 51 Section III), 1:257 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), 3:293 benchmarks “big bath” accounting, 3:624 base metals, as commodities, 6:167, 168 defined, 1:263 Big Data, 4:457–460 base prospectus, 5:478n.3 Disclosure (GIPS Section I.4), 1:239, challenges of, 4:460 base rates, 2:282 240 defined, 4:457 BASF Group GIPS Advertising Guidelines (GIPS extracting information from, disclosure of leases, 3:570–572 Section III), 1:257 4:463–465 globalization of share ownership, 5:165 incentives for managers to meet, 3:625 in risk analysis, 4:468–469 market capitalization, 1:424 and investment policy statements, sources of, 4:458–460 merger involving, 2:105 1:121 Big Mac index, 2:400 basic earnings per share, 3:132–134, Presentation and Reporting (GIPS bilateral loans, 5:373, 374 319, 320 Section I.5), 1:241, 242 bill-and-hold transactions, 3:652 Basic Materials and Processing sector, Private Equity (GIPS Section I.7), Bill & Melinda Gates Foundation, 4:219 5:193 1:248, 249 bill-to-bill terms, 4:177 basis point, 5:418 PSA prepayment, 5:493 binomial distribution of discrete random defined, 5:301 Real Estate (GIPS Section I.6), 1:246 variables, 1:530–539 price value of, 5:558 security market indexes as, 5:94 evaluating block brokers with, 1:531– basis point value (BPV), 5:558 spread over, 5:418 532, 534–535 basis swaps, 6:24 Verification (GIPS Section IV),1: 260, and expected defaults in bond baskets of listed depository receipts 261 portfolio, 1:537–538 (BLDRs), 5:169 benchmark spread, 5:442 mean and variance of, 1:537 BATS, 5:30 benchmark yield, 5:574 and one-period stock price as Bernoulli Baxter-FX, 5:30 benchmark yield curve, 5:443–445 random variable, 1:530–531 Bayer, 1:424 beneficial ownership,1: 186, 187 symmetry and skewness of, 1:533–534 Bayes’ formula, 1:476, 504–508 Berkshire Hathaway, Inc., 5:160, 176 and tracking objectives, 1:536 BBA. see British Bankers’ Association Bermuda-style calls, 5:331 binomial formula, 1:510 BBVA, 1:424 Bermuda-style puts, 5:332 binomial model BCO Santander, 1:424 Bernanke, Ben, 2:296 for bond defaults, 1:537–538 bearer bonds, 5:314 Bernoulli, Jakob, 1:530 for stock price, 1:538–539 bearish rectangles, 1:704 Bernoulli random variable(s), 1:530–531 binomial random variables, 1:532–534 bear markets Bernoulli trials, 1:530 binomial tree (tree diagrams), 1:491–492, Elliott waves in, 1:723 best bid, 5:44 538 forecasting, 1:560–562 best efforts offering,5: 51, 360 binomial valuation of options, beer industry, 2:87, 88 best execution (term), 1:104, 106 6:100–104 behavior best-in-class, 4:37 Biomet, 5:213 consumer, 2:206–208 best offer,5: 44 BIS. see Bank for International external trade sector, 2:209–211 Best Practice Guidelines Governing Settlements housing sector, 2:208–209 Analyst/Corporate Issuer Relations bitcoin, 4:471 behavioral biases, 1:11–12; 5:137–139 (CFA Institute), 1:61 BJ’s Wholesale Club, 1:404, 432 behavioral finance,5: 136–139 beta, 4:328–335 Black, Fischer, 1:428 behind the market (term), 5:45 asset, 4:95–98 blackout periods, 1:187 “Beige Book,” 2:242 calculation and interpretation, BlackRock, 5:210 Belarus, 2:434 4:331–332 Black–Scholes–Merton model Belgian Asset Managers Association, and CAPM, 4:332–333, 352 as continuous time finance model, 1:230 estimating, 4:94–100 1:553n.32 Belgium with CAPM, 4:332–333 for European call options, 1:563 banking supervision, 2:276 inferring asset betas, 4:98 lognormal distribution in, 1:551 customs union, 2:360 pure-play method, 4:97, 98 volatility of, 1:555 equity risk premiums, 4:90 and expected return, 4:333–335 BLDRs. see baskets of listed depository in EU, 2:360n.18 levering and unlevering, 4:95 receipts

Cumulative_Ind_L1 8 August 1, 2018 7:45 PM Index I-9

block brokers default bond mutual funds, 4:229–232 defined, 5:28 binomial model for, 1:537–538 bond portfolios evaluating, 1:531–532, 534–535 recovery rates on, 1:642–644 duration of, 5:555–557 blockchains, 4:470–471 defined, 4:259; 5:298, 304 expected defaults in, 1:537–538 blogs, confidential firm information on, at discount, 3:549–553 bonds payable, 3:546–564 1:143 downside frequencies of, 6:131 and amortisation of bonds, 3:550–554 Bloomberg, 3:281, 293, 316 face value of, 1:495; 3:546–549 debt covenants, 3:559–561 Bloomberg Barclays government, 4:386 derecognition of debt, 3:557–559 corporate yields, 5:629–630 historical risk and return, 4:259–260 disclosure of long-term debt, minimum issue size and bond holdings interest expense for, 3:550–554 3:561–564 in indexes, 5:98 interest payments for, 3:550–554 fair value reporting, 3:554–557 Bloomberg Barclays Global Aggregate intrinsic value of, 5:119 and interest expense, 3:550–554 Bond Index, 5:100, 103, 357; 6:134, investment grade, 4:386 and interest payments, 3:550–554 165 issuance, 3:546–550 and issuance of bonds, 3:546–550 Bloomberg Barclays US Aggregate Bond legal form of, 5:305–306 presentation of long-term debt, Index, 5:99, 491n.9 margin, 6:11 3:561–564 Bloomberg Fixed Income Electronic municipal, 4:379 bond yield plus risk premium approach, Trading, 5:365 nominal returns of, 4:262 4:93 Bloomberg Fixed Income Relative Value notes vs., 5:17 bonos del Estado, 5:368 page, 5:444 performance of, 6:11, 134–135 Bon-Ton Stores Inc., 1:412 Bloomberg risk statistic, 5:558 at premium, 3:553–554 bonus compensation, 1:25–27, 144–145 Bloomberg Yield and Spread Analysis puts vs. short sales and, 6:93 bonus issue of shares (stock dividend), page, 5:547–548, 558, 560–561 returns 5:249 BLS. see US Bureau of Labor Statistics on commodities and stocks vs. book building, 5:50 blue-chip companies, 5:173 bonds, 6:170 book runners, 5:50 blue-chip shares, 5:121n.7 on equities and alternative book value Blume, Marshall, 4:94n.22 investments vs. bonds, 6:126 in asset-based valuation models, 5:247 BME Spanish Exchanges, 5:152 on equities and bills vs. bonds, intrinsic vs., 5:176–177 BMW, 1:423; 2:86; 5:218, 270 5:152–153 and market value, 5:172 BNP Paribas, 1:424 on hedge funds and global stocks vs. in ROE, 5:172–173 BNY Mellon, 5:209 bonds, 6:139 boom phase (business cycle), 2:201, 203 board, risk governance, 4:413, 420 real returns, 4:261–262 BOP system. see balance of payments board member–shareholder risk-free, 6:47–49 system relationships, 4:8–9, 12–13 securitization vs. issue of, 5:483 borrowers, size and short-term strategy board of directors, 4:21–25 Sharpe and Sortino ratios, 6:131 of, 4:191 committees, 4:22–25 as short positions, 5:40 borrowing audit committee, 4:23 surety, 4:443 costs of, 3:419–420; 4:186, 193–194 governance committee, 4:23 US Treasury, 1:727; 4:88, 90, 386 and equilibrium interest rate, 5:12 investment committee, 4:24 volatility, 6:126 as financial system function,5: 8–9 nomination committee, 4:23 with warrants, 3:563–564 short-term, 4:167, 191–192 remuneration (compensation) zero-coupon, 1:494–495 Borrowing Costs (IAS 23), 3:428n.11 committee, 4:23 bond classes borrowing rates, effects on leveraged risk committee, 4:24 mezzanine, 5:513 portfolios, 4:324–326 composition of, 4:21–22, 32 and tranching, 5:481–482 Bosnia and Herzegovina, 2:434 employee representation on, 4:19 bond convexity, 5:559–567 Boston Scientific,5: 213 functions and responsibilities, 4:22 bond equivalent yield, 1:379; 4:170; Botswana, 3:59; 5:96 manager relations with, 4:13 5:431–433 bottom line, income statement, 3:97 staggered boards, 4:21–22 bond ETFs, 4:234 bottom-up analysis stakeholder management mechanisms, bondholders of equities, 3:694–695 4:17 negotiation on covenants by, 5:627 of portfolios, 4:223 as stakeholders, 4:9–10 shareholders vs., 5:610–611 bottom-up approach to equity valuation, Boeing bond indenture, 4:19; 5:305–313 5:244 effects of government purchases on, collateral backing, 5:307–308 bottom up strategies, hedge fund, 6:136, 5:226 covenants, 5:310–311, 626 137 method of comparables for, 5:270–271 credit enhancements, 5:308–310 box size, point and figure charts’, strategic analysis with, 5:207–209, 218 legal identity of issuer/legal form of 1:687–688 Bolivia, 2:434; 3:58 bond, 5:305–306 BP/Amoco/Arco, 2:107 Bollinger, John, 1:707 repayment proceeds, 5:306–307 BP plc, 4:38; 5:209 Bollinger bands, 1:707–708 bond indexes, stratified sampling and, BPV. see basis point value bond(s). see also fixed-income securities; 1:584–585 Brady bonds, 5:357 specific types bond market. see also fixed-income branches of businesses, investments in, amortisation, 3:550–554 market 3:523 arbitrage with, 6:47–49, 67 developed, 5:355 brand loyalty, 2:84, 98 consol, 1:325–326 emerging, 5:355 Brazil convertible, 6:146 primary, 5:359–365 absolute and comparative advantage, correlation of T-bills/stocks with, private placements, 5:360, 364–365 2:345–346 4:284, 285 public offerings,5: 360–364 business investment, 2:177 credit ratings and prices of, 5:607–608 secondary, 5:359, 365–367 domestic and international debt credit ratings of issuers vs., 5:603–605 bond market vigilantes, 2:295–296 securities, 5:315

Cumulative_Ind_L1 9 August 1, 2018 7:45 PM I-10 Index

Brazil (Continued) Brown-Forman Corporation, 5:262–264 and GDP, 2:150 effects of Asian financial crisis,2: 341 Bruce, Roger, 4:209 and housing sector behavior, exchange rate regimes, 2:437 Bruce Fund, 1:433 2:208–209 GDP vs. GNP, 2:335 Bruner, Robert F., 4:89n.12 inflation, 2:223–237 IFRS adoption, 3:58 bubbles, 6:42 cost-push, 2:231–233 inflation-linked bonds,5: 326 budget constraints, price elasticity of deflation, hyperinflation, disinflation, inflation targeting,2: 285 demand and, 2:71 2:224–225 investment committees, 4:24 budget deficit (fiscal deficit),2: 302 demand-pull, 2:233–234 market regulatory authorities, 3:628 and business cycles, 2:129 expectations, 2:234–235 MERCOSUR, 2:360 and fiscal policy,2: 315–316 price indexes, 2:225–231 MSCI multi-market index, 5:96 and foreign capital, 2:138 types of, 2:231–234 natural resources, 2:178 and national debt, 2:305–307 phases of, 2:198–202 as small country, 2:354 and Ricardian equivalence, 2:314 practice problems, 2:247–252 sovereign bonds, 5:369, 370 budgeting resource use, 2:202–208 Brazilian Bovespa Index (BVSP), 1:684 capital, 1:360 capital spending, 2:203–205 Brazilian GAAP, 3:58, 678–680 risk, 4:421–423 consumer behavior, 2:206–208 Brazilian real, 2:399 budget surplus, 2:302 inventory levels, 2:205–206 breakeven analysis Buenos Aires, Argentina, 5:650 sensitivities to, 5:190–191, 227–228 and breakeven point of production, Buffett, Warren,5: 176 as short-term movements in economy, 2:36–37 Bühner, Thomas,4: 105 2:197–198 in shutdown analysis, 2:38–41 building permits, 2:238, 241 solutions to problems, 2:253–256 breakeven point(s) Bulgaria, 2:434; 5:96 unemployment, 2:219–223 in firm analysis,2: 36–40 bulldog bonds, 5:313 analyzing, 2:222–223 and leverage, 4:143–144 bullet bonds, 5:318–320 indicators, 2:222 operating, 4:143–145 bullet loans, 5:374 rate of, 2:221–222 breakeven reinvestment rate, 5:439 bullet mortgages, 5:488 business cycle theories, 2:211–219 breaking the buck, 4:231 bullish rectangle, 1:704 Austrian school, 2:212 break point, 4:102, 103 bull markets Keynesian school, 2:212–213 Bretton Woods system, 2:432 Elliott waves in, 1:724–726 Monetarist school, 2:215 bridge financing,5: 374 forecasting, 1:560–562 Neoclassical school, 2:211–212 Brightman, Christopher J., 5:116n.1 Bundesanstalt für New Classical school, 2:215–219 Brink’s Home Security, 5:199–200 Finanzdienstleistungsaufsicht, 5:29 business entities, distinct, 1:234, 265 British American Tobacco, 5:209 Bundesverband Investment und Asset business environment, in industry British Bankers’ Association (BBA), Management, 1:231 analysis, 5:188 5:353 bundled fees business expectations, aggregate demand British Financial Services Authority, 5:29 Calculation Methodology (GIPS and, 2:153 British pound Section I.2), 1:236 business processes, as Big Data sources, currency code, 2:399 defined, 1:263 4:458–460 EUR/GBP exchange rate, 2:416, 417n.4 Disclosure (GIPS Section I.4), 1:239 business relationships, conflicts of exchange rate quotes with, 2:416–418 Presentation and Reporting (GIPS interest and, 1:180, 184 GBP/EUR exchange rate, 2:401, 406 Section I.5), 1:241 business risk gold standard for, 2:432 Wrap Fee/SMA Portfolios (GIPS components of, 4:128 international bonds outstanding in, Section I.8), 1:250–251 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, 2:414 Burns, Wesley Clair, 2:198 and leverage, 4:128–136 British Telecom, 5:324, 634–635 business combinations operating risk, 4:130–136 broad-based equity ETFs, 4:234 IFRS vs. US GAAP on, 3:535 sales risk, 4:128–130 broad market equity indexes, 5:95 intangible assets from, 3:422–423 business sector (corporate sector), 2:128; broad measure of liquidity, 2:268 intangible assets not from, 3:420 5:349 broad money, 2:267 and quality of financial reporting, business segments, financial analysis for, brokerage arrangements, 1:104, 107 3:633–634 3:327–329 brokerage commissions, 4:266 taxable vs. accounting profit for,3: 523 business spending, 2:153, 200 broker–dealers, 5:30 Business Combinations (ASC 805), business strategy, financial performance brokered markets, 5:55, 57 3:422n.9 and, 3:673–677 broker recruiting, 1:135 Business Combinations (IFRS 3), 3:422n.9 business taxes, SRAS and, 2:158, 160 brokers business confidence,2: 153, 155 buy-and-hold investors, market timers clearinghouses for, 5:36 Business Cycle and Dating Committee, vs., 1:560–562 and dealers, 5:30–31 2:201 buy-and-hold strategies, 4:246n.2 as financial intermediaries,5: 28–29 business cycles, 2:197–256 buyback (share repurchase), 5:249 lending by, 5:33 defined, 2:198 buyers. see also consumer(s) prime, 5:33, 49; 6:144 economic indicators, 2:237–244 derivatives, 6:7 broker-sponsored limited partnerships, building permits as, 2:241 power of, 5:205, 612 1:179 cyclical measures as, 2:242–243 buyout funds, 4:237 Brounen, Dirk, 4:108 diffusion index of,2: 242 buy-side clients, 1:59 Brown, Constance, 1:713 leading, lagging, and coincident, buy-side firms,4: 225 Brown, E. H. Phelps, 1:722 2:237–241 buy-side participants, FX market, Brown, George Garvin, 5:262 and external trade sector behavior, 2:410–412 brownfield investments,6: 174 2:209–211 BVSP. see Brazilian Bovespa Index

Cumulative_Ind_L1 10 August 1, 2018 7:45 PM Index I-11

Bylaws and Rules of Procedure for call price, 5:330 Canadian Broadcasting Corporation, Professional Conduct (Rules of call protection, 5:504–505 1:415 Procedure), 1:37, 51 call protection period, 5:330, 424 Canadian dollar call provisions, 5:322 CAD/USD currency pair, 2:414 C calls. see call options in cross-rate calculations, 2:419–420 CAC 40 index, 1:416; 4:318 call schedule, 5:330 currency code, 2:399 Cadbury, 5:209, 219–221 Cambodia, 2:435 exchange rate quotes with, 2:417 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, 3:58 Association Cameroon, 3:59 Canadian Investment Performance Caisse de dépôt et placement du Canada Committee, 1:230 Québec, 2:411 ACH system, 4:178 candidacy in CFA program, referring to, calculated statistical indexes, 1:715–718 auctions in, 5:362 1:199–200 Calculation Methodology (GIPS Section banking supervision, 2:276 Candidate Pledge, 1:51, 195 I.2), 1:235–236 bank regulation, 3:47 Candidate Responsibility Statement, about, 1:232 bonds outstanding, 5:354, 360 1:51 recommendations business investment, 2:177 candidates, CFA. see Responsibilities as general, 1:236 capitalization level and contributions a CFA Institute Member or CFA for private equity, 1:250 to global GDP, 5:151 Candidate [Standard of Professional for real estate closed-end fund commodities in economy, 1:728 Conduct VII] composites, 1:246 common law system, 4:27 candlestick charts, 1:684–686 requirements consumption expenditures, 2:139 cannibalization, 4:51 general, 1:235–236 credit rating services, 5:602 Canon Inc., 5:271–272 for private equity, 1:247 disinflation, 2:225 capacity, 5:611–625 for real estate, 1:243–244 domestic and international debt aggregate demand and utilization of, for real estate closed-end fund securities, 5:315 2:153, 155 composites, 1:245 equity risk premiums, 4:90 and company fundamentals, 5:613–617 calendar anomalies, 5:131–132 exchange rate regime, 2:435 and industry fundamentals, 5:613 California, 5:650, 651 expected inflation,2: 280 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, 2:411 productive, 3:461 effective duration of,5: 545–546 GIPS sponsor, 1:230 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, 2:183–184 capital 254 GNP vs., 2:335 capital structure vs., 3:198 call markets, 5:54 potential, 2:182, 183 committed, 1:245, 246, 249, 264; call money rate, 5:41 IFRS adoption, 3:58 6:149–150 call options (calls) income trusts, 5:225 composite since inception paid-in American, 1:539; 5:330; 6:105–107 inflation-linked bonds,5: 326, 327 capital, 1:245, 246, 249 Asian, 1:558–559 inflation targeting,2: 285, 287 cost of (see cost of capital) Bermuda-style, 5:331 international investments, 5:165 debt-to-capital ratio, 3:304, 305, defined, 5:24; 6:26, 85 labor productivity, 2:180 586–587; 5:616 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, 2:360 in Heckscher–Ohlin model, 6:105 NAICS system, 5:197 2:352–353 binomial option pricing with, national debt, 2:307 and international trade, 2:334 6:101–103 real equity returns, 1:398 in long-term economic growth, 2:175 Black-Scholes-Merton model for, residential mortgage loans, 5:486, 487 human, 2:159, 176; 4:419n.12 1:563 retractable term preferred shares, net working, 5:618 exercise price of, 6:87, 88 5:256 paid-in, 1:249, 267 at expiration, 6:86 returns physical minimum prices for, 6:91–93 on bonds and bills, 5:153 aggregate supply, 2:160 payments on underlying and carrying on equities, 5:153 defined, 2:139 costs for, 6:91 risk tolerance and equity ownership, and economic growth, 2:176–177 and risk-free rate of interest, 6:89 5:154 and labor productivity, 2:179 time to expiration for, 6:88 say on pay, 4:18 and long-term aggregate supply, and value of underlying, 6:87 securities backed by quasi-government 2:159 volatility of underlying for, 6:90 entities, 5:490 and private equity valuation, 6:158 fiduciary, 6:95–96, 99 sovereign bonds, 5:370 proportions of, 4:81–82 make-whole, 5:330 trade balance with US, 2:130, 131 raising equity, 5:9 margin transactions vs., 6:91–92 Treasury bills, 1:305n.3, 377n.16 requirements, 5:61–62 payoff from,6: 26–28 underground economy, 2:124 return on, 3:308, 309, 325 profits from,6: 27–28 Canada–yen exchange rate, 2:417, ROIC, 5:204 call premium, 5:330 420–421 total invested, 3:681n.4

Cumulative_Ind_L1 11 August 1, 2018 7:45 PM I-12 Index

capital (Continued) capital expenditures capital structure venture, 5:15, 162 committed, 5:618 defined, 1:360; 3:198; 5:595 WACC, 5:178, 204 financing for,5: 8, 9 in high-credit analysis, 5:642 working, 3:166, 297, 689n.6; 5:618, 639 and fiscal policy,2: 309 marginal cost of, 4:102–105 capital account, BOP, 2:370, 442 net cash flow to,3: 325 simple vs. complex, 3:132 capital adequacy ratios, for banks, 3:322 property, plant, and equipment as, target, 4:80 capital allocation, efficiency of,5: 13–14 3:417, 418 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, 2:354–367 2:370 defined, 4:273, 314 and trade balance, 2:441–443 CAPM. see capital asset pricing model of optimal portfolio, 4:294–295 capital gains, 5:316, 533, 569 capped floating interest rate,5: 511 and optimal risky portfolio, 4:291–292 capital gains taxes, 4:254 caps, floating-rate note,5: 324 and portfolio selection, 4:273–276 capital goods, 2:128 captive finance subsidiaries,4: 175 for risk-free assets in portfolios of risky capital-indexed bonds, 5:327 capture (data processing method), assets, 4:316 capitalization 4:463 SML vs., 4:337–339 of costs, 3:423–435 carbon assets, 4:39 capital asset pricing model (CAPM), expensing of costs vs., 3:423–428 carbon credits, 5:10 4:335–354 on financial statements,3: 423–428 care. see Loyalty, Prudence, and Care applications, 4:340–351 of interest costs, 3:428–431 [Standard III(A)] capital budgeting, 4:340–341 of internal development costs, Carhart, Mark, 4:329 estimate of expected return, 3:431–435 Carnegie, Andrew, 2:96 4:340–341 for ongoing purchases, 3:427 Carpenter Technology Corporation, portfolio construction, 4:348–351 and financial reporting issues,3: 647– 3:699–701 portfolio performance evaluation, 648, 657 Carrefour Group, 1:423; 5:210 4:341–346 of intangibles, 3:653 carried interest, 1:247, 263 security characteristic line, of interest, 3:650–651 carry, 6:65. see also cost of carry 4:346–347 capitalization rate (cap rate), 6:165, 166 carrying amount, 3:444–447, 509 security selection, 4:347–348 capital leases. see finance leases carrying costs, 4:184 assumptions of, 4:335–337 capital losses, 5:316, 533–535, 569 carrying value, 5:247, 533. see also book and beta/expected return, 4:333–335 capital market expectations, 4:385 value cost of common equity, 4:88–92, capital market line (CML), 4:318–326 cartels, 2:93, 96 107–108 defined, 4:319–321 carve-out for cost of equity, 5:178 and definition of market,4: 319 Composite Construction (GIPS extensions, 4:353–354 of leveraged portfolios, 4:322–326 Section I.3), 1:237 Fama and French three-factor model with different lending/borrowing defined, 1:263 vs., 5:133 rates, 4:324–326 Disclosure (GIPS Section I.4), 1:239 limitations, 4:351–352 with equal lending/borrowing rates, Presentation and Reporting (GIPS and portfolio construction, 4:348–351 4:323 Section I.5), 1:241 required rate of return from, 5:254 passive and active portfolios, 4:318 CAS. see Chinese accounting standards security market indexes as proxy, 5:94 risk and return on, 4:321–322 case study, Watson Pharmaceuticals Inc., security market line, 4:337–340 and single-index model of beta, 4:329, 5:618–625 and expected return, 4:338–339 330 cash portfolio beta, 4:339–340 SML vs., 4:337–339 on balance sheets, 3:168–169; 5:618, capital budget, planning of, 4:48 capital markets. see also Integrity of 639 capital budgeting, 4:47–75 Capital Markets [Standard of from customers, 3:235–236 CAPM for, 4:340–341 Professional Conduct II] to employees, 3:237–238 and cost of capital, 4:82–84 analyzing developments in, 2:381 generation of, 3:649–650 cost of debt and equity in, 5:178 and benefit of ethics to society,1: 40 for income taxes, 3:239 defined, 1:360 functions of, 2:404–405 for interest, 3:238–239 importance of, 4:47–48 primary, 5:13–15 interim, 1:307–308 investment decision criteria, 4:52–68 regulation of, 3:55 minimum balances, 4:165 average accounting rate of return, sustainability of, 1:40–41 monitoring uses and levels of, 4:57–58 capital market securities, 5:300 4:166–167 internal rate of return, 4:53–54, capital market theory, 4:314–326 mutual fund cash position indicator, 60–66 capital market line, 4:318–326 1:720–721 net present value, 4:52–53, 58–63 portfolio of risk-free and risky assets, for other operating expenses, 3:238 payback period, 4:54–57 4:314–318 from sale of equipment, 3:239–240 popularity and use of capital combining risk-free asset with risky sources and uses of, 3:246–249 budgeting methods, 4:66–68 assets, 4:315–318 to suppliers, 3:236–237 profitability index,4: 58 homogeneity of expectations cash-basis accounting, 3:640–641 popularity and use of, 4:66–68 assumption, 4:317–318 cash before delivery (CBD), 4:177 practice problems, 4:70–72 capital protected instruments, 5:382 cash collateral accounts, 5:309–310 principles, 4:50–52 capital rationing, 4:52 cash collections systems, 4:177–180 process, 4:48–49 capital restrictions, 2:354, 364–367 cash concentration, 4:179 solutions to problems, 4:73–75 capital returns, 1:244, 263 cash conversion cycle, 3:299–301; capital consumption allowance (CCA), capital spending 4:163 2:133 cyclical use of resources, 2:203–205 cash disbursements, 4:188 capital deepening investments, 2:175 and fiscal policy,2: 312 cash dividends, 4:245 capital employed (term), 1:263 capital stock, 2:176–177 cash equivalents, 3:168–169

Cumulative_Ind_L1 12 August 1, 2018 7:45 PM Index I-13

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 cash markets, 6:5 and capitalisation of interest costs, [PV]) cash market securities, 5:437 3:428–430 price to cash flow ratio,3: 319, 320 cash on delivery (COD), 4:177 on cash flow statements,3: 219–221 profits vs.,3: 7–8 cash outflows, in forecasts,4: 166 for collateralized debt obligations, retained, 3:691 cash position, 4:164–167 5:514–515 series of, 1:314–316, 320–328 cash prices. see spot prices conventional, 4:51 short-term, 4:165–166 cash ratio, 3:299, 300 in credit analysis, 5:615–616, 618 significant, 1:237, 240, 269 cash reserve funds, 5:309 DCF valuation approach, 6:157, 166 single, 1:306–314, 317–320 cash reserve ratio, 3:322 discounted, 1:359–386 structures, 5:318–329 cash-settled forwards. see contracts for in equity valuation, 5:246–247 in swaps, 6:82 difference (CFD) internal rate of return, 1:362–367; typical, 4:165–166 cash settlement 4:67n.5 unequal, 1:316, 328 of bonds, 5:366 money market yields, 1:374–379 cash flow additivity principle,1: 333, 338 of futures, 6:20 net present value, 1:360–362 cash flow from operations (CFO),5: 252, of options, 6:26 portfolio return measurement, 615n.24, 618, 639 physical settlement vs., 5:20 1:367–374 cash flow per share,3: 319 Caterpillar, Inc. practice problems, 1:381–383 cash flow ratios,3: 255–256 consolidated financial position, in private equity valuation, 6:157 cash flow statements,3: 217–267 3:359–360 in real estate valuation, 6:166 about, 3:218 consolidated results of operation, solutions to problems, 1:384–386 analysis of, 3:20, 22–23, 246–257 3:358–359 and time value of money, 1:359 cash flow ratios,3: 255–256 inventories of Volvo Group and, discretionary cash flow to debt,3: 325 common-size, 3:250–254 3:378–381 equal for comparables, 3:256–257 LIFO to FIFO conversion for, future value of series with, 1:315–316 free cash flow to equity,3: 254–255 3:358–363 future value of series without, 1:316 free cash flow to the firm,3: 254–255 notes to consolidated financial infinite series of,1: 325–326 sources and uses of cash, 3:246–249 statements, 3:360 present value of series with, and balance sheets, 3:169, 232–233 peer group for, 5:198 1:320–325 and capitalising vs. expensing costs, price–earnings ratio, 1:410 present value of series without, 1:328 3:423–424 strategic analysis, 5:219 excess interest, 5:509 components and format, 3:219–232 two-factor analysis, 5:209 external, 1:235, 236, 265 cash flows and non-cash activities, Cathay Pacific Airways,4: 210–213 and financial reporting issues,3: 657 3:219–221 CBD. see cash before delivery financing, 3:221 cash flows from operating activities, CBOE Volatility index (VIX), 1:716 free cash flow to equity,3: 254–255; 3:222–232 CBOs. see collateralized bond 4:84n.7; 6:157 and IFRS vs. US GAAP, 3:221–222 obligations free cash flow to the firm,3: 254–255; defined, 3:12 CBOT. see Chicago Board of Trade 4:84n.6; 5:616n.25 disclosures about long-lived assets on, CBS. see currency board system future value of (see future value [FV]) 3:455 CBS Records, 3:659 geometric and arithmetic mean of effects of reporting quality on, C/C++ (programming language), 4:465 future cash flows,1: 457 3:648–651 CCA. see capital consumption allowance government, 2:301–304 financing activities on,3: 219–220, 240 CCR. see corporate credit rating incremental, 1:360n.1; 4:51 and income statements, 3:232–233 CD equivalent yield, 1:377. see also IRR vs. NPV and patterns in, 4:60–61 investing activities on, 3:219, 239–240 money market yields large, 1:235, 266 leases on, 3:471 CDOs. see collateralized debt obligations monitoring cash uses and levels, operating activities on, 3:219, 235–239 CDs. see certificates of deposit 4:166–167 cash for income taxes, 3:239 CDSs. see credit default swaps for mortgage pass-through securities, cash for interest, 3:238–239 CEC Entertainment, Inc., 3:476–480 5:491, 493–494 cash for other operating expenses, cell (term), 1:584 net, 3:220, 325 3:238 Center for Research in Security Prices net income and, 3:657 cash from customers, 3:235–236 (CRSP), 1:605 of non-agency RMBSs, 5:503 cash to employees, 3:237–238 Central African Republic, 2:362 nonconventional, 4:51 cash to suppliers, 3:236–237 Central America, 3:58. see also specific operating, 3:221–232 overall statement of cash flows, countries and capitalising vs. expensing of 3:241–246 central bank funds market, 5:385 costs, 3:427–428 direct method, 3:23, 222, 241–242 central bank funds rates, 5:385 direct-format statement under IFRS, indirect method, 3:23, 222–223, Central Bank of Brazil, 2:278; 4:24 3:226–228 242–245 central banks, 2:279 financing vs.,3: 221 practice problems, 3:259–264 countercyclical policies of, 2:200 in free-cash-flow-to-equity valuation, preparation of, 3:232–246 credibility of, 2:286–287 5:252 financing activities,3: 240 and credit cycle, 5:598n.7 free operating cash flow to debt, investing activities, 3:239–240 currency purchases by foreign, 3:325 operating activities, 3:235–239 2:373–374 indirect-format statement under overall statement of cash flows, exchange rate regime switching by, IFRS, 3:223–226 3:241–246 2:438 and issuer liquidity, 5:618, 639 solutions to problems, 3:265–267 in FX market, 2:411–412 and leases, 3:471 cash flow yield,5: 555 independence of, 2:286, 320 under US GAAP, 3:228–232 cash inflows, in forecasts,4: 166 and inflation,2: 168, 224, 285–291

Cumulative_Ind_L1 13 August 1, 2018 7:45 PM I-14 Index

central banks (Continued) ethical commitment of, 1:42–43 chart patterns, 1:694–705 as investors in fixed-income securities, GIPS standards, 1:225, 226 continuation patterns, 1:701–705 5:358 IPS presentations by, 4:369 flags and pennants,1: 704–705 monetary policy by, 2:261n.1, 277 mission of, 1:35 rectangles, 1:704 monetary transmission mechanism of, monitoring of financial reporting reversal vs., 1:694 2:283–285, 295–296 standards, 3:78–79 triangles, 1:702–704 objectives of, 2:278–279 performance standards of, 5:61 reversal patterns, 1:694–701 policy rate of, 2:282 referring to, 1:199–200 (see also continuation vs., 1:694 price index use by, 2:228 Reference to CFA Institute, double tops and bottoms, 1:699–701 reserve requirements of, 2:266, Designation and Program [Standard head and shoulders, 1:695–699 282–283 VII(B)]) triple tops and bottoms, 1:700–701 roles and responsibilities of, 2:275–278 standards for communicating charts, 1:682–691 stress tests required by, 4:438 recommendations, 3:34 bar, 1:683–684 technical analysis by, 1:681 Standards of Professional Conduct, candlestick, 1:684–686 transparency of, 2:287 5:49, 51 line, 1:682–683 Central Europe. see also specific values of, 1:43 point and figure,1: 686–688 countries website, 1:43, 51, 157, 194 relative strength analysis of, 1:690–691 current account imbalance, 2:378 CFA Institute Investment Foundations™ scale of, 1:688–689 debt and equity outstanding, 5:348 certificate program,1: 36, 193, time intervals of, 1:690 trade-to-GDP ratio, 2:338 194 volume on, 1:689–690 centralization, of financial organization, CFA members and candidates Chebyshev, Pafnuty, 1:439 4:186 knowledge of the law [Standard I(A)], Chebyshev’s inequality, 1:439–441 central limit theorem, 1:588–591, 596, 1:54 Chevron/Texaco, 2:107 626n.7 responsibilities of (see Responsibilities Chicago, Illinois, 6:39 central tendency. see measures of central as a CFA Institute Member or CFA Chicago Board of Trade (CBOT), 6:37, tendency Candidate [Standard of Professional 39–40 Centre for Economic Policy Research Conduct VII]) Chicago Board Options Exchange, 1:716 (CEPR), 2:243 CFA Program, 5:61. see also Reference Chicago Fed National Activity Index century bonds, 5:377, 442 to CFA Institute, Designation and (CFNAI), 2:242 CEOs. see chief executive officers Program [Standard VII(B)] Chicago Mercantile Exchange (CME), Certificate in Investment Performance conduct restrictions for candidates and 2:406; 5:29, 209 Measurement (CIPM) certificants, members, 1:193 chief executive officers (CEOs),4: 21 1:37 confidential information about, chief financial officers (CFOs), Certificate in Investment Performance 1:193–194 4:107–108 Measurement (CIPM) Program, stating facts about, 1:202 chief risk officers (CROs),4: 419 1:193, 194 testing policies for, 1:195 Chile certificates of deposit (CDs),4: 168; CFA Society of Hungary, 1:231 exchange rate regimes, 2:435, 437–438 5:386 CFA Society of New Zealand, 1:231 IFRS adoption, 3:58 CESR. see Committee of European CFA Sri Lanka, 1:231 inflation-linked bonds,5: 326, 370 Securities Regulators CFD. see contracts for difference inflation targeting,2: 285 CFA Association of Pakistan, 1:231 CFNAI. see Chicago Fed National market regulatory authorities, 3:628 CFA charterholders, 1:199 Activity Index MSCI multi-market index, 5:96 CFA Denmark, 1:230 CFO. see cash flow from operations China CFA designation, 1:199. see also CFOs. see chief financial officers business investment, 2:177 Reference to CFA Institute, CFR. see corporate family rating capital goods expenditures, 2:128 Designation and Program [Standard CGM Focus Fund, 1:433 central bank reserves, 2:411 VII(B)] Chamberlin, Edward H., 2:65 comparative advantage, 2:345–346, 350 guidance on using, 1:199 change in polarity principle, 1:693 CPI, 2:227 order of professional and academic change of control covenant, 5:626n.26 current account, 2:375, 378 designations with, 1:202 change of control put option, 5:643 debt and equity outstanding, 5:350 right to use, 1:201 changes demand for commodities, 6:167–168 stating facts about, 1:202 fund mandate, 1:170 domestic and international debt CFA examinations, 1:33 to investment process, 1:170–172 securities, 5:315 bringing written material into exam channel stuffing,3: 652 economic growth, 2:179 room, 1:195 Chapter 7 bankruptcy, 4:146n.8, 147 economic indicators, 2:242 confidential information in,1: 193–194 Chapter 11 bankruptcy, 4:146–147 effects of global recession,2: 166 expressing opinions about, 1:194 character, in four Cs framework, 5:611, exchange rate regime, 2:434, 435, 439 grading guidelines and results for, 627 exports from, 2:335, 340, 352 1:197 charitable foundations, endowments for, foreign bonds, 5:313 passing, in consecutive years, 1:201 4:218–220 foreign investment in, 5:164 sharing content of, 1:196–197 charities, strategic asset allocation for, GDP, 2:121, 155 sharing questions from, 1:195 4:395–397 globalization of production, 2:340 writing after exam period, 1:196 Charles Schwab Corporation, as growth country, 5:190n.2 CFA Institute, 1:231. see also specific 3:705–706 housing sector, 2:209 committees and programs Chartered Alternative Investment IFRS adoption, 3:59 clarifications of GIPS by,1: 228, 233, Analyst (CAIA) Association, industrialization, 5:211 234, 259 6:135n.17 labor supply, 2:176 code of ethics, 1:8–9 Chartered Financial Analyst. see entries market efficiency,5: 121 compromising integrity of, 1:197 beginning with CFA market regulatory authorities, 3:627

Cumulative_Ind_L1 14 August 1, 2018 7:45 PM Index I-15

in MSCI multi-market index, 5:96 fair dealing between, 1:118 Codification. see Accounting Standards Multi Fiber Agreement, 2:343 gathering information from, 4:381–384 Codification (FASB) reserve requirements, 2:283 gifts and entertainment from, 1:67 coefficient of variation (CV),1: 441–443 say on pay, 4:18 identifying, 1:103, 108–109, 121 of net income, 3:322 securitization pilot program, 5:475 individual investors as, 4:216 of operating income, 3:322 trade balance with US, 2:130, 131 informing, of investment process, of revenues, 3:322 two-tier boards, 4:10 1:166–167 coils, 1:702 China Aviation Oil Corp., 6:171 institutional investors as, 4:216–222 coincident economic indicators, 2:237, China Construction Bank, 3:166–167 interests of, 1:106 239 China Investment Corporation, 4:221 loyalty to, 1:109 Coinstar, Inc., 5:199 China Mobile Limited, 1:692–693, 705; maintaining lists of, 1:113 collateral 5:192 priority of personal trading vs. trading for bond indenture, 5:305 China Petroleum & Chemical for, 1:185 default rate for, 5:503 Corporation, 3:563–564 risk profile of,1: 119 in four Cs framework, 5:611, China Securities Regulatory select, additional services for, 1:116 625–626 Commission, 3:51n.10 soliciting former, 1:137–142 for hedge funds, 6:143–144 Chinese accounting standards (CAS), status of, 1:130 real estate as, 6:158 3:59 client updates, 1:159–160 and repo margin, 5:388 Chinese yuan (yuan renminbi), 2:399 Climate Bond Initiative, 4:38 and repo rate, 5:387 CNY/USD exchange rate, 2:401–402 climate change, 4:38 and stakeholder management, exchange rate regime, 2:435 CLNs. see credit-linked notes 4:19 international bonds outstanding, 5:351 CLOs. see collateralized loan obligations collateral backing, 5:307–308, 379 chi-square test closed economy, 2:336, 375–376 collateralized bond obligations (CBOs), for value of population variance tests, closed-end funds, 5:18–19 5:512; 6:34 1:648–649 defined, 1:263; 4:228 collateralized debt obligations (CDOs), values of chi square, 1:743 discounts with, 5:133–134 5:512–515 Chi-X Europe, 5:30 Private Equity (GIPS Section I.7), 1:247 defined, 6:34 Christie’s, 6:176 Real Estate (GIPS Section I.6), ethical issues with, 1:142 CIPM certificants. see Certificate 1:245–246 structure, 5:513 in Investment Performance real estate presentations with, as structured financial instruments, Measurement certificants 1:277–279 5:381 CIPM Program. see Certificate closing day, 5:362 transaction example, 5:513–515 in Investment Performance CMBS. see commercial mortgage-backed underlying for, 6:37–38 Measurement Program securities valuation of, 6:146 Cisco Systems, 3:172–173; 5:209 CME. see Chicago Mercantile Exchange collateralized loan obligations (CLOs), Citibank, Inc., 4:90; 5:166 CML. see capital market line 5:513; 6:34 Citigroup, Inc., 2:410, 412; 3:650; 4:93 CMOs. see collateralized mortgage collateralized loans, 4:189, 191 Citigroup Commercial Mortgage Trust obligations collateralized mortgage obligations 2013-GCJ11, 5:506–508 Coca-Cola (CMOs), 5:497–503; 6:34 civil law system, 4:27 and book value vs. intrinsic value, defined, 5:497 classical gold standard, 2:432 5:176 with floating-rate tranches,5: 501 classified balance sheet,3: 166 in monopolistic competition, 2:65 mortgage pass-through securities vs., clawback, private equity, 6:150 price elasticity of demand, 2:71, 445, 5:497 clean price, 5:413 446 non-agency residential mortgage- clearing (term), 6:11 two-factor analysis, 5:209, 211 backed securities vs., 5:503 clearing, post-trade, 4:472–473 CoCos. see contingent convertible bonds with planned amortization class clearinghouses COD. see cash on delivery tranches, 5:499–501 daily settlement by, 5:36; 6:18, 19 Code of Ethics (CFA Institute), 1:33–44 with sequential-pay structures, in exchange-traded derivatives market, adoption of, 1:38 5:497–499 6:11 and applicable law, 1:50–53 with support tranches, 5:499–501 in futures market, 5:22 evolution of, 1:34 collateral managers, 5:513 clearing instructions, 5:44, 49–50 and importance of ethics, 1:39–43 collateral trust bonds, 5:307 Clearstream, 5:366, 380 notification of,1: 142 collateral yield, 6:173 CLI. see Composite Leading Indicators and principle-based standards, 1:10 collectibles, 6:175–176 client commission practices, 1:106–108 and Professional Conduct Program, Colombia client–plan participants, identifying, 1:37–38 exchange rate regime, 2:435 1:106 and Standards of Practice Council, IFRS adoption, 3:58 clients. see also prospective clients 1:38–39 inflation-linked bonds,5: 326 additional services for, 1:116 in Standards of Practice Handbook, inflation targeting,2: 285 approval from, 1:105 1:3, 8, 33–35, 42 MSCI multi-market index, 5:96 buy-side, 1:59 text of, 1:44 Columbia Pictures, 3:659 communication with (see and values of CFA Institute, 1:43 Columbia University, 4:218 Communication with Clients and Code of Hammurabi, 4:441 combination(s) Prospective Clients [Standard codes of ethics (in general) defined, 1:510 V(B)]) adopting, 1:148 stock, 5:157 disclosure to, 1:178–179 commitment to, 1:42 combination formula, 1:510–511 duties to (see Duties to Clients defined, 1:8 combined ratio, 3:279 [Standard of Professional Conduct developing, 1:54–55, 82 Comcast, 4:13 III]) and stakeholder management, 4:20 commercial banks, 5:32, 33

Cumulative_Ind_L1 15 August 1, 2018 7:45 PM I-16 Index

commercial industry classification commodity indexes, 5:101; 6:126, Companhia Vale do Rio Doce, 1:685 systems, 5:192–196 168–169 Companies Act 2006 (United Kingdom), example, 5:194–196 commodity inventories, 3:623 4:14 GICS standard, 5:192 Commodity Research Bureau (CRB) companion (support) tranches, ICB system, 5:192–193 Index, 5:101 5:499–501 representative sectors in, 5:193–194 commodity swaps, 5:24 company(-ies) RGS system, 5:192 commodity trading advisers (CTAs), as bond issuers, 5:299 commercial loans, 2:239 6:128 borrowing by, 5:8 commercial mortgage-backed securities common equity, cost of. see cost of comparable, 4:95 (CMBS), 5:503–508; 6:162–163 common equity cyclical, 5:190–191, 221, 613 balloon maturity provisions, 5:505 common law system, 4:27 fundamentals of, 5:613–617 call protection, 5:504–505 common markets, 2:360–364 non-cyclical, 5:190–191, 613 credit risk, 5:504 common shares (common stock), promotion of, 1:97 structure, 5:504–508 5:156–159 as risk drivers, 4:434 commercial paper (CP), 5:374–377 callable, 5:158–159, 171 securitization benefits for,5: 475 credit quality, 5:375–376 for commodities investing, 6:169 similar, 5:189–191 issuance of, 5:639n.34 as component of equity, 3:192 value of, 4:78; 5:172–178, 204 issuers, 5:374 and corporate governance, 4:31–32 variability of recovery rates for, 5:599 other short-term investments vs., 4:169 defined, 5:156 company analysis, 5:228–232 short-term financing from,4: 190 and fixed-income securities,5: 298 defined, 5:188 US vs. Euro markets, 5:376–377 at Ford Motor Company, 5:157–158 elements of, 5:229–232 commercial real estate investments and long-term debt, 3:241 and industry analysis, 5:614–615 direct and indirect investing in, 6:162 and preference shares, 5:159–160 spreadsheet modeling in, 5:232 global assets under management, 6:125 preferred vs., 5:17–18 company stakeholders. see stakeholders institutionally owned, 6:159 putable, 5:159, 171 comparability, of accounting choices, Commission Bancaire, 2:276 in US GAAP, 3:132 3:24 commissions at Viacom Corporation, 5:156–157 comparable companies (comparables). brokerage, 4:266 common-size analysis see also method of comparables and duties to clients, 1:106–108 for balance sheets, 3:196–204 cash flow analysis of,3: 256–257 ethical issues with, 1:25–27 analysis of ratios, 3:282–283, defined, 4:95 commitment fees, 4:193n.10 285–287 comparable sales approach to real estate committed bank lines, 5:618 cross-sectional, 3:200, 203–204 valuation, 6:165 committed capital for S&P 500, 3:201–202 comparable store sales ratio, 3:322 defined, 1:264 for cash flow statements,3: 250–254 comparative advantage, 2:345–353 Private Equity (GIPS Section I.7), 1:249 horizontal, 3:141n.50, 282, 285–287 absolute advantage vs., 2:345–352 for private equity, 6:149–150 for income statements, 3:141–143, defined, 2:334n.1 Real Estate (GIPS Section I.6), 1:245, 283–285 Ricardian and Heckscher–Ohlin 246 of ratios, 3:282–288 models, 2:352–353 committed lines of credit, 4:190; 5:618 vertical, 3:141n.50, 197, 282–285 comparative growth information, 3:288 Committee of European Securities common stock. see common shares compensation. see also Additional Regulators (CESR), 3:55 common stock portfolio, probabilities Compensation Arrangements Committee on the Financial Aspects of for, 1:548 [Standard IV(B)] Corporate Governance, 4:7 Commonwealth of Independent States, bonus, 1:144–145 commodities, 6:167–173 2:338; 5:350 and company performance, 4:32–33 benefits and costs of holding,6: 64–65 communication(s) and conflict of interest,1: 181–182 contracts on, 5:14 analysis of, 4:466 disclosure of, 1:105 correlation with other asset classes, different forms of,1: 167 externally compensated assignments, 4:386 to employees of material nonpublic 1:141 defined, 6:129 information, 1:91 as form of payment, 2:119 derivatives and indexes, 6:168–169 interdepartmental, 1:89 in GDP, 2:133 downside frequencies, 6:131 in risk management framework, 4:412 as motivation for issuing low-quality forwards on, 5:21 communication assets, 6:174 financial reports,3: 625–626 global assets under management, 6:125 Communication with Clients and notification of,1: 144–145 growth in, 6:127 Prospective Clients [Standard V(B)], outside, 1:145 investment vehicles, 6:169–170 1:165–174 policy development, 4:18 performance and diversification application of the standard, 1:169–174 remuneration vs., 4:9n.3 benefits, 6:170–171 compliance procedures, 1:168–169 and research independence, 1:68 prices of, 6:171–173 eleventh edition revision, 1:36 say on pay, 4:18–19 returns on, 6:126, 131, 167, 170 guidance, 1:166–168 compensation committee, 4:23, 24 risk–return tradeoffs for,6: 132 different forms of communication, compensation plans, 4:33 Sharpe and Sortino ratios, 6:131 1:167 compensation policies, 4:29 traders of, 5:25–26 facts vs. opinions in reports, 1:168 competence, 1:82 as underlying, 6:5, 37 identifying risks and limitations, competition volatility, 6:126 1:167–168 in credit analysis, 5:612 commodity exchange traded funds, informing clients of investment imperfect 6:129 process, 1:166–167 breakeven analysis, 2:40–41 commodity futures, 6:37 report presentation, 1:168 marginal revenue, 2:29–30 pricing of, 6:171–173 text of, 1:46, 165–166 revenue in perfect competition vs., risk management with, 6:177 co-movement patterns, 4:213–215 2:35–36

Cumulative_Ind_L1 16 August 1, 2018 7:45 PM Index I-17

monopolistic, 2:83–87 compliant presentations composites benefits of,2: 341–342 Composite Construction (GIPS Calculation Methodology (GIPS characteristics of, 2:67 Section I.3), 1:237 Section I.2), 1:235, 236 defined, 2:65 defined, 1:264 Composite Construction (GIPS demand analysis, 2:84–85 Disclosure (GIPS Section I.4), Section I.3), 1:236, 237 long-run equilibrium, 2:86–87 1:237–239 defined, 1:264 optimal price and output, 2:85 Fundamentals of Compliance (GIPS Disclosure (GIPS Section I.4), supply analysis, 2:85 Section I.0), 1:234 1:238–240 non-price, 2:67 GIPS Advertising Guidelines (GIPS Fundamentals of Compliance (GIPS perfect, 2:68–83 Section III), 1:256, 257 Section I.0), 1:234 breakeven point for firm,2: 38–39 GIPS Valuation Principles (GIPS GIPS, 1:223 characteristics of, 2:67 Section II), 1:253 GIPS Advertising Guidelines (GIPS defined, 2:65 Input Data (GIPS Section I.1), 1:235 Section III), 1:257 demand, average, and marginal costs, Presentation and Reporting (GIPS GIPS Valuation Principles (GIPS 2:36–37 Section I.5), 1:240–242 Section II), 1:252–254 demand analysis, 2:69–76 Private Equity (GIPS Section I.7), Input Data (GIPS Section I.1), 1:235 and innovation, 2:83 1:247, 248 investment firm balanced growth long-run equilibrium, 2:81–82 Real Estate (GIPS Section I.6), 1:242, composite (sample), 1:272–273 marginal revenue, 2:29–30 244, 245 List of Composite Descriptions (GIPS and oligopoly, 2:96 Verification (GIPS Section IV),1: 258, Section V.0.1), 1:292–295 optimal price, 2:77–81 262 Presentation and Reporting (GIPS output optimization, 2:77–81 Wrap Fee/SMA Portfolios (GIPS Section I.5), 1:240–242 revenue in imperfect competition vs., Section I.8), 1:250–252 Private Equity (GIPS Section I.7), 2:35–36 “comply or explain” codes, 4:34 1:248–250 shutdown decision, 2:39–40 component cost of capital, 4:78 Real Estate (GIPS Section I.6), 1:245, 246 supply analysis, 2:76–77 component method of depreciation for Verification (GIPS Section IV), and price collusion, 2:93 long-lived assets, 3:441–443 1:258–262 in strategic analysis, 5:205 Composite Construction (GIPS Section Wrap Fee/SMA Portfolios (GIPS competition policy, 1:137 I.3), 1:236–237 Section I.8), 1:251, 252 competitive position, as fundamental, about, 1:232 composite since inception distributions, 5:613 recommendations 1:245, 246, 249 competitive strategy general, 1:237 composite since inception paid-in and capacity, 5:612 for private equity, 1:250 capital, 1:245, 246, 249 in company analysis, 5:228 requirements composite termination date Competitive Strategy (Porter), 2:68 general, 1:236–237 defined, 1:264 complacency, passive investment for private equity, 1:248 Fundamentals of Compliance (GIPS strategies and, 4:171 for real estate closed-end fund Section I.0), 1:234 complement(s) composites, 1:245 Presentation and Reporting (GIPS defined, 2:15 for wrap fee/SMA portfolios, 1:251 Section I.5), 1:241 elasticity of demand and, 2:73 composite construction, compounded yield measures, 5:420 of event, 1:486 misrepresenting, 1:80 compounding identifying, 2:16 composite creation date, 1:238, 264 continuous, 1:312–313, 553–554 completed contract method of revenue composite definition defined, 1:306–307 recognition, 3:104–105, 107 Composite Construction (GIPS frequency of, 1:310–312, 319–320 complete markets, 5:58 Section I.3), 1:237 future value of lump sum with, complex capital structures, 3:132 defined, 1:264 1:311–312 complexity, of derivatives, 6:44 Private Equity (GIPS Section I.7), 1:248 solving TMV problems for number of compliance Real Estate (GIPS Section I.6), 1:245 compounding periods, 1:331–332 of distributed ledger technology, 4:473 Verification (GIPS Section IV),1: 261 compounding conversions, 5:421–422 Fundamentals of Compliance (GIPS composite description A Comprehensive Business Reporting Section I.0), 1:233–234 defined, 1:264 Model (CFA Institute), 3:78–79 about, 1:232 Disclosure (GIPS Section I.4), 1:238 comprehensive income recommendations, 1:234 Fundamentals of Compliance (GIPS defined, 3:193n.20 requirements, 1:233–234 Section I.0), 1:234 IFRS on, 3:145, 148 with GIPS GIPS Advertising Guidelines (GIPS on income statements, 3:145–148 benefits of,1: 222–223 Section III), 1:256, 257 other claiming, 1:222, 229 Verification (GIPS Section IV),1: 260 accumulated, 3:193 GIPS-compliant historical composite inception date defined, 3:145 performance, 1:228–229 defined, 1:264 on income statements, 3:147–148 compliance officers,1: 64 GIPS Advertising Guidelines (GIPS on statement of comprehensive compliance procedures Section III), 1:257 income, 3:19–20 adequate, 1:147–149 Presentation and Reporting (GIPS statement of, 3:12, 16–20 adoption of, 1:148 Section I.5), 1:240–241 total, 3:145 education and training Private Equity (GIPS Section I.7), US GAAP on, 3:145, 148 implementation, 1:149 1:248 Compustat, 3:281 inadequate, 1:147, 152 Real Estate (GIPS Section I.6), 1:245, computations, financial analysis vs., and incentive structure, 1:150 246 3:272–274 as responsibility of supervisors, Composite Leading Indicators (CLI), computer hardware industry, 5:222–223 1:148–149 2:237 ConAgra Foods, Inc., 3:641–642

Cumulative_Ind_L1 17 August 1, 2018 7:45 PM I-18 Index

concavity, 5:567 of firm,1: 143 consolidated balance sheets concentrated portfolio strategies, 6:130 intentional disclosure of, 1:131–132 Alcatel-Lucent, 3:384 concentration, industry, 5:208–211, 219 possessing, 1:131 Micron Technology, Inc., 3:529–530 concentration ratio, 2:106–108 confidentiality, 1:106. see also Volvo Group, 3:371–372 “Conceptual Framework for Financial Preservation of Confidentiality consolidated financial position, Reporting” (Concepts Statement 8), [Standard III(E)] 3:359–360 3:610n.2 confirmations of transactions, duplicate, consolidated financial statements, notes Conceptual Framework for Financial 1:188 to Reporting 2010 (IFRS), 3:60–72 conflicts of interest Alcatel-Lucent, 3:385–386 and barriers to single standards and business relationships, 1:180, 184 Caterpillar Inc., 3:360 framework, 3:73–74 and business stock ownership, 1:180 Micron Technology, Inc., 3:530–531 conservatism in, 3:621 and compensation arrangement, Volvo Group, 3:372–373 constraints on financial reports, 1:181–182 consolidated income statements 3:63–64 and directorship, 1:182–183 Alcatel-Lucent, 3:383–384 convergence of US GAAP and, 3:70–72 disclosure of, 1:105 (see also Disclosure Volvo Group, 3:371 and effective standards frameworks, of Conflicts [Standard VI(A)]) consolidated results of operation, 3:72–73 and personal stock ownership, 1:181 3:358–359 elements of financial reports,3: 64–66 and personal trading, 1:183 consolidated statements of operations, objective of financial reporting/ and priority of transactions, 1:185 3:528–529 reports, 3:44–46, 61–62 and requested favors, 1:183 constant-yield price trajectory, 5:410, qualitative characteristics of financial in stakeholder management, 4:18 411 reports, 3:62–63 Conflicts of Interest [Standard of constituent securities, 5:78, 91 and quality of financial reporting, Professional Conduct VI], constraints 3:610–611 1:177–192 budget, 2:71 requirements of Presentation of Disclosure of Conflicts [Standard in financial report,3: 63–64 Financial Statements (IAS No. 1), VI(A)], 1:177–184 investor, 1:121; 4:376–381 3:66–70 application of the standard, construction industry, 5:225 conclusions, from financial statement 1:180–184 consumer(s) analysis, 3:33–34 compliance procedures, 1:180 behavior of, 2:206–208 conditional expected values, 1:490 guidance, 1:177–180 demand and supply analysis, 2:6–23 conditional prepayment rate (CPR), text of, 1:46, 177 demand concepts, 2:6–8 5:492, 493 Priority of Transactions [Standard elasticity of demand, 2:9–18 conditional probability, 1:478–481, VI(B)], 1:185–190 substitution and income effects, 485–486 application of the standard, 2:18–23 conditional value at risk (CVaR), 4:437 1:188–190 expectations of, 2:153 conditional variances, 1:492–495 compliance procedures, 1:186–188 in microeconomics, 2:5 Conduct as Participants in CFA Institute guidance, 1:185–186 theory of the consumer, 2:5 Programs [Standard VII(A)], text of, 1:46–47, 185 consumer confidence,2: 153, 155 1:193–197 Referral Fees [Standard VI(C)], Consumer Discretionary sector, 5:193 application of the standard, 1:195–197 1:190–192 consumer goods, arbitrage opportunity eleventh edition revision, 1:36–37 application of the standard, with, 6:47 guidance, 1:193–195 1:190–192 consumer installment debt, income and, additional CFA restrictions, 1:194, 195 compliance procedures, 1:190 2:240 confidential program information, guidance, 1:190 consumer price index (CPI), 2:227, 228, 1:193–194 text of, 1:47, 190 240 expressing opinions, 1:194 conforming mortgages, 5:490 Consumer Price Index for All Urban text of, 1:47, 193 Conroy, Robert M., 4:89n.12 Consumers (CPI-U), 2:227, 228; confections industry, 5:219–221 Consensus Bullish Sentiment Index, 5:370 Conference Board, 2:237, 238, 242 1:715 consumer spending confidence consensus mechanism, 4:470, 471 and business cycles, 2:206–208 business and consumer, 2:153, 155 conservative accounting choices and expectations, 2:153 investor, 1:227 (conservatism) in phases of business cycle, 2:200 confidence intervals,1: 593–599 aggressive vs., 3:620–625 Consumer Staples sector, 5:193 construction of, 1:593–594 behavioral biases associated with, consumer surplus definition, 1:593 5:138 and alternative trade policies, 2:355, for hypothesis testing, 1:623 benefits of,3: 624 358 and hypothesis tests, 1:629–630 biased application of standards, in monopoly, 2:102–104 for population mean, 1:593–598 3:624–625 in perfect competition, 2:74–76 with normally distributed population defined, 3:612 and tariffs,2: 355 with known variance, 1:594 in extractive industries, 3:621–622 consumption t-distribution, 1:597–598 losses in, 3:620–621 and aggregate demand, 2:138–139 z-alternative, 1:595–597 conservatorship, 5:490n.8 and alternative trade policies, 2:358 reliability factors for, 1:594–595, consistency in autarky, 2:347 598–599 estimator, 1:592–593 average propensity to consume, 2:139 and sample size, 1:599–601 of financial performance forecasts, marginal propensity to consume, confidence limits,1: 593 3:690 2:139, 312–314 confidential information consistent probabilities, 1:478 wealth effect on,2: 152 about CFA program, 1:193–194 consol bonds (consols), 1:325–326; consumption bundle (consumption accidental disclosure of, 1:132–133 5:368, 550 basket), 2:225–227

Cumulative_Ind_L1 18 August 1, 2018 7:45 PM Index I-19

consumption spending, 2:138–139 modifications of,3: 115 corporate debt, 5:373–381 contango, 6:172–173 options (see options [options bank and syndicated loans, 5:373–374 contingency provisions, 5:298, 329–335 contracts]) commercial paper, 5:374–377 callable bonds, 5:330–331 and revenue recognition, 3:104–107, corporate notes and bonds, 5:377–380 convertible bonds, 5:332–334 112–116 corporate debt securities, 5:610–628 with corporate notes/bonds, 5:379–380 short positions in, 5:39–41 corporate exhaust, 4:459 putable bonds, 5:332 sides of, 5:39 corporate family rating (CFR), 5:603 contingent claims, 4:444; 6:25–35. see spot, 5:20 corporate governance, 4:5–36 also options contracts for difference (CFD),5: 20–21; about, 4:6–8 asset-backed securities, 6:33–35 6:17 analyst considerations, 4:31–36 credit derivatives, 6:30–33 contractual infrastructure, 4:14 board of directors representation, defined, 6:7, 61 contrarian effect,5: 91 4:32 forward commitments vs., 6:35–36 contrarian trading strategies, 1:707–708 composition of investors, 4:33–34 options, 6:25–30, 33 contribution margin, 4:131 economic ownership and voting contingent convertible bonds (CoCos), control(s) control, 4:31–32 5:334 board’s role in, 4:22 long-term risk management, 4:35 contingent liabilities, 5:648 change of control covenant, 5:626n.26 remuneration and company continuation patterns, 1:694, 701–705 change of control put option, 5:643 performance, 4:32–33 flags and pennants,1: 704–705 and governance practices, 4:30–32 shareholders’ rights, 4:34 rectangles, 1:704 internal control systems, 3:29 board of directors representation, reversal vs., 1:694 and market structure, 2:66–67 4:32 triangles, 1:702–704 price, 2:365 boards of directors, 4:21–25 continuous compounding, 1:312–313, weak, 4:28 committees, 4:22–25 553–554 control deficiency disclosures, composition of, 4:21–22 continuous random variables, 1:539–557 1:637–639 functions and responsibilities, 4:22 continuous uniform distribution, controlling shareholders, 4:9 staggered boards, 4:21–22 1:540–543 convenience yield. see roll yield company stakeholders, 4:8–14 defined, 1:527 conventional bonds, 5:301. see also plain relationships, 4:11–14 lognormal distribution, 1:551–557 vanilla bonds stakeholder groups, 4:8–11 normal distribution, 1:543–551 conventional cash flow,4: 51 composition of investors, 4:33–34 applications of, 1:549–551 convergence defined, 4:6 and probabilities for common stock income, 2:175 economic ownership and voting portfolio, 1:548 oscillator and price, 1:708 control, 4:31–32 safety-first optimal portfolio, conversion premium, 5:333 factors affecting,4: 25–28 1:549–551 conversion price, 5:333 market factors, 4:25–26 continuous time finance models, conversion ratio, 5:333 non-market factors, 4:27–28 1:553n.32 conversion value, 5:333 long-term risk management, 4:35 continuous trading markets, 5:54, 56–57 convertible arbitrage, 4:236 non-profit organizations,4: 10–11 continuous uniform distribution, convertible bonds, 5:332–334, 379–380; for private equity firms,5: 163 1:540–543 6:146 remuneration and company contra accounts, 3:169 convertible common stock, 5:157 performance, 4:32–33 contractionary fiscal policy,2: 302, 315 convertible debt, 3:136–137 risks and benefits,4: 28–31 contractionary monetary policy, convertible mortgages, 5:487 benefits of effective governance, 2:294–295 convertible preference shares, 5:161 4:29–31 contraction phase (business cycle), convexity, 5:559–567 risks of poor governance, 4:28–29 2:198–202. see also recession annualized, 5:561–562 shareholders’ rights, 4:34 contraction risk, 5:492 of credit risk/return, 5:633–634 stakeholder management, 4:14–20 contract markets, 5:20–25, 54–58 effective, 5:566–567 about, 4:14 contracts for difference,5: 20–21 money, 5:564–565 defined, 4:14 execution mechanisms, 5:54–57 and return, 5:530 mechanisms, 4:15–20 forwards, 5:21–22 convexity adjustment, 5:560–563 corporate governance committee, 4:23 futures, 5:22–23 convexity effect,5: 407–409, 567 corporate governance industry, 4:28 insurance contracts, 5:25 “cookie jar” reserve accounting, corporate governance reports, 4:20 market information systems, 5:58 3:624–625 corporate notes, 5:377–380 options, 5:24–25 copies, maintaining, 1:75 corporate profile, in company analysis, swaps, 5:23–24 copyright laws, 2:97 5:229 trading sessions on, 5:54 core inflation,2: 228–229 corporate sector (business sector), 2:128; contract rates, mortgage, 5:486–487 core–satellite approach, 4:397–398 5:349 contracts Corning, 4:209–210 corporate structure, in high-yield credit American- vs. European-style, 5:24 corporate accounts, in FX market, analysis, 5:642–643 currency, 5:39 2:410 corporate transparency, 4:17 defined, 5:14 corporate bond mutual funds, 4:231 corporate treasurers, 5:6 derivative, 5:15 corporate bonds, 5:377–380 corporations and discipline for financial reporting earnings surprise for, 5:135n.43 as intermediaries, 5:32–33 quality, 3:630 legal issuers of, 5:306 multinational, 2:339–340 forward (see forwards [forward sources of repayment for, 5:307 real assets of, 5:27 contracts]) corporate credit rating (CCR), 5:603 correction, of unintentional errors, futures (see futures [futures contracts]) corporate culture, financial reporting 1:76 insurance, 5:25 issues and, 3:659–660 corrective waves, 1:724–726

Cumulative_Ind_L1 19 August 1, 2018 7:45 PM I-20 Index

correlation(s) opportunity, 1:304 dividend discount model approach, of asset classes, 4:285, 386–387 in capital budgeting, 4:50, 51 4:92–93 defined, 1:501; 4:277 and economic vs. accounting profit, and equity risk premium, 4:89–92 estimating, 1:503–504 2:77 cost of debt, 4:84–86 and historical risk, 4:284 of money invested, 6:65 debt-rating approach, 4:85 hypothesis tests with, 1:655–658 in productivity, 2:24 estimating, 4:86 and investment opportunity set, and required rate of return, 6:63 yield-to-maturity approach, 4:84–85 4:288–289 ordering, 4:184 cost of preferred equity and portfolio risk, 4:277–279, 282 and output, 2:31–35 best estimate, 4:87–88 properties of, 1:501 period, 3:117 calculating, 4:87 and risk diversification,4: 284 policy, 4:184 cost of preferred stock, 4:86–88 of risk-free asset in portfolio of risky production, 3:347n.7 and country risk, 4:100–101 assets, 4:315 and production, 2:23–25 defined, 4:78 risk from changing, 4:427n.21 quasi-fixed, 2:33 estimating, 4:93–108 correlation coefficient,4: 277 rebuilding, 6:166 with beta and project beta, 4:94–100 correlation matrix, 1:501 research, 3:514, 515, 521, 623 with weighted average cost of capital, COSCO Pacific,4: 210–213 shoe leather, 2:280 4:98–100 cost(s) “soft,” 6:166 flotation costs,4: 105–107 accounting, 2:28 software development, 3:422, 431–434 in investment decision-making by administrative, 2:366 standard, 3:171 CFOs, 4:107–108 amortised, 3:66, 168–169, 186, 188 stock-out, 4:184 marginal cost of capital schedule, average, 2:36–37 sunk, 2:28; 4:51 4:102–105 average fixed,2: 31–35 total, 2:24, 31–35 practice problems, 4:111–117 average total, 2:31–37, 45–46 total fixed,2: 31–35, 41–42 solutions to problems, 4:118–121 average variable, 2:30, 36–37, 39–40 total variable, 2:31–35, 41–42 and taxes, 4:79–80 borrowing, 3:419–420 transaction weighted average capitalisation of, 3:423–435 with active portfolios, 4:348n.6 in capital budgeting decisions, carrying, 4:184 assumptions of CAPM about, 4:82–83 current, 3:66 4:336 computing, 4:79 deferred, 3:657 for borrowing, 5:9 cost of debt and cost of equity in, development, 3:431–435, 514–515, 521 with derivatives, 6:41, 70 5:178 economic, 2:28, 38, 77 and financial risks,4: 425–426 defined, 1:361n.2; 4:79 expensing of, 3:423–428 and market efficiency,5: 123 estimations, 4:98–100 financing, 4:50 unit labor, 2:232, 239 and raising of additional capital, fixed variable 4:102–105 and breakeven points, 4:145 average, 2:30, 36–37, 39–40 and return on invested capital, and capacity, 5:612 defined, 2:30 5:204 and degree of operating leverage, and leverage, 4:126–128 risk factors in, 4:93 4:133–135 and operating leverage, 3:303; weights for, 4:80–82 and degree of total leverage, 4:133–135 cost of carry 4:142–143 of production, 3:347n.7 and price of European options, fixed production overhead costs, total, 2:31–35, 41–42 6:90–91 3:347n.7 weighted average, 3:172 and price of forward contracts, 6:77 and leverage, 3:303–304; 4:125–128 cost approach to real estate valuation, and storage, 6:46 and shutdown decision, 2:41–42 6:166 for underlying assets, 6:65 total, 2:31–35, 41–42 Costa Rica cost of common equity, 4:88–93 flotation, 4:105–107 exchange rate regime, 2:434 bond yield plus risk premium historical, 3:66 exports from, 2:340 approach, 4:93 of holding assets, 6:64–66 government spending, 2:130 CAPM approach, 4:88–92 incremental, 3:115 IFRS adoption, 3:58 dividend discount model approach, of inflation,2: 279–281 underground economy, 2:124 4:92–93 information-acquisition, 5:123–124 cost arrangements, restricting, 1:64 and equity risk premium, 4:89–92 interest, 3:428–431 cost averaging, 1:421 cost of debt, 4:84–86 internal development, 3:431–435 Costco Wholesale Corporation, 1:404, after-tax, 4:85 of international trade, 2:341–345 432 for capital budgeting, 4:50 inventory, 3:117–118, 346–348; cost curves company’s, 4:93n.19 4:184 long-run average, 2:44–48 debt-rating approach, 4:85 labor, 2:158–160 short-run, 2:43–45 defined, 4:84 line, 3:648 cost flow assumptions,3: 639–640 estimating, 4:86 long-run average, 2:102 cost function, 2:24 and governance, 4:30 long-run marginal, 2:102 cost of capital, 4:50, 77–121 and taxes, 4:79 marginal about, 4:78–79 in weighted average cost of capital, defined, 2:23 for capital budgeting and security 5:177 and marginal revenue/profit valuation, 4:82–84 yield-to-maturity approach, 4:84–85 maximization, 2:29–30 and company value, 4:78 cost of equity in monopolies, 2:36–37, 102 cost of common equity, 4:88–93 common equity, 4:88–93 and other costs/output, 2:31–35 bond yield plus risk premium in private equity valuation, 6:156–157 in perfect competition, 2:36–37 approach, 4:93 and required rates of return, menu, 2:217–218, 280 CAPM approach, 4:88–92 5:177–178

Cumulative_Ind_L1 20 August 1, 2018 7:45 PM Index I-21

cost of goods sold with leveraged loans, 6:151 debt structure and leverage in, and activity ratio, 3:294 limitations on liens, 5:644 5:640–642 in inventory valuation, 3:172 maintenance, 5:644 equity-like approach to, 5:644–645 cost of preferred stock, 4:86–88 negative, 5:310–311, 626 financial projections for,5: 639–640 cost of sales probability of breaching, 1:542–543 liquidity in, 5:638–639 and inflation,3: 355–356 restricted payments, 5:644 and non-investment grade ratings, and inventory valuation method, 3:346, and stakeholder groups, 4:9 5:638 350–352 Covenant Review, 5:627 for non-sovereign government debt, and LIFO reserve, 3:357–358 coverage, prior, 1:66 5:650–652 in periodic vs. perpetual inventory coverage ratios, 3:305 practice problems, 5:656–665 systems, 3:352–354 for capitalised interest, 3:429–431 by ratings agencies, 5:601–610 cost-push inflation,2: 231–233 debt service, 5:651–652 credit ratings, 5:602–603 cost recovery method of revenue fixed charge,3: 305–306, 587 issuer vs. issue ratings, 5:603–605 recognition, 3:108–109 and four Cs framework, 5:617 risks of relying on ratings, 5:605–608 cost structures interest, 3:305, 325, 587 use of ratings, 5:601–602 and leverage, 4:126–128 for operating lease adjustment, recovery rates in, 5:597–600 in monopolies, 2:99–100 3:712–713 research on ratios in, 3:326 and price collusion, 2:93 and solvency ratios, 3:587–589 seniority ranking in, 5:595–597 Cote D’Ivoire, 3:59 covered bonds, 5:308 solutions to problems, 5:666–670 Council of the European Union, 3:55 covering, of positions, 5:40 for sovereign debt, 5:645–650 counterparties, futures, 6:18 C P. see commercial paper flexibility and performance profile, counterparty risk, 4:425, 431; 5:22, 36 CPI. see consumer price index; 5:647–648 countervailing duties, 2:357 French consumer price index; US political and economic profile,5: 647 counting, 1:508–511 Consumer Price Index in Portugal, 5:649–650 combination formula, 1:510–511 CPI-U. see Consumer Price Index for All sovereign debt defaults, 5:645–646 multinomial formula, 1:510 Urban Consumers credit analysts, 3:30 multiplication rule of, 1:509–510 CPR. see conditional prepayment rate credit card networks, barriers to entry permutation formula, 1:511 CRA International Inc., 3:99 for, 5:206–207 country risk, cost of capital and, crashes, 6:42 credit card receivable asset-backed 4:100–101 crawling band currency regimes, 2:434, securities, 5:511–512 coupon effect,5: 408, 409 438 credit crisis (2007-2009), 2:301, 305, coupon payment structures, 5:323–329 crawling peg currency regimes, 2:434, 308; 5:160, 309 corporate notes/bonds, 5:378 437–438 credit curve, 5:636–637 credit-linked coupon bonds, 5:324–325 Crazy Eddie’s, 3:619 credit cycle, 5:598–599, 631 deferred coupon bonds, 5:325 CRB Index. see Commodity Research credit default swaps (CDSs) floating-rate notes,5: 323–324 Bureau Index contracts for, 5:25 index-linked bonds, 5:325–328 creative destruction theory, 2:211–212 credit as underlying for, 6:37 payment-in-kind coupon bonds, 5:325 credibility as credit derivatives, 6:31–33 step-up coupon bonds, 5:324 of central banks, 2:286–287 defined, 4:438n.32 coupon rate (nominal rate) of monetary and fiscal policy mix, as insurance contracts, 5:34 of Asian and North American bonds, 2:321 credit derivatives, 6:30–33 5:403–405 credit credit duration, 5:546, 574 and bond duration, 5:550–551 and accounts receivable management, credit enhancements defined, 3:547 4:175 for auto loan ABSs, 5:509 and frequency of coupon payments, as drag on liquidity, 4:158 and bond indenture, 5:308–310 5:300–301 for short-term financing,4: 189–191 defined, 5:305 for securities, 4:169 trade, 4:185, 186 external, 5:309–310, 479 coupon-type classification for fixed- as underlying, 6:37–38 internal, 5:308–309, 479 income markets, 5:352–353 credit accounts, 4:176–177 with non-agency RMBSs, 5:503 Cournot, Augustin, 2:90 credit analysis, 5:591–670 in securitizations, 5:479 Cournot assumption, 2:90–91 capital structure in, 5:595 credit events, 4:438 Cournot equilibrium, 2:91, 93, 94 for corporate debt securities, credit insurance, 4:176 covariance, 1:497–503 5:610–628 credit limits, 4:159 and correlation of risks in portfolio, credit rating process, 3:324–326 credit lines 4:277–279 credit risk restrictions on, 4:159 in covariance matrix, 1:499–500, 502 defined, 5:592–594 for short-term financing,4: 189–191 defined, 1:497–499 return vs., 5:628–637 credit-linked coupon bonds, 5:324–325 of return, 4:257 defined, 3:691 credit-linked notes (CLNs), 5:382; 6:31 of risk-free asset in portfolio of risky four Cs framework, 5:610–628 credit migration risk, 5:593 assets, 4:315 capacity, 5:611–625 creditors and strategic asset allocation, 4:390 character, 5:627 business risk for, 4:145–147 covariance matrix, 1:499–500, 502 collateral, 5:625–626 contractual agreements with, 4:19 covenant(s), 5:310–311 covenants, 5:626–627 legal protections for, 4:27 affirmative, 3:559; 5:310, 626 Watson Pharmaceuticals Inc. case shareholder interests vs., 4:13 change of control covenant, 5:626n.26 study, 5:618–625 as stakeholders, 4:9 debt, 3:559–561, 626 functions of, 5:592 credit quality and employee laws, 4:19 high-yield, 5:638–645 classifying fixed-income markets by, in four Cs framework, 5:611, 626–627 corporate structure in, 5:642–643 5:350–351 in high-yield credit analysis, 5:643–644 covenant analysis, 5:643–644 of commercial paper, 5:375–376

Cumulative_Ind_L1 21 August 1, 2018 7:45 PM I-22 Index

credit quality (Continued) cross-rates, currency, 2:417, 419–423 target zone, 2:437 and repo margin, 5:388 cross-sectional common-size analysis, taxonomy of, 2:434–441 of sovereign bonds, 5:368–369 3:200, 203–204 foreign exchange market, 2:397–416 credit rating agencies, 5:601–610 cross-sectional data, 1:405, 585, 587 about, 2:397–398 basis for ratings, 5:602–603 cross-sectional mean, 1:405–407 currency conventions, 2:399–400 and corporate governance, 4:30 cross-sectional pricing anomalies, 5:130, functions, 2:404–410 fallibility of, 5:608 133 nominal vs. real exchange rates, opinions of, 1:61–62 cross-sectional ratio analysis, 3:284–285, 2:400–404 risks of relying on, 5:605–608 292 participants in, 2:410–413 use of, 5:601–602 cross-sectional regression analysis, 2:106 size and composition of, 2:413–416 credit ratings cross-shareholdings, 4:33–34 and international trade, 2:441–451 basis for, 5:602–603 crowding out, 2:307 absorption approach to trade balance, and country risk, 4:101 C R SP. see Center for Research in 2:447–448 for credit risk management, 4:438 Security Prices elasticities approach to trade balance, for issuer vs. issue, 5:603–605 cryptocurrencies, 4:472 2:443–447 non-investment grade, 5:638 cryptography, 4:470 practice problems, 2:455–457 risks of relying on, 5:605–608 CTAs. see commodity trading advisers quotations, 2:416–419 and special purpose entities, 5:482, 483 culture solutions to problems, 2:458–460 use of, 5:601–602 corporate, 3:659–660 currency option bonds, 5:302 credit risk, 4:30. see also default risk risk, 4:416 Currency Overlay Composite, 1:293–294 assessing, 3:691–694 cumulative distribution function, 1:528, currency quotes, 2:416–419 with commercial mortgage-backed 529, 541 currency regimes, 2:430–441 securities, 5:504 cumulative frequency, 1:394–398 arrangements with no separate legal components of, 5:592–594 cumulative frequency distributions, tender, 2:435–436 with corporate notes/bonds, 5:379 1:402–403 CBS, 2:436–437 credit derivatives for hedging, 6:30, 32 cumulative preference shares, 5:160, 171 with crawling bands/pegs, 2:437–438 defined, 3:324, 691; 4:425 cumulative probabilities, 1:740–741 fixed parity,2: 437 with fixed-income securities,5: 299– cumulative relative frequency, free-floating, 2:438–439 300, 574–575 1:394–395 historical perspective on, 2:432–434 with floating-rate bonds,5: 426 cumulative voting, 4:16; 5:156 ideal, 2:431 with floating-rate notes,5: 323 curation (data processing method), managed float,2: 438 measuring, 4:438 4:463 target zone, 2:437 with repurchase agreements, 5:388 currency(-ies), 5:14. see also specific currency reserves return vs., 5:628–637 currencies foreign, 2:277, 292 safety measures for, 4:171 in business cycles, 2:210 requirements, 2:265, 266, 282–283, 365 and yield-to-maturity, 5:433 classifying fixed-income markets by, currency risk, managing, 4:409–410 Credit Roundtable, 5:627 5:351 currency swaps, 5:24; 6:23n.12, 37 credits for fixed-income securities,5: 301–302 current account, BOP, 2:369, 375–379 BOP system, 2:368–369 foreign central bank purchases of, current assets unused tax, 3:523–524 2:373–374 and accounting profit vs. taxable credit sales, revenues and, 3:640–641 FX conventions for, 2:399–400 income, 3:509–510 credit scoring model, 4:177 in markets, 5:19–20 on balance sheets, 3:165, 167–174 credit services, financial institutions’, for sovereign bonds, 5:368–369 Apple Inc., 3:168 5:32 in sovereign credit analysis, 5:647 cash and cash equivalents, 3:168–169 credit spread options, 6:30–31 as underlying, 6:5, 37 inventories, 3:171–173 credit spreads and yield-to-maturity, 5:433 marketable securities, 3:169 and credit ratings, 5:607 currency board system (CBS), 2:434, other, 3:173–174 defined, 5:482–483 436–437 SAP Group, 3:167–168 term structure of, 5:419 currency codes, FX market, 2:399 trade receivables, 3:169–171 Credit Suisse, 5:210 currency contracts, 5:39 current cost, 3:66 credit tranching, 5:308–309, 481 currency exchange rates, 2:397–460 current government spending, 2:309 credit-worthiness, 4:159, 177, 191 calculations, 2:416–430 current liabilities CRH, 1:423 cross-rate, 2:419–423 of Apple Inc., 3:175 “Critical Accounting Estimates” and exchange rate quotations, on balance sheets, 3:165–166, 174–178 (MD&A), 3:625 2:416–419 deferred revenue analysis of, critical region, test statistic, 1:629 forward, 2:423–430 3:176–178 critical value, 1:628–630 currency regimes, 2:430–441 of SAP Group, 3:175 Croatia, 2:434; 5:96 active and passive crawling pegs, current ratio crop types (farmland investments), 6:163 2:437–438 and conversion from LIFO to FIFO, CROs. see chief risk officers arrangements with no separate legal 3:363 cross-border real estate investments, tender, 2:435–436 defined, 3:299; 4:160 6:159 CBS, 2:436–437 interpretation of, 3:300 cross-default provisions, 5:604 fixed parity,2: 437 inventory value in comparison of, cross-departmental conflicts,1: 179 fixed parity with crawling bands, 3:701–702 crossing networks, derivatives pricing 2:438 current tax, 3:524–527 rule for, 5:57 free-floating, 2:438–439 tax charged to equity, 3:525–527 cross-price elasticity of demand historical perspective on, 2:432–434 and valuation allowance, 3:525 for consumers, 2:15–18 ideal, 2:431 current tax liabilities, 3:509–510 in perfect competition, 2:73 managed float,2: 438 current yield, 5:304, 423

Cumulative_Ind_L1 22 August 1, 2018 7:45 PM Index I-23

curve duration, 5:538, 545, 548, 562 data-snooping bias, 3:696 estimating, 4:86 custodial relationships, 1:60 data visualization, 4:463–465 and governance, 4:30 custodial services, by financial Daves, Phillip R., 4:94n.21 and taxes, 4:79 intermediaries, 5:36–37 David and Lucile Packard Foundation, in weighted average cost of capital, custody fees, 1:264 4:219 5:177 custody of client assets, 1:102 Davide Campari-Milano S.p.A., 5:658– yield-to-maturity approach, 4:84–85 customers 659, 667 in credit ratios, 3:325–326 cash from, 3:235–236 Davidson, Russell, 1:632n.15 defined, 5:297 contractual agreements with, 4:20 day-of-the-week effect,5: 132 derecognition of, 3:557–559 power of, 5:612 day order, 5:48 discretionary cash flow to,3: 325 receipts of, 4:177–180 days in receivables, 4:160, 181 distressed, 6:146 segregation of, 2:103 days of inventory on hand (DOH) external, 5:647 shareholder conflicts with,4: 13 and activity ratios, 3:292–294 extinguishment of, 3:557–559 as stakeholders, 4:10 and conversion from LIFO to FIFO, FCF after dividends/debt ratio, 5:617 supplier conflicts with,4: 13 3:362 FFO/debt ratio, 5:617 The Customers’ Afternoon Letter, 5:78 inventory management with, fixed-rate, 4:86; 5:352 customs union, 2:360 3:376–377 floating-rate, 4:86; 5:352 C V. see coefficient of variation and inventory turnover, 3:294–295 forgiveness of, 3:127 CVaR. see conditional value at risk and inventory write-downs, 3:374–375 government, 2:260, 314 CVC Capital Partners, 3:685 days of sales outstanding (DSO) in high-yield credit analysis, 5:640–642 CVS Corporation, 4:95 in activity ratio definition,3: 292 leveraging role of, 4:139–140 cyclical companies and quality of financial reporting, lien, 5:596 credit analysis with, 5:613 3:656 long-term descriptions related to, 5:190–191 and receivables turnover, 3:295–296 on cash flow statement,3: 241 growth and defensive companies vs., day’s sales outstanding, 4:160 disclosure of, 3:561–564 5:221 DB pension plans. see defined-benefit and lease disclosure, 3:572–577 in investment strategies based on pension plans presentation of, 3:561–564 aggregate demand, 2:165 DBRS. see Dominion Bond Rating margin, 1:716–717, 720 cyclical economic indicators, 2:242–243 Service market value of, 5:274–275 cyclically adjusted budget deficit,2: 315 DBS Bank, 5:161 mortgage, 5:596 Cyprus, 2:360n.18, 434 DBS Group Holdings, 5:161 national, 2:305–307 Czech Republic, 2:285; 3:58; 5:96 DCFs. see discounted cash flows net, 5:616 DC pension plans. see defined- nonrated, 4:86 D contribution pension plans non-sovereign government, 5:650–652 %D (stochastic oscillator), 1:712–713 DDM. see dividend discount model with optionlike features, 4:86 Daejan Holdings PLC, 3:465–466 dead cross pattern, 1:706 ratio of consumer installment debt to Daily Sentiment Index, 1:715 deadweight loss, 2:354, 355 income, 2:240 daily settlement, 6:18, 19 dealer markets. see over-the-counter secured, 5:595, 596 Daimler AG, 1:424; 3:309–311; 5:189, (OTC) markets; quote-driven segment debt ratio, 3:328 209, 270 markets seniority rankings of, 5:595–597 DaimlerChrysler, 3:102; 5:168 dealers sovereign, 5:645–650 Damodaran, Aswath, 4:101n.31 and arbitrageurs, 5:34–36 credit analysis for, 5:645–650 Danish Society of Financial Analysts, and brokers, 5:30–31 flexibility and performance profile, 1:230 in OTC derivatives market, 6:12 5:647–648 Danone. see Groupe Danone primary, 5:30, 364 political and economic profile,5: 647 dark pools, 5:29 risk shifting to, 4:445 in Portugal, 5:649–650 data dealing securities, 3:219 sovereign debt defaults, 5:645–646 alternative, 4:457, 460 De Beers Consolidated Mines Limited, subordinated, 5:596–597 financial statement 2:97 Treasury, 1:305 analysis, 3:33 debentures, 5:307 unsecured, 5:595, 596 collection, 3:32 debits, BOP system, 2:368–369 debt burden, 2:306 interpretation, 3:33 DeBondt, Werner, 5:132 debt covenants, 3:559–561, 626 processing, 3:33 debt. see also collateralized debt debt financing, for real estate,6: 161, overfitting of,4: 461 obligations (CDOs) 162. see also mortgages semi-structured, 4:458 amount of debt coming due, 5:618 debt incurrence test, 4:102 structured, 4:458 analyst adjustments to, 3:710–712 debt instruments, 5:15 traditional, 4:457 convertible, 3:136–137 debt markets, credit analysis in, 5:592 unstructured, 4:458 corporate, 5:373–381 debt-rating approach, for cost of debt, 4:85 databases, 4:465, 470 bank and syndicated loans, debt ratios, 3:304, 305 data mining, 1:601–604; 5:130 5:373–374 debt securities. see also fixed-income data-mining bias, 1:601–604 commercial paper, 5:374–377 securities data processing methods, 4:463 corporate notes and bonds, corporate, 5:610–628 data science, 4:463–465 5:377–380 equity vs., 5:155 data processing methods, 4:463 cost of, 4:84–86 and preference shares, 5:159–160 data visualization, 4:463–465 after-tax, 4:85 debt service coverage ratio (DSCR), datasets for capital budgeting, 4:50 5:504, 651–652 analysis of large, 4:456 company’s, 4:93n.19 debt-to-assets ratio, 3:304, 305, 586, 587 in machine learning, 4:461 debt-rating approach, 4:85 debt-to-capital ratio, 3:304, 305, data snooping, 1:601n.19, 602n.22; 5:130 defined, 4:84 586–587; 5:616

Cumulative_Ind_L1 23 August 1, 2018 7:45 PM I-24 Index

debt-to-EBITDA ratio, 3:326; 5:616 defeasance, 5:505 delisted companies, 1:605 debt-to-equity ratio, 3:304, 305, 587; defensive companies, 2:165 delivery 4:81–82 defensive industries, 5:190, 191, 221 of futures, 6:20 deceit, 1:83 defensive internal ratio, 3:299, 300 of options, 6:26 decennial pattern, 1:723 deferred costs, 3:657 and repo rate, 5:387 deciles, 1:421 deferred coupon bonds, 5:325, 378 in spot market trading, 5:10 decision making deferred income, 3:176 Dell Inc. by CFOs, 4:107–108 deferred method of tax recognition, business strategy and financial ethical framework for, 1:20–27, 41–42 3:518n.3 performance, 3:273–274 group, 1:157 deferred revenue (unearned revenue) cash flow analysis of comparables, in hypothesis testing, 1:631 analysis of, 3:176–178 3:256–257 ineffective, 4:29 as current liability, 3:176 cash flow and inventory management, time frame for dissemination and, on income statements, 3:100 4:184n.8 1:112–113 deferred tax, 3:524–527 common-size cash flow statement, decision rule, 1:628–630 IFRS vs. US GAAP on, 3:533–536 3:252–254 decisions and taxable vs. accounting profit,3: 522 cross-sectional common-size analysis, capital budgeting, investment decision tax charged to equity, 3:525–527 3:200, 203–204 criteria for, 4:52–68 and valuation allowance, 3:525 evaluation of liquidity measures, average accounting rate of return, deferred tax assets 3:301 4:57–58 accounting choices about, 3:642–643 two-factor analysis of, 5:209 internal rate of return, 4:53–54 accounting profit vs. taxable income delta, 4:436 net present value, 4:52–53 for, 3:510–513 Delta Air Lines, 2:88 payback period, 4:54–57 changes in tax rates, 3:517–518 demand popularity and use of capital current assets as, 3:174 aggregate (see aggregate demand [AD]) budgeting methods, 4:66–68 defined, 3:509 for commodities, 6:171 profitability index,4: 58 and timing, 3:508 in company analysis, 5:230 risk management, 4:407–408 unused tax losses/credits, 3:523–524 concepts, 2:6–8 decision-useful information, in financial deferred tax liabilities derived, 2:353 reports, 3:610–612 accounting profit vs. taxable income elastic, 2:10, 12–14, 71 declaration date, 5:249 for, 3:510–513 elasticity of demand, 2:8–18 decline stage (industry life-cycle), 5:215 on balance sheets, 3:191–192 calculating, from demand function, declining balance depreciation method, changes in tax rates, 3:517–518 2:16–18 3:436 defined, 3:509 cross-price elasticity of demand, decomposition deficit 2:15–18 of ROE, 3:313–318 budget (fiscal),2: 300 defined, 2:8 of total risk, 4:330 and business cycles, 2:129 income elasticity of demand, 2:14–16 decreasing returns to scale, 2:46 and fiscal policy,2: 315–316 own-price elasticity of demand, dedicated short bias strategies, 4:236 and foreign capital, 2:138 2:9–14 deductible temporary differences, and national debt, 2:305–307 excess, 2:337 in taxable/accounting profit, and Ricardian equivalence, 2:314 for fixed- vs. floating-rate debt,5: 352 3:519–522 in current account, 2:375–379 inelastic, 2:10, 11, 13–14, 71 deeds, trust, 5:305, 626 trade, 2:130, 336 law of demand, 2:6, 18–19, 21, 75 deep learning, 4:462 defined-benefit (DB) pension plans long-run vs. short-run, 2:12 Deepwater Horizon oil spill, 4:38 accounting for, 3:583 for money, 2:269–272 default(s) defined, 3:584 in monopolistic competition, 2:84–85 cross-default provisions, 5:604 effective duration in,5: 546–547 in monopoly, 2:36–37, 98–99 in forward contracts, 6:15 as investment clients, 4:217 in oligopoly, 2:88–94 loss given, 5:592 Monte Carlo simulations for, 1:557 in perfect competition, 2:36–37, 69–76 price reaction to, 5:118–119 defined-contribution (DC) pension perfectly elastic, 2:12 recovery rates for, 5:597–600 plans, 3:583; 4:216 perfectly inelastic, 2:11 sovereign debt, 5:645–646 deflation under perfect vs. imperfect strategic, 5:488 defined, 2:224 competition, 2:36 in swaps, 6:23 and inflation targeting,2: 288 and spreads on corporate bonds, 5:631 default bonds and liquidity traps, 2:296 unit elastic, 2:10 binomial model for, 1:537–538 and quantitative easing, 2:296–297 demand and supply analysis, 2:5–61 recovery rates on, 1:642–644 degree of confidence,1: 593 consumers, 2:6–23 default interest rate, 5:505 degree of financial leverage (DFL) demand concepts, 2:6–8 default probability, 5:592 defined, 4:137 elasticity of demand, 2:9–18 default rates and degree of total leverage, 4:142–143 substitution and income effects, for collateral, 5:503 degree of operating leverage (DOL) 2:18–23 by credit rating, 5:605–606 calculating, 4:135 firms, 2:23–48 and credit risk/return, 5:635–636 defined, 4:130 marginal returns, 2:23–28 default risk. see also credit risk and degree of total leverage, 4:142–143 scale and profit maximization, attributes and safety measures, 4:171 and financial risk,4: 140–142 2:43–48 in credit risk, 5:592, 593 and operating risk, 4:130–135 shutdown analysis, 2:28–43 defined, 4:425 degree of total leverage (DTL), in microeconomics, 2:5–6 governance and, 4:29, 30 4:141–143 for money, 2:270–272 shareholder vs. creditor interests, 4:13 degrees of freedom (df), 1:596, 597, 642 practice problems, 2:51–57 default risk premium, 1:305, 494–495 Delafield Fund,1: 433 solutions to problems, 2:58–61

Cumulative_Ind_L1 24 August 1, 2018 7:45 PM Index I-25

demand curves double-declining balance, 3:123, purposes of, 6:39–41, 44–45 aggregate, 2:145–148 436–440, 644–647 risk shifting with, 4:443–445 example, 2:147–148 and economic vs. accounting costs, 2:28 solutions to problems, 6:56–58 features of, 2:145 in elasticities approach, 2:443–447 types of, 6:14–39 interest rates and income effects, and expense recognition on income underlyings for, 6:36–39 2:146–147 statements, 3:122–124 uses of, 6:7–9 investment strategies based on, of long-lived assets, 3:435–443 valuation of, 6:45–52 2:171–172 calculation of depreciation expense, binomial valuation of options, defined, 2:8 3:441–443 6:100–104 effect of income elasticity on,2: 15 financial reporting quality issues, forward commitments, 6:73–85 elasticity of linear, 2:11 3:643–647, 653 pricing vs. valuation, 6:72–73 kinked, 2:89–90, 95 methods, 3:435–441 derivatives market, 6:9–14 and law of demand, 2:18 plant, property, and equipment, exchange-traded, 6:10–11, 13–14 of leaders in oligopoly, 2:95 3:180, 703–704 over-the-counter, 6:11–14 as marginal value curve, 2:75 and quality of financial reporting, size of, 6:38–39 in monopolies, 2:98–99 3:657–658 derivatives pricing rule, 5:57 in monopolistic competition, 2:84–85 straight-line derived demand, 2:353 negatively sloped, under imperfect and balance sheet, 3:644–647 descending triangle pattern, 1:702–703 competition, 2:40–41 bond premium/discount descriptions of securities, 1:169–170 in oligopolies, 2:88–90, 95 amortisation, 3:551 descriptive statistics, 1:389 in perfect competition, 2:77–78 calculation, 3:436 destabilization, economic, 6:43–44 demand functions defined, 3:435 detection defined, 2:6–7 depreciation/amortisation, 3:121–122 of financial reporting issues,3: 632–660 elasticities from, 2:16–18 double-declining and units-of- accounting choices and estimates, inverse, 2:8 production methods vs., 3:436–440 3:638–655 demand-pull inflation,2: 231, 233–234 units-of-production, 3:435–440, cash flow statement effects, demand schedules, 2:71–73 644–647 3:648–651 demand shock to inflation rate,2: 295 useful life and residual value in, earnings and balance sheet effects, demographic influences 3:121–124 3:639–648 on housing sector, 2:209 depreciation expenses, 3:441–443, 454 areas of choice/estimate and analyst in industry analysis, 5:203, 223–224 depressions, 2:199 concerns, 3:652–655 and industry life-cycle, 5:217 derecognition presentation choices, 3:633–638 in sovereign credit analysis, 5:647 of debt, 3:557–559 warning signs, 3:655–660 in strategic analysis, 5:220 of long-lived assets, 3:451–453 capitalization policies, 3:657 de Moivre, Abraham, 1:543 derivative contracts, 5:15 cash flow and net income Denmark derivative expiration days, 1:653–654 relationship, 3:657 domestic and international debt derivatives, 3:186; 6:5–58 company culture, 3:659–660 securities, 5:315 benefits of,6: 41–42 context for judging signs, equity risk premiums, 4:90 beta for, 4:436 3:658–659 exchange rate regime, 2:434, 439 characteristics of, 6:8–9 deferred costs, 3:657 GIPS sponsor, 1:230 contingent claims, 6:25–35 inventories, 3:656–657 MSCI multi-market index, 5:96 asset-backed securities, 6:33–35 revenue, 3:655–656 real equity returns, 1:398 credit derivatives, 6:30–33 as part of supervision, 1:147–148 residential mortgage loans, 5:486–488 forward commitments vs., 6:35–36 Detroit “Big Three” automakers,2: 100 returns on bonds, bills, and equities, options, 6:25–30, 33 Deutsche Bank, 1:424; 2:410, 412; 5:153 criticisms of, 6:42–45 5:166 total returns, 1:406, 410, 422 defined, 6:6, 60–62 Deutsche Börse, 5:29, 152, 209, 333; 6:9 departments, physical separation of, 1:89 forward commitments, 6:14–25 Deutsche Bundesbank, 2:276, 433 dependent events, 1:483 contingent claims vs., 6:35–36 Deutsche Securities, 5:30 dependent samples, hypothesis tests for, forward contracts, 6:14–17, 24, Deutsche Telekom, 1:423 1:644–648 73–80 Deutsche Telekom AG, 5:272–273 depletion (term), 3:435n.12 futures contracts, 6:17–21, 24, 80–82 Deutsche Vereinigung für Finanzanalyse depositary receipts (DRs), 5:18, 166–169 pricing, 6:73–85 und Asset Management, 1:231 depositories, 5:19, 37 swaps, 6:21–25, 82–85 developed countries depositors, in securitization process, hedging with, 6:67–68 bond markets, 5:355 5:478 hybrid, 6:35 business investment by, 2:177 depository banks, 5:166 markets for, 6:9–14, 38–39 foreign exchange reserves, 2:412 depository institutions, 5:32–33 practice problems, 6:54–55 international trade and unemployment, deposits, retail, 5:385 pricing, 6:45–52, 59–117 2:342 depreciation about, 6:60 developing countries in absorption approach, 2:448 arbitrage and, 6:47–52, 66–72 business investment by, 2:177 accelerated, 3:122–124, 435 definition of derivatives,6: 60–62 exchange rate targeting, 2:291–294 average age of depreciable assets, forward commitments, 6:73–85 foreign exchange reserves, 2:412 3:462–464 options, 6:85–100, 104–107 labor supply, 2:176 component method, 3:441–443 practice problems, 6:109–113 monetary policy of, 2:290–291 currency, 2:418 pricing underlying assets, 6:62–66 reserve requirements, 2:283 declining balance, 3:436 solutions to problems, 6:114–117 terms of trade for, 2:335–336 defined, 3:24, 121 storage in, 6:46–47 trade-to-GDP ratio, 2:338 diminishing balance, 3:123–124 valuation vs. pricing, 6:72–73 development capital, 6:148–149

Cumulative_Ind_L1 25 August 1, 2018 7:45 PM I-26 Index

development costs initial recognition and measurement disclosures relating to changes in internal, 3:431–435 of, 3:578–580 accounting policies, 3:81–83 and taxable/deductible temporary US GAAP on, 3:577, 578 at General Electric, 3:82 differences, 3:521 direct-format statements at Volkswagen, 3:80–81 and tax bases of assets, 3:514–515 benefits of,3: 223 by hedge funds, 6:147 development phase (intangible assets), under IFRS, 3:226–228 of income tax information, 3:528–533 3:182 for Telefónica Group, 3:226–228 and financial analysis,3: 532–533 deviation. see also standard deviation direct investment(s) Micron Technology, Inc., 3:528–533 from intrinsic value, 1:680 defined, 1:264 of interdepartmental referral mean absolute deviation, 1:429–431 in infrastructure assets, 6:174 arrangements, 1:191 semideviation, 1:437, 438 in non-domestic equity securities, interim period, 3:115n.26 de Villiers, Victor, 1:686 5:165–166 of inventory information, 3:376 DeVry University, 5:210 Private Equity (GIPS Section I.7), 1:250 of investment property, 3:466–467 de Wolff, Samuel,1: 722 in real assets, 5:26 of investment system, 1:169, 171 df. see degrees of freedom Directive for Criminal Sanctions for of issuer-paid research, 1:76 DFL. see degree of financial leverage Market Abuse, 5:122n.11 of leases, 3:570–577 DHL International, 5:209 direct method for cash flow from level of service, 1:114 Diageo, 5:209 operating activities, 3:648 of LIFO liquidations, 3:364–366 differentiation strategy, for companies, direct method for overall statement of of long-term debt, 3:561–564 5:228 cash flows,3: 241–242 and market efficiency,5: 122 diffuse priors,1: 508 adjustments to net income, 3:241–242 market regulators’ requirements of, diffusion index,2: 240n.a, 242 converting indirect and, 3:245–246 3:628 digital wealth managers, 4:468 defined, 3:23, 222 material information, 1:88–89, 92 diligence, 1:155, 163 directors, conflicts of interest for, and monitoring of financial reporting Diligence and Reasonable Basis 1:179–180, 182–183. see also board standards, 3:79–83 [Standard V(A)], 1:154–165 members in notes to financial statements,3: 70 application of the standard, direct ownership, of real estate, 6:160, 161 of pension plans, 3:585–586 1:158–165 direct taxes, 2:309, 312 of performance calculation compliance procedures, 1:158 direct write-off method,3: 120 methodology, 1:128–129 guidance, 1:154–157 dirty floating,2: 438 of personal investing policies, 1:188 diligence and reasonable basis disbursement float,4: 186 of personal trading, 1:188, 189 defined, 1:155 Disciplinary Review Committee (DRC), of possible illegal activity, 1:132 group research and decision making, 1:37–38 and presentation of long-lived assets, 1:157 disciplining mechanisms for financial 3:453–466 quantitatively oriented research, reporting quality, 3:626–632 Daejan Holdings PLC, 3:465–466 1:156–157 auditors, 3:629–630 fixed asset turnover and average age quantitatively oriented techniques, market regulatory authorities, of depreciable assets, 3:462–464 1:157 3:627–629 Vodafone Group Plc, 3:455–460 secondary or third-party research, and motivation for manipulation, of referral arrangements, 1:190–192 1:155–156 3:631–632 of revaluation model for long-lived selecting external advisers and private contracts, 3:630 assets, 3:447–448 subadvisers, 1:157 disclaimer of opinion, 3:28 of revenue recognition, 3:115–116 text of, 1:46, 154 Disclosure (GIPS Section I.4), 1:237–240 selective, 1:92, 114, 116 Dillards, Inc., 1:412 about, 1:232 on social media, 1:117 diluted earnings per share, 3:134–140 recommendations standards for exchanges, 5:29 with antidilutive securities, general, 1:240 trade allocation procedures, 1:114 3:139–140 for private equity, 1:250 disclosure management, 3:618n.8 defined, 3:132 for real estate, 1:246 Disclosure of Conflicts [Standard VI(A)], if-converted method, 3:134–136 requirements 1:177–184 for stock options, 3:139 general, 1:237–240 application of the standard, 1:180–184 treasury stock method, 3:137–139 for private equity, 1:248 compliance procedures, 1:180 in valuation ratios, 3:319–321 for real estate, 1:244 guidance, 1:177–180 diluted shares, 3:18 for real estate closed-end fund conflicts as a director,1: 179–180 diminishing balance depreciation, composites, 1:245 cross-departmental conflicts,1: 179 3:123–124 for wrap fee/SMA portfolios, 1:251 disclosure to clients, 1:178–179 diminishing marginal productivity, disclosure(s) disclosure to employers, 1:178 2:174–175 of bonds with warrants, 3:563–564 stock ownership conflicts,1: 179 diminishing returns, law of, 2:79 of confidential information,1: 132–133 text of, 1:46, 177 Dimson, Elroy, 4:89–90 of conflicts of interest,1: 105 discontinued operations, on income direct capitalization approach to real control deficiency,1: 637–639 statements, 3:126 estate valuation, 6:165 of debt and financial instruments, discount(s) direct currency quote, 2:416 3:555–557 bonds issued at, 3:549–553 direct debit programs, 4:178 of debt covenants, 3:560–561 bonds trading at, 5:403–406 directed brokerage, 1:104 of debt extinguishment, 3:558–559 closed-end investment fund, direct exchange rate, 2:416 and financial reporting quality,3: 659 5:133–134 direct financing leases and financial reporting standards, forward, 2:423 defined, 3:484, 578 3:79–83 and T-bills, 1:375 and financial statements,3: 480–485, disclosures relating to accounting and time value of money, 1:304 582–583 policies, 3:79–81 trade, 4:187–188

Cumulative_Ind_L1 26 August 1, 2018 7:45 PM Index I-27

discount bonds, 5:531, 551 mean absolute deviation, 1:429–431 probability (see probability discounted cash flows (DCFs),1: 359– population variance and standard distributions) 386. see also present value models deviation, 1:431–434 sampling, 1:584, 592 in equity valuation, 5:246–247 range, 1:429–431 t-distribution internal rate of return, 1:362–367; relative, 1:441 and confidence interval for 4:67n.5 sample variance and standard population mean, 1:597–598 evaluating R&D programs with IRR deviation, 1:434–437 defined, 1:632–633 rule, 1:363–364 semivariance and semideviation, and estimation of normal sampling NPV and IRR rules, 1:364–365 1:437–438 distribution, 1:595 problems with IRR rule, 1:365–367 Sharpe ratio, 1:443–446 normal distribution vs., 1:596–597 money market yields, 1:374–379 displayed orders, 5:47–48 table, 1:742 bank discount yield, 1:375–376 display size, of orders, 5:47 divergence, 1:696, 708 discount rate, 1:378–379 disposable income diversification net present value, 1:360–362 and balance of payments, 2:376 with alternative investments, 6:125, portfolio return measurement, defined, 2:207 127, 132 1:367–374 and MPC, 2:313 with commodities, 6:170–171 money-weighted rate of return, personal, 2:134 as credit analysis factor, 3:691 1:368–369, 372–374 disposal, of long-lived assets, 3:452–453 and employee stock options, 4:208–210, time-weighted rate of return, dissemination of information, 1:88, 286, 381 1:369–374 112–113, 189–190 with hedge funds, 6:138–139 practice problems, 1:381–383 dissociation, 1:54–56 and investing in portfolios vs. single in private equity valuation, 6:157 distinct business entities, 1:234, 265 equities, 4:208–210 in real estate valuation, 6:166 distressed debt, valuation of, 6:146 and Loyalty, Prudence, and Care solutions to problems, 1:384–386 distressed investing (private equity), [Standard III(A)], 1:105 and time value of money, 1:359 6:149, 153 and portfolio risk, 4:278, 282–287 discounted payback period, 4:56–57 distressed property investments, 6:167 with private equity, 6:155–156 discounted receivables, 4:190 distressed/restructuring strategy, for with real estate, 6:158, 163–165 discounted securities, yields of, hedge funds, 6:136 as risk modification method,4: 441 4:169–170 distributed ledger technology (DLT), and Suitability [Standard III(C)], 1:120 discounting, 5:16, 246–247 4:469–473 diversification ratio,4: 212 discount interest, 4:169 about, 4:469–471 divest (term), 5:8 discount margin, 5:426–429 applications of, 4:472–473 dividend discount model (DDM) discount rate compliance, 4:473 for cost of common equity, 4:92–93 and federal funds rate, 2:282 cryptocurrencies, 4:472 for cost of equity, 4:91; 5:178 for money market yields, 1:378–379; post-trade clearing and settlement, in decision-making by CFOs’, 4:107 5:429–430 4:472–473 defined, 5:246 discount securities, return for, 1:377 tokenization, 4:472 description, 5:251–254 discount yield, bank, 1:375–376, 378 financial record keeping with,4: 457 dividends and, 5:248–250 discouraged worker, 2:221 permissioned and permissionless Gordon growth model vs., 5:260 discrete random variables, 1:527–539 networks, 4:471 as present value model for equity binomial distribution, 1:530–539 distributional characteristics of assets, valuation, 5:248–264 evaluating block brokers with, 4:264–266 three-stage, 5:262 1:531–532, 534–535 kurtosis, 4:265–266 two-stage, 5:261–264 and expected defaults in bond skewness, 4:264–265 dividend income, taxes on, 4:254 portfolio, 1:537–538 distribution area laws, 1:54 dividend-payout ratio, 3:319, 321 and one-period stock price as distribution-free tests, 1:654n.27 dividend per share (DPS), 3:319; Bernoulli random variable, distributions, 1:247, 265 5:279–280 1:530–531 F-distribution, 1:744–747 dividend reinvestment plans (DRPs), and tracking objectives, 1:536 frequency, 1:391–399 5:52 discrete uniform distribution, construction of, 1:392–394, 398–399 dividends 1:528–530 cumulative, 1:402–403 calculating, from DDM, 5:261 discretionary cash flow to debt,3: 325 defined, 1:391 on cash flow statement,3: 241 discretionary goods, 2:12 and holding period formula, 1:392 and DDM, 5:248–250 discretionary portfolios, 1:260 and relative frequency, 1:394–398 defined, 5:248 discriminatory pricing rule, 5:56 normal FCF after dividends/debt ratio, 5:617 diseconomies of scale, 2:44–47 confidence intervals for population and free cash flow,5: 616 disinflation, 2:224, 225 mean with, 1:594 and Gordon growth model, 5:257, 260 disintermediation, 5:475 cumulative probabilities for, payments-in-lieu of, 5:40 dispersion, 1:428–446 1:740–741 on preference shares, 5:159–160 absolute, 1:428 hypothesis tests of normally- reinvested, 5:169–170 Chebyshev’s inequality, 1:439–441 distributed populations, 1:633–636, at Viacom Corporation, 5:157 coefficient of variation,1: 441–443 640–648, 651 dividends receivable, 3:514, 521 internal reliability factors for confidence divisor, price return index, 5:79 defined, 1:266 intervals based on, 1:594–595, DJIA. see Dow Jones Industrial Average Disclosure (GIPS Section I.4), 1:238 598–599 DLT. see distributed ledger technology Presentation and Reporting (GIPS skewed vs., 1:446–449 “The Doctrine of No Surprises,”4: 410 Section I.5), 1:241 standard, 1:740–741 documentary credit accounts, 4:176 Real Estate (GIPS Section I.6), 1:245 Student’s t-distribution vs., documentation, of trade allocation Verification (GIPS Section IV),1: 261 1:596–597 procedures, 1:113

Cumulative_Ind_L1 27 August 1, 2018 7:45 PM I-28 Index

documents, former employers’, 1:138 double coincidence of wants, 2:263 dual-class share structure Dodd–Frank Act. see Wall Street Reform double-declining balance depreciation and controlling–minority shareholder and Consumer Protection Act acceleration factor in, 3:123 relationships, 4:12–13 (2010) on financial statements,3: 644–647 and voting control, 4:31–32 Dogs of the Dow Strategy, 1:603n.24 of long-lived assets, 3:436–440 dual-currency bonds, 5:301–302 DOH. see days of inventory on hand other depreciation methods vs., dual listing, of shares, 5:164–165 doji, 1:685–686 3:436–440, 644–647 Dubai International Financial Exchange, DOL. see degree of operating leverage double tops, 1:699–701 5:167 dollar, Australian doubtful accounts, 3:120, 653 due diligence AUD/HKD exchange rate, 2:402–404, Douglas, Roger, 2:285 and failed investments, 1:163 408–410 Dow, Charles, 1:679–681, 723; in financial research and analysis,1: 61 currency code, 2:399 5:78, 83 for hedge fund investing, 6:146–148 exchange rate quotes with, 2:416, Dow Chemical, 1:544n.17 for private equity investments, 6:158 417n.4 Dow Dividend Strategy, 1:603n.24 and risk management for alternative international bonds outstanding in, Dow Jones 30 Index, 4:332 investments, 6:178–180 5:351 Dow Jones Average, 5:78 in submanager selection, 1:160–161 trade balance and exchange rate for, Dow Jones & Company sufficient, 1:158, 161–162 2:448–451 company classifications,5: 192 Dun & Bradstreet, 3:282 USD/AUD currency pair, 2:414 formulation of Nikkei Stock Average, duopoly markets, 2:90–93 dollar, Canadian 5:103 DuPont, 2:73 CAD/USD currency pair, 2:414 ICB development, 5:192 DuPont analysis, 3:313–318 in cross-rate calculations, 2:419–420 Dow Jones Industrial Average (DJIA), durable goods, 2:207 currency code, 2:399 1:679, 681 Duracell, 2:64 exchange rate quotes with, 2:417 and correlations, 4:284 duration international bonds outstanding in, creation of, 5:78 approximate modified,5: 543–545 5:351 decennial pattern, 1:723 of bond portfolio, 5:555–557 dollar, Hong Kong features of, 5:103 credit, 5:546, 574 AUD/HKD exchange rate, 2:402–404, as gauge of market sentiment, 5:93 and credit risk/return, 5:634–635 408–410 with inverse head and shoulders curve, 5:538, 545, 548, 562 currency code, 2:399 patterns, 1:699 defined, 4:436; 5:538 exchange rate regime for, 2:436–437 on linear vs. logarithmic scale, dollar, 5:557 international bonds outstanding in, 1:688–689 effective 5:351 presidential cycle, 1:723 calculating, 5:545–548 dollar, New Zealand, 2:399, 416, 417n.4 price weighting of, 5:83 of callable bonds, 5:553–554 dollar, Singapore, 2:399 quadruple witching days, 1:653–654 of putable bonds, 5:554 dollar, US, 2:399 support and resistance, 1:693–694 inflation, 5:574 CAD/USD currency pair, 2:414 Dow Jones Railroad Average, 1:681 key rate, 5:549 CNY/USD exchange rate, 2:401–402 Dow Jones Transportation Average, liquidity, 5:574 cross-rate calculations with, 2:419–420 5:78 Macaulay as currency anchor, 2:434–435, 437, downgrade risk, 5:593 calculating, 5:538–542 438 downside risk and interest rate risk/investment exchange rate quotes with, 2:416–419 and diversification in portfolios, horizon, 5:569–574 as exchange rate target, 2:292 4:213–215 and modified duration,5: 549–551 foreign exchange gains, 5:169 measures of, 6:178–179 of portfolio, 5:555–557 foreign exchange reserves, 2:411–412 and returns, 6:131 modified forward calculations with, 2:423–424 and Sharpe ratios, 6:130–131 annual, 5:542–544 gold standard for, 2:432 down transition probability, 1:538 approximate, 5:543–545 international bonds outstanding in, downtrends, 1:692 calculating, 5:542–543 5:351 downturn, 2:201–202 and credit risk/return, 5:633–635 JPY/USD currency pair, 2:414 capital spending in, 2:204 and effective duration,5: 547–548 as reserve currency, 5:19 housing sector in, 2:208 and Macaulay duration, 5:549–551 spot market trading of, 5:10 inventory–sales ratio in, 2:205 of portfolio, 5:555–557 USD/AUD currency pair, 2:414 resource use in, 2:202–204 money, 5:557–559, 572 USD/EUR currency pair, 2:414 Dow Theory,1: 723, 726 OAS, 5:548 USD/EUR exchange rate, 2:407 DPI. see realization multiple partial, 5:549 USD/GBP currency pair, 2:414 DPS. see dividend per share properties of, 5:549–554 dollar–Canada exchange rate, 2:416, drag on liquidity, 4:158–159 real rate, 5:574 419–420 DRAM & Flash Product, 5:209 and return, 5:530 dollar duration, 5:557 drawdown, hedge funds, 6:144–145 yield, 5:538, 545, 548, 562 dollarization, 2:435–436 DRC. see Disciplinary Review DURATION financial function,5: 541n.2 dollar-weighted return, 1:368n.9 Committee duration gap, 5:573 dollar–yen exchange rate, 1:463; 2:416, Dreyer’s Grand Ice Cream Holdings, Durbin-Watson statistic, 1:748 420–421 Inc., 5:159 Dutch Book Theorem,1: 478 domestic bonds, 5:313, 314, 354 DRPs. see dividend reinvestment plans Duties to Clients [Standard of domestic content provisions, 2:354 DRs. see depositary receipts Professional Conduct III], 1:101–133 Dominion Bond Rating Service (DBRS), dry-bulk shipping industry, 5:211–212 Fair Dealing [Standard III(B)], 5:602 DSCR. see debt service coverage ratio 1:110–118 donations, 3:516, 521, 522 DSO. see days of sales outstanding application of the standard, double bottoms, 1:700, 701 DTL. see degree of total leverage 1:114–118

Cumulative_Ind_L1 28 August 1, 2018 7:45 PM Index I-29

compliance procedures, 1:112–114 early expansion phase (business cycle), EBITDA. see earnings before guidance, 1:110–112 2:199–201 interest, taxes, depreciation, and text of, 1:45, 110 early repayment option, 5:488 amortization Loyalty, Prudence, and Care [Standard earnings EBITDA interest coverage, 3:325 III(A)], 1:101–109 accounting choices/estimates and, EBITDA/interest expense ratio, 5:617 application of the standard, 3:639–648 EBITDA per share, 3:319, 320 1:106–109 announcements of, 3:8–11 EBIT interest coverage, 3:325 compliance procedures, 1:105–106 price to earnings ratio, 3:319–320 EBIT/interest expense ratio, 5:617 guidance, 1:101–105 quality of, 3:608, 609, 618 ECB. see European Central Bank text of, 1:45, 101 retained, 3:193 Echo Boomers, 5:224 Performance Presentation [Standard sustainability of, 3:610–612 ECNs. see electronic communications III(D)], 1:125–129 earnings announcements, 5:134–135 networks application of the standard, earnings before interest, taxes, e-commerce, 4:186–187 1:126–129 depreciation, and amortization econometric approach, in market compliance procedures, 1:126 (EBITDA) structure identification,2: 106 guidance, 1:125–126 adjusted, 3:634 economic activity text of, 1:45, 125 in credit analysis, 5:615 in business cycle, 2:198–200 Preservation of Confidentiality debt/EBITDA ratio, 5:616 risk and, 4:407 [Standard III(E)], 1:129–133 EBITDA/interest expense ratio, 1:542; economic conditions, yield spread and, application of the standard, 5:617 5:631 1:131–133 enterprise value/EBITDA ratio, 5:645 economic costs, 2:28, 38, 77 compliance procedures, 1:131 in enterprise value multiples, 5:274 Economic Cycle Research Institute guidance, 1:129–130 for leveraged buyouts, 6:150 (ECRI), 2:237 text of, 1:45, 129 for private equity, 6:156–157 economic depreciation. see depreciation Suitability [Standard III(C)], 1:118–125 earnings before interest and taxes economic destabilization, 6:43–44 application of the standard, (EBIT) economic goodwill, 3:184 1:122–125 in credit analysis, 5:615 economic growth, 2:173–184 compliance procedures, 1:121–122 EBIT/interest expense ratio, 5:617 and aggregate demand, 2:155 guidance, 1:118–121 and operating profit,3: 18, 99 in China, 2:179 text of, 1:45, 118 earnings management, 3:618 in Mexico, 2:181 Duties to Employers [Standard earnings per share (EPS), 1:389 production function and potential of Professional Conduct IV], basic, 3:132–134, 319, 320 GDP, 2:174–175 1:133–154 changes in, 3:140–141 and real GDP, 2:173 Additional Compensation defined, 3:18 RTAs and spillovers of, 2:362 Arrangements [Standard IV(B)], diluted, 3:134–140 sources of, 2:176–179 1:144–145 with antidilutive securities, sustainable, 2:173, 179–184 application of the standard, 3:139–140 and trade, 2:338–339 1:144–145 defined, 3:132 economic indicators, 2:237–244 compliance procedures, 1:144 if-converted method, 3:134–136 cyclical measures as, 2:242–243 guidance, 1:144 for stock options, 3:139 defined, 2:237 text of, 1:46, 144 treasury stock method, 3:137–139 diffusion index of,2: 242 Loyalty [Standard IV(A)], 1:133–143 in valuation ratios, 3:319–321 leading, lagging, and coincident, application of the standard, EBITDA per share, 3:319, 320 2:237–241 1:137–143 equity valuation with, 5:279–280 economic infrastructure assets, 6:174 compliance procedures, 1:137 forecasting, 1:483–484, 486–494 economic loss, 2:40 guidance, 1:133–137 on income statements, 3:95n.5, economic moat, 2:68 text of, 1:45–46, 133 131–141 economic order quantity–reorder point Responsibilities of Supervisors interpretation of, 3:320–321 (EOQ-ROP) approach, 4:183 [Standard IV(C)], 1:146–154 mean and median, 1:410–411 economic profit(s) application of the standard, and simple vs. complex capital defined, 2:28, 77 1:150–154 structure, 3:132 marginal revenue and maximization compliance procedures, 1:148–150 earnings reports, 3:659 of, 2:29 eleventh edition revision, 1:36 earnings smoothing, 3:612 in monopolistically competitive guidance, 1:146–148 earnings statements, 3:96 markets, 2:85, 86 text of, 1:46, 146 earnings surprises, 5:134–135 in strategic analysis, 5:204 duty of care, 4:22 East Asian Financial Crisis (1990s), economics, 2:5 duty of loyalty, 4:22 2:382 economic sectors dynamic random access memory, 5:210 Eastern Europe. see also specific business/corporate, 2:128; 5:349 Dynegy Inc., 3:650 countries defined, 5:189 current account imbalance, 2:378 economic sensitivity of, 5:190–191 E debt and equity outstanding, 5:350 energy, 4:37, 39; 5:193 EADS. see European Aeronautic Defense trade-to-GDP ratio, 2:338 external trade, 2:130–131, 211–213 and Space Company East Timor, 2:435 financial and financial services,2: 383; EAFE Index. see MSCI Europe, easy fiscal policy,2: 319 5:193 Australasia, and Far East Index easy monetary policy, 2:319 in GDP, 2:127–131 EAR. see effective annual rate EAY. see effective annual yield government and government-related early amortization provisions, 5:512 eBay, 2:98 sector, 2:129–130; 5:348–349 early exercise, of American options, EBIT. see earnings before interest and household, 2:119–120, 128 6:104–106 taxes housing, 2:208–209

Cumulative_Ind_L1 29 August 1, 2018 7:45 PM I-30 Index

economic sectors (Continued) and strategic asset allocation, technical analysis for, 5:125 ICB definition,5: 192 4:390–391 World Bank definition of,5: 646n.42 information technology, 2:178 efficient market(s) empirical probability, 1:476 mortgage, 5:491n.9 arbitrage opportunities in, 6:50, 138 employed (term), 2:220 private, 5:647 derivatives market at, 6:42 employee(s), 4:9 public, 2:261; 5:647 description of, 5:117–119 employee benefit plans,4: 23 representative, 5:193–194 intrinsic value in, 5:119–120 Employee Benefits (IAS 19), 3:584n.17 sector specific strategies, for hedge semi-strong-form, 5:125–128 employee representatives, 4:21 funds, 6:138 strong-form, 5:128 employee rights, 4:19–20 Economic sentiment index, 2:240 weak-form, 5:125, 128, 129 employees economic stabilization, fiscal policy and, efficient market hypothesis,5: 124, cash to, 3:237–238 2:302 128–129 checking references of, 1:82 economic structure, in sovereign credit EFSF. see European Financial Stability classifications of,1: 137 analysis, 5:647 Facility as company stakeholders, 4:9 economic unions, 2:360–364 EFT. see electronic funds transfer independent contractors vs., 1:136 economies of scale Egypt, 2:435; 3:59; 5:96 material nonpublic information for, from international trade, 2:341, 342 Egyptian Financial Supervisory 1:91 and monopolies, 2:97 Authority, 3:51n.10 net income/revenue per employee, for profit maximization,2: 44–47 Ehrhardt, Michael C., 4:94n.21 3:322 economy EIB. see European Investment Bank on non-agricultural payrolls, 2:239 aggregate output and income in, 18-year cycle, 1:722 employee stock options, diversification 2:119–120 elastic demand, 2:10, 12–14, 71 and, 4:208–210, 286, 381 barter, 2:123, 263 elasticity(-ies) employee stock ownership plans business cycles as short-term defined, 2:9; 4:130 (ESOPs), 4:19 movements, 2:197–198 of demand, 2:8–18 employer(s). see also Duties to closed, 2:336, 375–376 and budget constraints, 2:71 Employers [Standard of Professional and government debt, 2:260 calculating, from demand function, Conduct IV] IMF monitoring of, 2:380 2:16–18 competing with current, 1:140 influence of fiscal and monetary policy cross-price, 2:15–18, 73 disclosure of conflicts to,1: 178, 184 on, 2:260–262 defined, 2:8 former, 1:127, 138 open, 2:336, 341, 375, 376 income, 2:14–16, 72–73 leaving, 1:134–135, 143 and securitization, 5:474–476 in oligopolies, 2:88 misrepresentation of work for, 1:74 underground, 2:123–124 own-price, 2:9–14 responsibilities of, 1:134 E C P. see Eurocommercial paper market in perfect competition, 2:70–74 Employers’ Accounting for Defined ECRI. see Economic Cycle Research and trade balance, 2:443–447 Benefit Pension and Other Institute of linear demand curve, 2:11 Postretirement Plans (SFAS 158), Ecuador, 2:434, 435; 3:58 of supply, 2:8 3:679 EDGAR. see Electronic Data Gathering, and trade balance, 2:443–447 employment Analysis, and Retrieval System electric utilities, 2:66, 97 business cycle and, 2:200, 202–203 EDI. see electronic data interchange electronic communications networks nature of, 1:136–137 EDRs. see European Depositary Receipts (ECNs), 5:29–30 employment contracts, 4:19 education Electronic Data Gathering, Analysis, and EMU. see European Economic and compliance, 1:149 Retrieval System (EDGAR), 3:52 Monetary Union and human capital, 2:176 electronic data interchange (EDI), ending inventory effective annual rate (EAR),1: 313; 5:420 4:186–187 and inflation,3: 355–356 effective annual yield (EAY),1: 377–379 electronic funds transfer (EFT), and inventory valuation method, 3:346, effective convexity,5: 566–567 4:177–180 350–352 effective date, GIPS,1: 229 electronic information, confidentiality in periodic vs. perpetual inventory effective duration of, 1:130 systems, 3:352–354 calculating, 5:545–548 Elliott, R. N., 1:723–725 endogeneity, problem of, 2:106 of callable bonds, 5:553–554 Elliott Wave Theory,1: 723–726 endowments, 4:218–220; 6:127 of putable bonds, 5:554 El Salvador, 2:434, 435; 3:58 Enel, 1:423 effective interest rate,3: 547, 551 embedded options, 5:329, 424. see also Energizer, 2:64 efficiency. see also market efficiency callable bonds; putable bonds energy of capital allocation, 5:13–14 EMBI Global. see J.P. Morgan Emerging as commodity, 6:167, 168 estimator, 1:592 Market Bond Index Global speculators on, 6:43n.20 of financial systems,5: 58–59 embryonic stage (industry life-cycle), energy mutual funds, 6:170 of tax policy, 2:309 5:214 energy sector, 4:37, 39; 5:193 efficient frontier,4: 288–300 EMC, 5:209 energy unit trusts, 6:170 indifference curve,4: 294–295 Emerging Market High Yield Fixed enforcement, by market regulators, investment opportunity set, 4:288–289 Income Composite, 1:292 3:628 investor preferences and optimal emerging markets ENI, 1:424 portfolio, 4:299–300 bond, 5:355 Enron Corporation Markowitz, 4:291, 319–320 capitalization level and contributions credit ratings of, 5:608 minimum-variance portfolios, to global GDP, 5:151 departures from GAAP at, 3:619 4:289–291 fixed-income securities for,6: 146 employees’ stock holdings in, portfolio selection example, hedge funds in, 4:236 4:208–209 4:294–299 securitization in, 5:475 ethical lapses, 1:6 for risk-free assets, 4:291–294 sovereign debt of, 5:646 interactions between risks at, 4:432

Cumulative_Ind_L1 30 August 1, 2018 7:45 PM Index I-31

low-quality financial reports issued by, equilibrium interest rate, 5:12–13 equity returns, frequency distribution of, 3:626 equilibrium prices 1:398–399 poor governance and stakeholder for money, 2:270–271 equity risk premium (ERP), 4:89–92 management at, 4:28 in perfectly competitive markets, equity securities (equities), 5:17–18, situational influences on ethics, 2:77–78 149–185. see also stock 1:13–14 equipment trust certificates,5: 307–308 analysis, 3:318–323 and technical analysis, 1:682 equity. see also return on equity (ROE) actions based on, 3:33 enterprise, NAICS definition,5: 197 on balance sheets, 3:162, 192–196 industry-specific ratios,3: 321–323 enterprise risk management, 4:22 components of, 3:192–195 research on ratios in, 3:323 defined, 4:411 statement of changes in equity, valuation ratios, 3:319–321 process for, 4:413–415 3:195–196 and company value, 5:172–178 risk governance in, 4:417–419 Conceptual Framework on, 3:64 accounting return on equity, risk tolerance in, 4:420 cost of 5:172–177 enterprise value (EV), 5:645 common equity, 4:88–93 cost of equity and investors’ required enterprise value multiples, 5:247 in private equity valuation, 6:156–157 rates of return, 5:177–178 enterprise value/EBITDA ratio, 5:645 and required rates of return, correlation of, 4:386–387 in models for equity valuation, 5:177–178 debt securities vs., 5:155 5:274–276 debt-to-equity ratio, 3:304, 305, 587 defined, 5:15 entertainment defined, 3:162 global assets under management, 6:125 with clients, 1:67 and financial position,3: 9 in global finance markets,5: 150–155 with related parties, 1:66–67 free cash flow to equity,3: 254–255 importance of, 5:149–150 entry fee, 2:104 on cash flow statements,3: 254–255 international ownership comparisons environmental, social, governance (ESG) defined, 4:84n.7 for, 5:154–155 considerations, 4:36–40 in discounted cash flow approach, investing in portfolios vs., 4:207–208 about, 4:6 6:157 and diversification,4: 208–210 as catalysts for growth, 4:38–39 in equity valuation models, 5:246, and downside risk, 4:213–215 governance (see corporate governance) 252–253 and modern portfolio theory, implementation methods, 4:37–38, 40 minority equity investing, 6:153 4:215–216 in investment analysis, 4:39–40 owners’, 3:12, 162; 6:161 and portfolio composition, 4:212–213 in investment policy statements, in residential properties, 6:161 and risk–return tradeoff,4: 210–212 4:380–381 return on equity, 3:309 liquidity and issuance of, 5:639 market overview, 4:39 and accounting standards, 3:678–680 non-domestic, 5:164–169 terminology, 4:36–37 decomposition of, 3:313–318 depositary receipts, 5:166–169 environmental projects, capital defined, 3:308 direct investing in, 5:165–166 budgeting for, 4:49 and ratio analysis, 3:280 practice problems, 5:180–183 E.ON, 1:423 shareholders’, 3:162, 427; 5:174 private vs. public, 5:162–164 EOQ-ROP approach. see economic statement of changes in equity, return characteristics, 5:169–170 order quantity–reorder point 3:195–196 returns on, 5:152–154; 6:139 approach Apple Inc., 3:195–196 risk characteristics, 5:170–171 EPRA. see European Real Estate and balance sheet, 3:195–196 screening, 3:694–697 Association defined, 3:12 example, 3:695 EPS. see earnings per share for financial statement analysis,3: 20, ratio-based, 3:697 equal cash flows 21 solutions to problems, 5:184–185 future value of series with, 1:315–316 tax charged to, 3:525–527 as underlying, 6:5, 36 future value of series without, 1:316 total debt to total debt plus equity volatility of, 5:153–154 infinite series of,1: 325–326 ratio, 3:326 equity swaps, 5:24; 6:36 present value of series with, 1:320–325 total liabilities-to-equity ratio, 3:363 equity tranche, 5:504 present value of series without, 1:328 equity analysis, of corporate debt equity tranches, 6:34 equality securities, 5:610–611 equity valuation, 5:243–292 point of, 1:625 equity analysts, 3:30 asset-based, 5:276–280 of two variances, 1:650–654 equity capital, raising, 5:9 for airline, 5:278 equal weighting, of security market equity derivatives, 5:15 for family-owned laundry, 5:277 indexes, 5:85–86 Equity Funding Corp., 3:619 other models vs., 5:246–248, Equatorial Guinea, 3:59 equity hedge strategies, 6:135, 137–138 279–280 equilibrium equity indexes, 5:95–97 for restaurant, 5:278 Cournot, 2:91, 93, 94 equity IPOs, 1:186–187 estimated value and market price in, long-run equity-like approach to high-yield 5:245–246 macroeconomic, 2:163 analysis, 5:644–645 multiplier models, 5:265–276 in monopolistic competition, 2:86–87 equity markets enterprise values in, 5:274–276 in monopoly, 2:104–105 efficiency of,6: 42 example, 5:272–273 in oligopoly, 2:96 global, 5:349–350 fundamentals in, 5:266–267 in perfect competition, 2:81–82 hedge fund strategies with neutrality method of comparables, 5:269–272 in money market, 2:144–145 in, 4:236 other models vs., 5:246–248, Nash, 2:92–93, 96 OTC derivatives market vs., 6:9–10 279–280 equilibrium GDP, 2:163–173 equity-only funds, 6:137 price multiples in, 5:266–269 inflationary gap,2: 167–168 equity options, 6:36n.15 practice problems, 5:283–288 long-run equilibrium, 2:163 equity real estate investment trusts, present value models, 5:248–264 recessionary gap, 2:163–167 6:162 examples, 5:253 stagflation, 2:169–170 equity-related bonds, 5:334 Gordon growth model, 5:256–261

Cumulative_Ind_L1 31 August 1, 2018 7:45 PM I-32 Index

equity valuation (Continued) of cost of equity, 4:88–93 euro–Canada exchange rate, 2:417, multistage, 5:261–264 of cost of preferred equity, 4:87–88 419–420 other models vs., 5:246–248, of expected returns, 4:340–341 Euroclear, 5:366, 380 279–280 and statistical inference, 1:591, 623 Euro–Coin statistic, 2:243 preferred stock valuation with, of value by analysts, 4:48 Eurocommercial paper (ECP) market, 5:254–256 of weighted average cost of capital, 5:376–377 share value for three-year investment 4:98–100 Eurocopter, 5:225 horizon, 5:252 estimation period, beta, 4:94 Eurodollar bonds, 5:314 purpose, 5:244 estimators, 1:591–593, 594n.12 euro–dollar exchange rate, 2:419–420, solutions to problems, 5:289–292 Estonia, 2:360n.18; 5:96 423–424 equivalence, 1:336–337 ETFs. see exchange-traded funds Eurodollar futures, 1:699–700 Erb, Claude, 4:101n.32 ethical conduct (term), 1:7 Eurodollar rate, 4:190 ERM. see European Exchange Rate ethical decision-making framework, Eurodollar time deposits, 4:168 Mechanism 1:20–27 euro exchange rate, 2:416 Ernst & Young, 3:608 applying, 1:22–27, 41–42 Eurofighter consortium,5: 226 errors phases of process, 1:21–22 Euro interbank offered rate (Euribor), known, 1:76 ethical principles (term), 1:7 5:301, 353; 6:78n.11 notification of,1: 172 ethical standards, legal standards vs., Europe. see also specific countries and sampling, 1:583–584 1:17–20 regions standard, 1:588–589, 594, 599, 626 ethics, 1:5–28. see also Code of Ethics; capitalization level and contributions tracking, 1:536 codes of ethics; Standards of to global GDP, 5:151 Type I and II, 1:627 Professional Conduct capital markets regulation, 3:55 unintentional, 1:76 about, 1:5–6 corporate notes and bonds, 5:377 ESC. see European Securities Committee challenges to ethical conduct, 1:11–14 correlation of equities, 4:386–387 ESG considerations. see environmental, defined, 1:7 economic indicators, 2:243 social, governance considerations ethical decision-making framework, Giro system, 4:178 ESG integration/incorporation, 4:37 1:20–27 hybrid/balanced funds, 4:232–233 ESG investing, 4:37 applying, 1:22–27 IFRS adoption, 3:58 ESMA. see European Securities and phases of process, 1:21–22 industrial comparative ratio analysis, Market Authority ethical vs. legal standards, 1:17–20 5:617 ESOPs. see employee stock ownership firms commitment to,1: 42 institutionally owned real estate, 6:159 plans impact on stakeholders, 1:6–9 interest rates, 2:296n.11 Essay on the Principle of Population importance of, 1:15–17 labor supply, 2:176 (Malthus), 2:174 and investment industry, 1:39–43 maturity of mortgages, 5:486 Essilor International, 1:423 practice problems, 1:29 money market funds, 4:230–231 establishment, NAICS definition,5: 197 professionalism, 1:9–11 mutual fund assets, 4:230 estimates and regulations, 1:41 REIT returns, 6:164–165 of alternative investment values, 6:125 societal benefit of,1: 40 residential mortgage loans, 5:488 defined, 1:591 solutions to problems, 1:30–31 returns on bonds, bills, and equities, and earnings/balance sheets, Ethiopia, 2:166 5:152–153 3:640–641 ETNs. see exchange-traded notes rights offerings,4: 105 of enterprise value and market value of EU. see European Union securities ranked lower than debt, 5:274–275 Eurex, 5:29; 6:9 subordinated debt, 5:596 of equity value and market price, Euribor. see Euro interbank offered rate stagflation, 2:234 5:245–246 euro terms of trade, 2:336 in financial reporting,3: 45–46 creation of, 2:433–434 trade balance with US, 2:130–131 of intrinsic value, 5:119 cross-rate calculations with, 2:419–420 use of enterprise value, 5:274 point, 1:594 as currency anchor, 2:434 European Aeronautic Defense and Space pooled, 1:640 currency code, 2:399 Company (EADS), 1:423; 5:225–226, of population mean, 1:591–601 EUR/GBP exchange rates, 2:416, 271 confidence intervals,1: 593–598 417n.4 European call options (calls) point estimators, 1:591–593 exchange rate quotes with, 2:416–418 and American call options, 5:331; sample size, 1:599–601 forward calculations with, 2:423–424 6:105 estimation GBP/EUR exchange rate, 2:401, 406 binomial option pricing with, of beta, 4:94–100 international bonds outstanding in, 6:101–103 inferring asset beta, 4:98 5:351 Black-Scholes-Merton model for, 1:563 market model, 4:332–333 intervention in FX market to support, exercise price of, 6:87, 88 pure-play method, 4:97, 98 2:438 at expiration, 6:86 of cost of capital, 4:93–108 as reserve currency, 5:19 minimum prices for, 6:91–93 with beta and project beta, 4:94–100 spot market trading of, 5:10 payments on underlying and carrying and country risk, 4:100–101 USD/EUR currency pair, 2:414 costs for, 6:91 and decision-making by CFOs, USD/EUR exchange rate, 2:407 and risk-free rate of interest, 6:89 4:107–108 Eurobonds time to expiration for, 6:88 and flotation costs,4: 105–107 coupon payment structure for, 5:323 and value of underlying, 6:87 and marginal cost of capital defined, 5:314 volatility of underlying for, 6:90 structure, 4:102–105 foreign and domestic bonds vs., 5:354 European Central Bank (ECB) with weighted average cost of capital, in global bond market, 5:313 CPI used by, 2:228 4:98–100 in secondary market, 5:365–366 and currency regime of EMU, 2:436 of cost of debt, 4:86 settlement of, 5:380 and European Union, 2:360n.18

Cumulative_Ind_L1 32 August 1, 2018 7:45 PM Index I-33

independence of, 2:286 European-style contracts, 5:24 excessive trading, 1:108, 117 inflation targeting,2: 285, 287 European Union (EU) excess kurtosis, 1:453–456 intervention in FX market, 2:438 capitalization level and contributions excess spread, 5:309, 509 monetary policy of, 2:184 to global GDP, 5:151 excess spread accounts, 5:309 money measures of, 2:268 capital market regulation, 3:55 excess supply, 2:337 objectives of, 2:278 and convergence of GAAP, 3:74 exchange, money as medium of, 2:263 European Commission, 2:105; 3:48, 55 economic indicators for, 2:237 exchange rate quotations, 2:416–419 European Community EFSF of, 2:364 exchange rate regimes, 2:430–441. see currency regimes, 2:434 employee rights, 4:19 also currency regimes customs union, 2:360 ERM of, 2:292 exchange rates, 2:399. see also currency European Depositary Receipts (EDRs), export subsidies, 2:357 exchange rates 1:706n.5 fixed-income indexes with bonds from, and aggregate demand, 2:155 European Economic and Monetary 5:357 and short-run aggregate supply, 2:158, Union (EMU), 2:381–382, 434, 436. hedge fund regulations, 6:144 160 see also Eurozone imports in, 2:335 exchange rate targeting, 2:291–294 European Economic Community, 2:433 inflation targeting,2: 287 exchanges, 5:29 European Exchange Rate Mechanism insider trading laws in, 5:122 exchange-traded derivatives market, (ERM), 2:292, 433 loans to governments, 5:646 6:10–11 European Financial Reporting Advisory price index, 2:228 OTC vs., 6:13–14 Group, 3:55 quotas from, 2:357 size of, 6:38 European Financial Stability Facility RTAs for, 2:360 exchange-traded funds (ETFs) (EFSF), 2:364 securitization in, 5:484n.5 as alternative investments, 6:124 European Investment Bank (EIB), 5:372 sell-out rights, 4:16 and basket of listed depositary European Model Covenant Initiative, underground economy, 2:124n.4 receipts, 5:169 5:627 European Works Councils, 4:19 and beta exposure, 6:129 European options (European-style Eurostat, 2:228 for commodities investing, 6:169 options) euro–Sterling exchange rate, 2:415 derivatives vs., 6:6 call options (see European call options EURO STOXX 50 Index, 1:423–425; indexes for, 5:95 [calls]) 2:240 as pooled investments, 4:233–235; defined, 6:26, 85 euro–Swiss exchange rate, 2:419, 420 5:19 Monte Carlo simulation for valuing, Euroyen bonds, 5:314 exchange-traded notes (ETNs), 5:19 1:558 euro–yen exchange rate, 2:417 exchange-traded options, 6:25 pricing, 6:85–100 Eurozone exclusionary screening, 4:37 and exercise price, 6:87–88 economic indicators, 2:237, 240 ex-dividend date (ex-date), 5:249 at expiration, 6:86 and EU, 2:360n.18 execution instructions, 5:44–48 minimum prices of calls and puts, inflation-linked bonds,5: 370 execution mechanisms, secondary 6:91–93 money measures, 2:268 market, 5:54–57 and payments on underlying/cost of panel vs. longitudinal data on, 1:587n.2 execution-only responsibilities, 1:109 carry, 6:90–91 Eurozone Manufacturing Purchasing execution step (portfolio management), put–call–forward parity, 6:98–99 Managers Index, 2:240 4:223–225 put–call parity, 6:94–98, 100 Eurozone Service Sector Future Business asset allocation, 4:223 and risk-free rate of interest, 6:89 Activity Expectations Index, 2:240 portfolio construction, 4:223–225 and time to expiration, 6:88–89 EV. see enterprise value security analysis, 4:223 and value of underlying, 6:87 evaluation executive (management) board, 4:10 and volatility of underlying, 6:89–90 of fiscal policy,2: 317–318 executive (internal) directors, 4:9, 21 put options (see European put options of monetary policy, 2:299–300 exercise price [puts]) Evaluation and Review, IPS, 4:369 of options, 6:26, 87–88 European Parliament, 3:55; 5:122n.11 evaluation datasets, 4:461 of warrants, 5:18 European Public Real Estate Association, event-driven strategies, 4:236; exercise value, of European options, 6:164 6:135–136 6:86 European put options (puts) event risk, 5:608 exhaustive (term), 1:475 and American put options, 6:105 events exit strategies, for private equity binomial option pricing with, 6:103 complement of, 1:486 investments, 6:154 exercise price of, 6:87–88 defined, 1:475 exogenous policy tools, aggregate at expiration, 6:86 dependent, 1:483 demand and, 2:140 minimum prices for, 6:91–93 independent, 1:483–486 expansionary fiscal policy,2: 300–302, payments on underlying and carrying mutually exclusive, 1:475 315 costs for, 6:91 event studies, in semi-strong efficient expansionary monetary policy, 2:154, putable bonds with, 5:332 markets, 5:126 294–295 and risk-free rate of interest, 6:89 Everbright Securities, 1:6 expansion phase (business cycle), time to expiration for, 6:88, 89 evergreen funds, 1:247, 265 2:198–201. see also recovery and value of underlying, 6:87 Evian, 3:329 housing sector in, 2:208 volatility of underlying for, 6:90 ex-ante (term), 1:237, 265 inventory–sales ratio in, 2:206 European Real Estate Association ex ante models, 4:352 investor preferences, 2:201 (EPRA), 5:101, 102 ex ante Sharpe ratio, 1:443n.37 resource use in, 2:203 European Securities and Market Excel VBA (programming language), expansion projects, capital budgeting Authority (ESMA), 3:55, 627 4:465 for, 4:49 European Securities Committee (ESC), excess demand, 2:337 expansion risk, 5:492 3:55 excess interest cash flow,5: 509 expansion venture capital, 6:153

Cumulative_Ind_L1 33 August 1, 2018 7:45 PM I-34 Index

expectations expenses externality, 4:51 about future prices, 2:158, 160 accrued, 3:176 external liquidity, in sovereign credit about inflation,2: 234–235 amortisation, 3:444 analysis, 5:647 and aggregate demand, 2:153 Conceptual Framework on, 3:65 externally compensated assignments, capital market, 4:385 depreciation, 3:441–443, 454 1:141 in economic indicators, 2:239 income tax, 3:368 external manager, travel expenses from, homogeneity of expectations interest, 3:471n.32, 550–554; 5:617, 1:67–68 assumption, 4:317–318, 336–337, 648 external sources of information, for 352 other operating, 3:238 financial statement analysis, in probability, 1:474 prepaid, 3:173–174 3:29–30 expected defaults, in bond portfolio, tax, 3:368, 509 external trade sector 1:537–538 trading, 1:236, 238, 270 cyclical behavior of, 2:209–210 expected inflation,2: 279, 281 transaction, 1:243, 244, 247, 248, 271 in GDP, 2:130–131 expected inflation rate,4: 259 travel, 1:64–65, 67–68 external valuation expected loss, credit risk and, 5:593 and warranties, 3:120–121 defined, 1:265 expected loss impairment method, Expenses: Compensation–Retirement GIPS Valuation Principles (GIPS 3:187 Benefits (ASC 715),3: 679 Section II), 1:253–254 expected return(s) expensing of costs Real Estate (GIPS Section I.6), and beta, 4:333–335 capitalisation of costs vs., 3:423–428 1:243–245 calculation of, 1:497 on financial statements,3: 423–428 extractive industries, 3:621–622 CAPM estimation of, 4:340–341 for ongoing purchases, 3:427 extra dividend (special dividend), and historical mean return, 4:259–260 experience curve, 5:203 5:248–249 and SML, 4:338–339 expert networks, 1:95 extraordinary items, on income and strategic asset allocation, 4:390 experts, 1:87–88 statements, 3:126–127 and variance of return, 1:502 “expert system,” as artificial intelligence, extreme value theory, 4:437 expected risk premium, 4:259 4:460 ExxonMobil, 1:714–715; 2:107; 5:209 expected value, 1:488–492 expiration Ezzell, John R., 4:83n.3, 106n.37 of bonds and T-bills, 1:494–495 of forward contracts, 6:73–74 conditional, 1:490 of options, 6:26–30, 86 F defined, 1:487–489 time to, 6:88–89 Facebook, 2:98; 4:13, 32 of product of uncorrelated random expiration days, derivative, 1:653–654 face value, 1:375, 495; 3:546–549. see variables, 1:504 exports also par value properties of, 1:496–497 in balance of trade, 2:372 factorials, 1:509 standard deviation, 1:489–490 in business cycles, 2:210 factoring, 4:190, 192 total probability rule for, 1:490–492 defined, 2:335 factor markets, 2:128 tree diagrams, 1:491–492 exchange rate and prices of, 2:155 factor-proportions theory, 2:352–353 and weighted mean, 1:416 net, 2:140, 336 factors of production (inputs), 2:23–24 expenditure(s) terms of trade for, 2:335–336 facts, opinions and, 1:168, 169 aggregate, 2:119 voluntary export restraints, 2:354, 357 FactSet, 3:281 capital export subsidies, 2:354, 357–359 factual presentations, misrepresentation committed, 5:618 ex-post (term), 1:241, 265 and, 1:74–75 financing for,5: 8, 9 ex post models, 4:352 failed investments, due diligence and, and fiscal policy,2: 309 ex post Sharpe ratio, 1:443n.37 1:163 net cash flow to,3: 325 ex-post standard deviation, 1:240–242 fair dealing, 1:114–116, 118 property, plant, and equipment as, exposure, risk, 4:409–410; 5:39 Fair Dealing [Standard III(B)], 3:417, 418 exposure instructions, for orders, 5:47 1:110–118 and consumer surplus, 2:74–76 eXtensible Business Reporting Language application of the standard, 1:114–118 government, 2:219, 301–304 (XBRL), 3:282 compliance procedures, 1:112–114 personal consumption, 2:227 external advisers, selecting, 1:157 developing firm policies,1: 112–114 and price elasticity of demand, external auditors, 4:17 disclosure of level of service, 1:114 2:443–446 external cash flows disclosure of trade allocation R&D, 2:178 Calculation Methodology (GIPS procedures, 1:114 total Section I.2), 1:235, 236 systematic account reviews, 1:114 and aggregate income, 2:137–144 defined, 1:265 guidance, 1:110–112 and consumer surplus, 2:75–76 Input Data (GIPS Section I.1), 1:235 investment action, 1:111–112 and own-price elasticity of demand, external competition, price collusion investment recommendations, 2:13–14 and, 2:93 1:110–111 and trade balance, 2:442–443 external credit enhancements, 5:309–310, text of, 1:45, 110 expenditure approach to GDP, 2:120–122, 479 fairly valued (term), 5:245 127, 128, 131–133 external debt, 5:647 fairness, of tax policy, 2:310 expense recognition on income external (non-executive) directors, 4:10, fair value statements, 3:16, 96–97, 116–125 21 in asset-based valuation, 6:157 and amortisation, 3:124 external influences on industry analysis, of bonds payable, 3:554–557 applications, 3:120–124 5:222–228 Conceptual Framework on, 3:66 for doubtful accounts, 3:120 demographic, 5:223–224 defined, 1:265; 3:162n.1, 169, 417n.2 and financial analysis,3: 125 governmental, 5:224–226 financial assets at,3: 187–188 general principles, 3:117–120 macroeconomic, 5:222 of financial liabilities,3: 554–555 and inventory costs, 3:117–118 social, 5:226–227 Fundamentals of Compliance (GIPS for warranties, 3:120–121 technological, 5:222–223 Section I.0), 1:234

Cumulative_Ind_L1 34 August 1, 2018 7:45 PM Index I-35

GIPS Valuation Principles (GIPS portfolio monitoring and rebalancing, final liquidation date Section II), 1:252–253 4:225 defined, 1:265 Input Data (GIPS Section I.1), 1:235 in risk management framework, 4:415 Private Equity (GIPS Section I.7), and long-term asset acquisition, 3:417 fees. see also Referral Fees [Standard 1:248, 249 Private Equity (GIPS Section I.7), 1:247 VI(C)] Real Estate (GIPS Section I.6), 1:245 Real Estate (GIPS Section I.6), 1:243 all-in, 1:263 final sales,2: 205 Fair Value Measurement (IFRS 13), bundled fees finance charges,5: 511 3:417n.2 Calculation Methodology (GIPS finance leases Fair Value Measurements and Section I.2), 1:236 accounting/reporting by lessee, Disclosures (ASC 820), 3:417n.2 defined, 1:263 3:566–577 fair value reporting, for bonds payable, Disclosure (GIPS Section I.4), 1:239 accounting/reporting by lessor, 3:554–557 Presentation and Reporting (GIPS 3:577–583 fallibility, of rating agencies, 5:608 Section I.5), 1:241 defined, 3:468 Fama, Eugene, 4:89n.11, 89n.12, 329; Wrap Fee/SMA Portfolios (GIPS direct financing leases 5:124, 133 Section I.8), 1:250 defined, 3:484, 578 Fama and French three-factor model, and conflicts of interest,1: 179 and financial statements,3: 480–485, 5:133 custody, 1:264 582–583 family accounts, 1:108, 186, 188–189 fund, 6:133 initial recognition and measurement Fannie Mae. see Federal National gross-of-fees, 1:266 of, 3:578–580 Mortgage Association for hedge funds, 6:133, 134n.16, US GAAP on, 3:577, 578 farmland, investing in, 6:158–159, 163 139–143 financial statement impact of, FASB. see Financial Accounting incentive 3:580–583 Standards Board for fund investments, 6:133 operating leases vs. Fastenal, 5:210 hedge funds, 6:139–140 for lessees, 3:471–480, 566–577, “fast” money, 6:142 private equity, 6:150 582–583 Fastow, Andrew, 1:13–14; 3:626 investment management fees for lessors, 3:480–485, 577–583 favors, requested, 1:183 defined, 1:266 on long-lived assets, 3:467–485 FCA. see Financial Conduct Authority Disclosure (GIPS Section I.4), 1:238 on non-current liabilities, 3:564–583 FCF after dividends/debt ratio, 5:617 Input Data (GIPS Section I.1), 1:235 recognition and measurement of, FCFE. see free cash flow to equity Private Equity (GIPS Section I.7), 3:567–569, 578–580 FCFF. see free cash flow to the firm 1:247–250 sales-type leases FCMs. see futures commission Real Estate (GIPS Section I.6), 1:244 defined, 3:484, 578 merchants management financial statement impact of,3: 485, F&C Stewardship Growth Fund, for fund investments, 6:133 580–583 4:380–381 hedge funds, 6:139–140, 143 US GAAP on, 3:577 FDI. see foreign direct investment private equity, 6:149–150 treating operating leases as, 3:476–480 F-distribution, 1:744–747 net-of-fees returns, 6:142 financial account, BOP,2: 370 federal agency securities, 4:168 1 and 10 fee structure, 6:139 Financial Accounting Foundation, 3:49 Federal Banking Supervisory Office, performance, 6:133, 177 Financial Accounting Standards 2:276 performance-based, 1:238, 267 Advisory Council, 3:49 Federal Commission, 2:277 with private equity investments, Financial Accounting Standards Board Federal Deposit Insurance Corporation, 6:149–150 (FASB), 3:49–50 2:277, 435–436 for REITs and real estate partnerships, benefits of common reporting Federal Financial Supervisory Authority, 6:161 standards from, 5:61 3:47 service, 1:68 and convergence of global reporting federal funds rate (fed funds rate), 2:239, 2 and 20 fee structure, 6:139, 140 standards, 3:56–57 282 fee schedule, 1:238, 265 development of standards, 3:45, 46 Federal Home Loan Banks (FHLB), Ferrellgas, 5:210 disclosure requirements of, 3:628 5:323, 372 FFO. see funds from operations evolving standards, 3:78 Federal Home Loan Mortgage FFO interest coverage. see funds from and GIPS Valuation Principles, 1:252 Corporation (Freddie Mac), 2:297; operations interest coverage revenue recognition standards, 5:323, 372, 490, 503 FFO to debt. see funds from operations 3:99–100, 112 Federal National Mortgage Association to debt as standard-setting body, 3:47 (Fannie Mae), 2:297; 5:323, 372, FHLB. see Federal Home Loan Banks financial analysis,3: 269–341 490, 503 Fiat, 2:100 about, 3:270 Federal Open Market Committee fiat money,2: 275 for business/geographic segments, (FOMC), 2:282 Fibonacci, Leonardo, 1:724 3:327–329 Federal Reserve. see US Federal Reserve Fibonacci sequence, 1:724 reporting requirements, 3:327–328 Federal Reserve Act, 2:290 fictitious name,1: 202 segment ratios, 3:328–329 Federal Reserve Bank of Chicago, 2:242 Fideicomiso Financiero Autos VI, 5:509 common ratios, 3:290–318 Federal Reserve Bank of New York, Fidelity, 4:341–342; 5:210 activity ratios, 3:292–298 5:364 fiduciary calls,6: 95–96, 99 categories, 3:291 FedEx, 5:209 FIFO method. see first-in, first-out integrated analysis with, 3:311–318 Fed funds, 5:385 method interpretation and context, Fed funds rate, 5:385 files 3:291–292 feedback current, maintaining, 1:54 liquidity ratios, 3:298–303 in portfolio management, 4:225–226 of former employers, 1:138 profitability ratios,3: 307–311 performance measurement and fill or kill orders,5: 48 solvency ratios, 3:303–307 reporting, 4:226 final goods,2: 121 computations vs., 3:272–274

Cumulative_Ind_L1 35 August 1, 2018 7:45 PM I-36 Index

financial analysis (Continued) financial intermediaries,5: 28–38 areas of choice/estimate and analyst credit analysis, 3:324–326 arbitrageurs, 5:34–36 concerns, 3:652–655 credit rating process, 3:324–326 brokers, exchanges, and alternative presentation choices, 3:633–638 research on ratios in, 3:326 trading systems, 5:28–30 warning signs, 3:655–660 disclosure of income tax information, dealers, 5:30–31, 34–36 disciplining mechanisms, 3:626–632 3:532–533 defined, 5:6 auditors, 3:629–630 equity analysis, 3:318–323 depository institutions and financial market regulatory authorities, industry-specific ratios,3: 321–323 corporations, 5:32–33 3:627–629 research on ratios in, 3:323 insurance companies, 5:33–34 and motivation for manipulation, valuation ratios, 3:319–321 securitization of real assets by, 5:26 3:631–632 and expense recognition on income securitizers, 5:31–32 private contracts, 3:630 statements, 3:125 for settlement and custodial services, and earnings quality, 3:609, 618 framework for, 3:271–272 5:36–37 practice problems, 3:663–666 inventory management in, 3:377–388 transactions facilitated by, 5:38 solutions to problems, 3:667–670 model building and forecasting with, in well-functioning financial systems, spectrum of quality for financial 3:330 5:58–59 reports, 3:609–620 objectives of, 3:271–272 financial leverage,4: 136–140 and aggressive presentation, 3:612, practice problems, 3:333–338 degree of, 4:137–138, 142–143 615 process, 3:271–274 leveraged positions in markets, 5:41–44 and biased accounting choices, solutions to problems, 3:339–341 leveraging role of debt, 4:139–140 3:612–618 strategy and financial performance, and solvency ratio, 3:303–304 departures from GAAP, 3:619–620 3:272–274 financial leverage ratio,3: 304, 305, 587 “GAAP, decision-useful, but tools and techniques, 3:274–290 financial markets. see markets sustainable?” level, 3:611–612 graphs, 3:288–290 financial performance “GAAP, decision-useful, sustainable, regression analysis, 3:290 evaluating, 3:673–681 and adequate returns” level, financial analysts accounting standards and ROE, 3:610–611 decisions of, 5:6 3:678–680 presentation of non-GAAP financial industry analysis by, 5:202–203 and changes in business strategy, measures, 3:614–618 market efficiency and number of, 3:673–677 “Within GAAP, but biased choices” 5:121 and war chests, 3:677 level, 3:612–618 financial assets,3: 186–189; 5:14 integrated analysis of, 3:312–313 “Within GAAP, but ‘earnings financial assets abroad sub-account, projecting, 3:681–690 management’ ” level, 3:618 BOP, 2:370 consistency of forecasts, 3:690 financial reporting standards,3: 43–89 financial capital example, 3:687–689 about, 3:44 in Heckscher–Ohlin model, 2:352–353 forecasting operating profit, Conceptual Framework for Financial and international trade, 2:334 3:683–684 Reporting 2010, 3:60–72 in long-term economic growth, 2:175 issues with, 3:684–687 and barriers to single standards financial condition, statements of,3: 162. with market-based valuation, framework, 3:73–74 see also balance sheets 3:682–687 constraints on financial reports, Financial Conduct Authority (FCA), for multiple periods, 3:687–690 3:63–64 2:276n.6; 3:627, 628; 4:368, 466; financial position, statements of,3: 12, convergence of US GAAP and, 5:353n.3 162. see also balance sheets 3:70–72 financial corporations, as intermediaries, financial projections, in high-yield credit and effective standards frameworks, 5:32–33 analysis, 5:639–640 3:72–73 financial crisis (2008-2009). see also financial ratios elements of financial reports,3: 64–66 global financial crisis (2007-2009) in company analysis, 5:230–232 objective of financial reports, bond defaults, 5:601n.11 financial analysis with,3: 278–282 3:61–62 and credit enhancement, 5:503 and inventory write-downs, 3:370–375 qualitative characteristics of financial credit ratings agencies contribution, financial record keeping,4: 457 reports, 3:62–63 5:602 financial reporting requirements for financial kurtosis, 4:265–266 for business segments, 3:327–328 statements, 3:66–70 liquidity issues, 5:594, 639 regulations on, 5:61 global, 3:56–59 putable bonds, 5:332 Financial Reporting Council, 3:628; 4:7 of IFRS vs. US GAAP, 3:74–77 and risk-free rate, 5:645–646 financial reporting quality,3: 607–670 monitoring developments in, 3:77–83 securities ranked lower than about, 3:608–609 by CFA Institute, 3:78–79 subordinated debt, 5:596 assessing, 3:625–632 with company disclosures, 3:79–83 and securitization, 5:475, 479 conditions conducive to low-quality for new products/types of solvency risk, 4:429 reports, 3:626 transactions, 3:77–78 sovereign ratings, 5:368–369 disciplining mechanism, 3:626–632 and objectives of financial reporting, speculation in derivatives, 6:43–44 motivations for issuing low-quality 3:44–46 and yield spread, 5:631 reports, 3:625–626 practice problems, 3:85–87 financial disclosure, market efficiency conservative vs. aggressive accounting, reports based on, 3:608 and, 5:122 3:620–625 solutions to problems, 3:88–89 financial flexibility,3: 20 bias in application of accounting standard-setting bodies, 3:47–55 financial industry, governmental standards, 3:624–625 accounting standards boards, influences on,5: 225 in extractive industries, 3:621–622 3:48–50 financial institutions,5: 32–33 detection of issues, 3:632–660 for industry-specific regulation, Financial Instruments (IFRS 9), 3:146, accounting choices and estimates, 3:47–48 187 3:638–655 regulatory authorities, 3:50–55

Cumulative_Ind_L1 36 August 1, 2018 7:45 PM Index I-37

financial reports management commentary/MD&A, financing cash flow,3: 221 constraints, 3:63–64 3:26 financing costs,4: 50 elements, 3:64–66 statement of changes in equity, 3:20, finished goods inventory,3: 346, 377 high-quality, 3:609–612 21 finite lives, intangible assets with,3: 450 low-quality statement of comprehensive income, Finland conditions conducive to, 3:626 3:16–20 disinflation, 2:225 and earnings quality, 3:609, 618 supplementary information, 3:11–12 EU membership, 2:360n.18 motivations for, 3:625–626 supplementary schedules, 3:24–25 exchange rate regime, 2:434 on spectrum of quality, 3:619–620 practice problems, 3:37–39 IFRS adoption, 3:58 manipulation of scope of, 3:6–11 inflation targeting,2: 285 motivation for, 3:631–632 and earnings announcements, 3:8–11 MSCI multi-market index, 5:96 prevalence of, 3:608 and profit vs. cash flow,3: 7–8 real equity returns, 1:398 objectives, 3:61–62 solutions to problems, 3:40–41 residential mortgage loans, 5:487 qualitative characteristics, 3:62–63 financial statements. see also specific returns on bonds, bills, and equities, spectrum of quality, 3:609–620 statements 5:153 and aggressive presentation, 3:612, capitalisation vs. expensing of costs on, total returns, 1:406, 409 615 3:423–428 two-tier boards, 4:10 and biased accounting choices, and direct financing leases,3: 480–485 fintech, 4:455–477 3:612–620 finance vs. operating leases on, about, 4:455–456 departures from GAAP, 3:619–620 3:471–484 applications of, 4:465–469 “GAAP, decision-useful, but leases on, 3:580–583 algorithmic trading, 4:469 sustainable?” level, 3:611–612 LIFO liquidation on, 3:364–366 natural language processing, “GAAP, decision-useful, sustainable, long-lived assets on, 3:454–455 4:465–466 and adequate returns” level, notes to financial statements risk analysis, 4:468–469 3:610–611 Alcatel-Lucent, 3:385–386 robo-advisory services, 4:466–468 presentation of non-GAAP financial Caterpillar Inc., 3:360 text analytics, 4:465 measures, 3:614–618 disclosures, 3:70 artificial intelligence,4: 460–461 “Within GAAP, but biased choices” financial statement analysis,3: 24–25 Big Data, 4:457–460 level, 3:612–618 LIFO liquidation, 3:365 challenges of, 4:460 “Within GAAP, but ‘earnings PACCAR, 3:613 extracting information from, management’ ” level, 3:618 Volvo Group, 3:372–373 4:463–465 financial risk(s) relationships of, 3:287–288 sources of, 4:458–460 defined, 1:551n.27; 4:424 requirements of IFRS framework, data science, 4:463–465 drivers of, 4:434–435 3:66–70 data processing methods, 4:463 and leverage, 4:136–140 for disclosures in notes, 3:70 data visualization, 4:463–465 non-financial vs.,4: 432–433 from IAS No. 1, 3:68–70 defining, 4:456–457 types of, 4:424–426 required statements, 3:67 distributed ledger technology, financial risk management, normal statement features, 3:67–68 4:469–473 distribution in, 1:551 for structure and content, 3:68–70 about, 4:469–471 financial sector, IMF analysis of,2: 381 and revenue recognition on income applications of, 4:472–473 Financial Services Agency, 2:277; 3:47, statements, 3:111–112 permissioned and permissionless 48, 57 and sales-type leases, 3:485 networks, 4:471 Financial Services Authority (FSA), financial statistics, in company analysis, machine learning, 4:460–462 2:275–277; 5:353 5:231–232 practice problems, 4:475–476 financial services sector,5: 193 financial system solutions to problems, 4:477 Financial Stability Board (FSB), 5:476 efficiency of,5: 58–59 firearms industry, governmental financial statement analysis,3: 5–41. functions of, 5:6–14 influences on,5: 225 see also applications of financial capital allocation efficiency,5: 13–14 firewalls, 1:60, 89 statement analysis determining rates of return, 5:12–13 firm commitment offerings. see about, 3:6 for individuals, 5:7–12 underwritten offerings asset revaluations in, 3:445–446 well-functioning, 5:58–60 firm policies framework, 3:30–34 Financial Times Stock Exchange (FTSE), for fair dealing, 1:112–114 conclusions and recommendations, 5:192; 6:164. see also entries on loyalty, prudence, and care, 3:33–34 beginning with FTSE 1:105–106 data analysis and interpretation, financing firms 3:33 of leveraged buyouts, 6:150–151 benefits of GIPS compliance for, data collection, 3:32 of real estate investments, 6:161, 162 1:222–223 data processing, 3:33 (see also mortgages) buy-side, 4:225 follow-up, 3:34 short-term, 4:189–194 commitment to ethics by, 1:42 purpose and context of analysis, asset-based loans, 4:192 compliance with Code of Standards, 3:31–32 borrowing approaches, 4:191–192 1:38 information sources, 3:11–30 costs of borrowing for, 4:193–194 defined, 1:265 auditor’s reports, 3:27–29 sources of, 4:189–191 demand and supply analysis, 2:23–48 balance sheet, 3:12–16 venture capital, 6:152–153 marginal returns, 2:23–28 cash flow statement,3: 20, 22–23 financing activities scale and profit maximization, financial notes,3: 24–25 cash flow from,3: 221 2:43–48 financial statements,3: 11–30 on cash flow statements,3: 219–220, shutdown analysis, 2:28–43 internal and external sources of 240 free cash flow to,3: 254–255; 4:84n.6; information, 3:29–30 defined, 3:22 5:616n.25

Cumulative_Ind_L1 37 August 1, 2018 7:45 PM I-38 Index

firms (Continued) role in credit markets, 5:601, 602 sovereign bonds, 5:367–371 informing, of referral arrangements, sovereign ratings, 5:368 credit quality, 5:368–369 1:191 five forces framework for strategic names of, 5:367–368 knowledge of the law, 1:54–55 industry analysis, 5:205–206 types, 5:369–370 and market structure, 2:66–67 five-way decomposition of ROE, structured financial instruments, in microeconomics, 2:5 3:316–318 5:381–384 monopolist, 2:100–101 fixed asset turnover ratio capital protected instruments, 5:382 overemphasis of results from, 1:81 and average age of depreciable assets, leveraged instruments, 5:383 records as property of, 1:175, 176 3:462–464 participation instruments, 5:382–383 sell-side, 4:225 calculating, 3:293 yield enhancement instruments, starting new, 1:140 interpreting, 3:297, 460 5:382 theory of the firm,2: 5 fixed charge coverage ratio,3: 305–306, supranational bonds, 5:372–373 first-degree price discrimination, 587 fixed-income securities,5: 297–346 2:102–103 fixed costs bond indenture, 5:305–313 first-in, first-out (FIFO) method average, 2:31–35 collateral backing, 5:307–308 analyst adjustments related to, and breakeven points, 4:145 covenants, 5:310–311 3:699–702 and capacity, 5:612 credit enhancements, 5:308–310 and earnings/balance sheets, and degree of operating leverage, legal identity of issuer/legal form of 3:639–640 4:133–135 bond, 5:305–306 of inventory valuation and degree of total leverage, repayment proceeds, 5:306–307 assigning costs in, 3:349 4:142–143 cash flow structures,5: 318–329 conversion from LIFO to FIFO, fixed production costs,3: 347n.7 coupon payment, 5:323–329 3:358–363 and leverage, 3:303–304; 4:125–128 principal repayment, 5:318–323 and cost of goods sold, 3:172 quasi-, 2:33 with contingency provisions, 5:298, defined, 3:118–119 total, 2:31–35, 41–42 329–335 inflation and LIFO vs.,3: 354–356 fixed-for-floating interest rate swaps, callable bonds, 5:330–331 other valuation methods vs., 6:22–23 convertible bonds, 5:332–334 3:349–352 fixed income analysts,5: 6 putable bonds, 5:332 in periodic vs. perpetual inventory fixed-income arbitrage,4: 236 coupon rate, 5:300–301 systems, 3:352 fixed income asset backed strategies, for credit risk with, 5:299–300, 574–575 first lien debt,5: 596 hedge funds, 6:137 currency denomination for, 5:301–302 first loss piece,5: 504 fixed income convertible arbitrage interest rate risk with, 5:537–574 first mortgage debt,5: 596 strategy, for hedge funds, 6:136 approximate modified duration, first-order risk,4: 436n.28 fixed-income derivatives,5: 15 5:543–545 First Section, in TOPIX, 5:82 fixed income general strategies, for bond convexity, 5:559–567 fiscal deficit. see budget deficit hedge funds, 6:137 duration of bond portfolio, fiscal multiplier,2: 312–313 fixed-income indexes,5: 98–100, 5:555–557 fiscal performance, in sovereign credit 357–358 effective duration,5: 545–548 analysis, 5:647–648 fixed-income investments. see also and investment horizon, 5:569–574 fiscal policy,2: 300–318 bonds key rate duration, 5:549 and aggregate demand, 2:153, 300–301 as assets under management, 6:125 Macaulay duration, 5:538–542, balanced budget multipliers, classification of,5: 15, 17 569–574 2:313–314 and GDP forecasts, 2:183–184 modified duration,5: 542–543 and deficits/national debt,2: 305–307 as underlying, 6:5, 36–37 money duration, 5:557–559 defined, 2:261 fixed-income market,5: 347–400 price value of a basis point, 5:558 evaluating, 2:317–318 classification of,5: 348–357 properties of bond duration, fiscal multiplier,2: 312–313 corporate debt, 5:373–381 5:549–554 and government receipts/expenditures, bank and syndicated loans, yield volatility, 5:568–569 2:301–304 5:373–374 investing in, 5:298 implementation of, 2:314–317 commercial paper, 5:374–377 issuers of, 5:299–300 and inflation,2: 168 corporate notes and bonds, legal and regulatory considerations, influence on economy,2: 260–262 5:377–380 5:313–316 of Keynesian school, 2:213 function of, 5:347–348 liquidity risk with, 5:574–575 and monetary policy, 2:318–322 indexes, 5:357–358 maturity, 5:300 and Ricardian equivalence, 2:314 investors in, 5:357–359 par value, 5:300 roles and objectives, 2:300–308 non-sovereign bonds, 5:371–373 in portfolio management, 5:298 and tax policy, 2:310 practice problems, 5:393–396 practice problems, 5:339–342 tools, 2:308–314 primary, 5:359–365 return on, 5:530–537 types of, 2:308 private placements, 5:364–365 solutions to problems, 5:343–346 Fisher, Irving, 2:272; 4:82n.2 public offerings,5: 360–364 tax considerations, 5:316–318 Fisher effect,2: 272–273 quasi-government bonds, 5:372–373 yield measures, 5:304 Fisher index, 2:226–227 secondary, 5:365–367 fixed-income valuation,5: 401–471 Fitch Ratings short-term funding for banks, about, 5:401–402 commercial paper ratings, 5:375 5:384–390 accrued interest, 5:413–417 investment-grade ratings, 5:299n.2, repurchase and reverse repurchase flat price,5: 413–417 350 agreements, 5:386–389 full price, 5:413–417 long-term ratings matrix, 5:602–603 retail deposits, 5:385 matrix pricing, 5:417–420 municipal debt ratings, 5:651 wholesale funds, 5:385–386 maturity structure of interest rates, outsourcing credit analysis to, 4:438 solutions to problems, 5:397–400 5:433–441

Cumulative_Ind_L1 38 August 1, 2018 7:45 PM Index I-39

practice problems, 5:449–457 Foolish Four investment strategy, former clients, soliciting, 1:137–142 solutions to problems, 5:458–471 1:602–603 former employers and time value of money, 5:402–413 Forbes, 1:432–434 documents and files of,1: 138 market discount rate, 5:402–411 Ford Foundation, 4:219 in performance presentation, 1:127 spot rates, 5:411–413 Ford Motor Company Fortune magazine, 6:133 yield to maturity, 5:406–407 credit ratings, 5:607 forward commitments, 6:14–25, 73–85 yield measures, 5:420–433 EPS and P/E for, 1:410, 411 contingent claims vs., 4:444; 6:35–36 for fixed-rate bonds,5: 420–425 P/S value of, 5:269 defined, 6:7, 61 for floating-rate notes,5: 425–429 revenue recognition, 3:102–103 forward contracts, 6:14–17, 24, for money market instruments, RSI of, 1:710–712 73–80 5:429–433 share class arrangements, 5:157–158 futures contracts, 6:17–21, 24, 80–82 yield spreads, 5:441–445 similar companies to, 5:189 options vs., 6:30 fixed parity currency regimes,2: 434, forecasts pricing of, 6:73–85 437 consistency of, 3:690 swaps, 6:21–25, 82–85 fixed production costs,3: 347n.7 and financial analysis,3: 330 valuation of, 6:73–85 fixed-rate bonds of financial performance,3: 681–690 forward curves, 5:438–441 sovereign, 5:369 of operating profit,3: 683–684 forward discounts, 2:423 yield measures for, 5:420–425 and quality of financial reports,3: 625 forward exchange rates, 2:406, 423–430 fixed-rate debt,4: 86; 5:352 of short-term cash flows,4: 165–166 and spot rates, 2:408–410, 426–428 fixed-rate mortgages,1: 332–333; 5:486 foreclosures, 5:485, 488–489 and swap/interest rates, 2:424–428 fixed rate perpetual preferred stock, foreign bonds, 5:313–314, 354 forward markets, 5:437 4:86–87 foreign countries, diversification of forward points, 2:423, 427–428 flag patterns,1: 704–705 investment in, 4:286 forward premiums, 2:423 Flaherty, James, 5:225 foreign currency reserves, at central forward price, 6:14, 26 flash reports,1: 113 banks, 2:277, 292 forward rate agreements (FRAs), flat price,5: 413–417 foreign direct investment (FDI), 6:77–79 flexibility 2:339–340 forward rates, 5:436–440 of short-term borrowing strategy, foreign exchange gains, 5:169 forwards (forward contracts), 6:14–17 4:191 foreign exchange market (FX market), arbitrage with, 6:49–50 in sovereign debt credit analysis, 2:397–416 for commodities, 5:25; 6:168 5:647–648 about, 2:397–398 in contract markets, 5:21–22 flexible exchange rates,2: 433 currency conventions, 2:399–400 defined, 6:14–15, 61 float, 4:179 functions, 2:404–410 futures vs., 5:23; 6:21, 24, 80–81 float-adjusted market-capitalization nominal vs. real exchange rates, in FX market, 2:406 weighting, 5:87, 89, 90 2:400–404 on interest rates, 6:77–79 floaters. see floating-rate bonds participants in, 2:410–413 off-market, 6:83–84 float factor,4: 179 size and composition of, 2:413–416 options vs., 5:25 floating exchange rates,2: 431 foreign exchange risk, 4:169 pricing and valuation of, 6:73–80 floating interest rates, capped,5: 511 foreign investments put–call parity for, 6:98–99 floating-rate bonds (floaters) direct, 2:339–340 swap contracts vs., 5:24 inverse, 5:383 income from, 2:374 swaps and, 6:24, 82–83 outstanding, 5:334 portfolio, 2:339 time horizon of, 6:74 as participation instruments, foreign-owned financial assets sub- forward yields, 5:438 5:382–383 account, BOP, 2:370 fossil fuels, 4:37 sovereign, 5:369 foreign portfolio investment (FPI), 2:339 foundations, portfolio management for, floating-rate debt,4: 86; 5:352 ForgeHouse, Inc., 3:127 4:218–220 floating-rate notes (FRNs) Form 3 (SEC), 3:54–55 401(k) plans, 4:208–210 cash flows from,5: 323–324 Form 4 (SEC), 3:54–55 four Cs framework for corporate debt as corporate debt, 5:378 Form 5 (SEC), 3:54–55 securities, 5:610–628 coupon rate for, 5:301 Form 6-K (SEC), 3:53 capacity, 5:611–625 inverse, 5:324 Form 8-K (SEC), 3:54 character, 5:627 yield measures for, 5:425–429 Form 10-K (SEC), 3:53, 364–365 collateral, 5:625–626 floating-rate tranches,5: 501 Form 10-Q (SEC), 3:53 covenants, 5:626–627 floors, floating-rate note,5: 324 Form 11-K (SEC), 3:55 four-factor models for beta, 4:329, flotation costs,4: 105–107 Form 20-F (SEC), 3:53 353–354 flow-of-funds indicators,1: 718–722 Form 40-F (SEC), 3:53 fourth-quarter surprises, 3:658 Arms index, 1:718–720 Form 144 (SEC), 3:54 FPI. see foreign portfolio investment margin debt, 1:720 format fractile, 1:421 and market indicators, 1:721 of balance sheets, 3:165–167 fractional reserve banking, 2:264–266 mutual fund cash position, 1:720–721 of cash flow statements,3: 219–232 fragile information cascades, 5:138 new equity issuance, 1:721–722 cash flows and non-cash activities, Framework for the Preparation secondary offerings,1: 722 3:219–221 and Presentation of Financial FOB shipping. see free on board cash flows from operating activities, Statements (IASB), 3:45, 116 shipping 3:222–232 franc, Swiss FOFs. see funds of funds and IFRS vs. US GAAP, 3:221–222 currency code, 2:399 follow-up, financial statement analysis, of income statements, 3:95–99 exchange rate quotes with, 2:416, 418 3:34 formative-stage financing (venture international bonds outstanding in, FOMC. see Federal Open Market capital), 6:152 5:351 Committee Form DEF-14A (SEC), 3:53 as reserve currency, 5:19

Cumulative_Ind_L1 39 August 1, 2018 7:45 PM I-40 Index

France free trade areas (FTAs), 2:360 fundamental growth strategies, for banking supervision, 2:276 French, Kenneth, 4:89n.11, 89n.12, 329; hedge funds, 6:137 bonds outstanding, 5:354, 360 5:133 fundamentals business investment, 2:177 French consumer price index (CPI), company, 5:613–617 civil law system, 4:27 5:370 industry, 5:613 consumption expenditures, 2:139 frequency in multiplier models, 5:266–267 corporate governance systems, 4:14 absolute, 1:393 Fundamentals of Compliance (GIPS disinflation, 2:225 of compounding, 1:310–312, 319–320 Section I.0), 1:233–234 domestic and international debt cumulative, 1:394–398 about, 1:232 securities, 5:315 relative, 1:394–398 recommendations, 1:234 equity risk premiums, 4:90 frequency distributions, 1:391–399 requirements, 1:233–234 EU membership, 2:360n.18 construction of, 1:392–394, 398–399 fundamental value, 5:119, 244. see also exchange rate regime, 2:434 cumulative, 1:402–403 intrinsic value expected inflation,2: 280 defined, 1:391 fundamental value strategies, for hedge exports of goods, 2:335 and holding period formula, 1:392 funds, 6:137 frequency of capital budgeting, 4:67 and relative frequency, 1:394–398 fundamental weighting GIPS sponsor, 1:230 frequency polygons, 1:401–402 in multi-market equity indexes, 5:96 government debt, 2:260 frictionally unemployed (term), 2:220 of security market indexes, 5:89, 91 government spending, 2:129 frictionless markets, 4:336 funding inflation-linked bonds,5: 326, 370 Friedman, Milton, 2:215, 232, 433 short-term, 5:384–390 labor productivity, 2:180 Friedman, Thomas,2: 64 swap, 2:407–408 maturity of mortgages, 5:486 FRNs. see floating-rate notes travel, 1:63 MSCI multi-market index, 5:96 Frontier Airlines, 4:438n.30 fund manager relationships, 1:60, 70 overconfidence and mispricing in Frontiers of Finance Survey, 5:136 fund mandate, change in, 1:170 markets, 5:137 Frontline, 5:210 funds public sector spending, 2:261 front-running, 1:187 for commodities investing, 6:169, 170 real equity returns, 1:398 FSA. see Financial Services Authority fair dealing between, 1:114–115 residential mortgage loans, 5:487 FSB. see Financial Stability Board structure of, 6:132–133 returns on bonds, bills, and equities, FTAs. see free trade areas funds from operations (FFO), 5:615; 6:166 5:153 FTC. see US Federal Trade Commission funds from operations (FFO) interest say on pay, 4:18 F-test coverage, 3:325 sovereign bonds, 5:367 for differences between variances, funds from operations (FFO) to debt, total returns, 1:406, 410, 422 1:651 3:325; 5:617 trade balance with US, 2:130 F-distribution, 1:744–747 funds of funds (FOFs) Treasury bills, 1:305n.3, 377n.16 FTSE. see Financial Times Stock benefits of,6: 146 underground economy, 2:124 Exchange composites for, 1:249, 250 France Telecom, 1:423 FTSE 100 Index defined, 1:266; 6:134 Frankfurt Stock Exchange, 1:706; 5:165 line chart, 1:682–683 fee structures for, 6:139–140, 142 FRAs. see forward rate agreements as relative return objective benchmark, multi-strategy hedge funds vs., 6:138 fraud, 1:83, 682; 5:34, 61 4:375 performance of, 6:134–135 FRC. see UK Financial Reporting as relative risk objective benchmark, Private Equity (GIPS Section I.7), Council 4:370 1:247–249 Freddie Mac. see Federal Home Loan relative strength analysis, 1:690 returns on, 6:139, 142, 143 Mortgage Corporation target market for, 5:82 sample presentations of, 1:279–282 free cash flow after dividends,5: 616 FTSE All Share Index, 1:606–607 future cash flows, geometric and free cash flow before dividends,5: 616 FTSE EPRA/NAREIT Global Real Estate arithmetic mean of, 1:457 free cash flow to equity (FCFE) Index Series, 5:101–103 future prices, short-run aggregate supply on cash flow statements,3: 254–255 FTSE Eurotop 100, 1:405–406 and, 2:158, 160 defined, 4:84n.7 FTSE Global All Cap Index, 1:647 futures (futures contracts), 6:17–21 in discounted cash flow approach, FTSE Global Bond Index Series, commodities, 6:37, 168, 171–173 6:157 5:357 in commodities, 5:25, 26 in equity valuation models, 5:246, FTSE Global Small Cap Index, 5:94 in contracts market, 5:22–23 252–253 FTSE infrastructure index, 6:175 defined, 6:17, 61 free cash flow to the firm (FCFF), Fujifilm, 5:223 forwards vs., 5:23; 6:21, 24 3:254–255; 4:84n.6; 5:616n.25 full employment, 2:164 in FX market, 2:406 free float,5: 165n.23 full employment equilibrium GDP, price discovery with, 6:40–41 free float adjusted,1: 406n.13 2:163–164 pricing and valuation of, 6:80–82 free-float-adjusted market- full employment level of output, 2:150 rollover of, 5:102 capitalization-weighted indexes, full price, 1:377n.14; 5:413–417 swaps vs., 6:24 5:87 full-replication approach, 1:584 futures commission merchants (FCMs), free-floating currency regimes, fully amortized bonds, 5:318–320 1:151 2:438–439 fully amortizing loans, 5:487 futures markets, regulation of, 6:21 Freeman Spogli & Co., 5:163 fully automated digital wealth managers, futures price, 6:18, 40–41 free on board (FOB) shipping, 3:638 4:468 future value (FV) free operating cash flow to debt,3: 325 function of expense method, 3:454–455 defined, 1:306 Freeport-McMoRan Copper & Gold, functions, defined,2: 6 future value of series of cash flows, 5:276 fundamental analysis, 1:678n.1, 680– 1:314–316 Freescale Semiconductor, 5:640–642 682; 5:128–129 with equal cash flows,1: 315–316 free trade, 2:336, 341–342 fundamental factor models, 4:329 with unequal cash flows,1: 316

Cumulative_Ind_L1 40 August 1, 2018 7:45 PM Index I-41

future value of single cash flow, generally accepted accounting principles disinflation, 2:225 1:306–314 (GAAP). see also entries for specific domestic and international debt with continuous compounding, countries and regions, e.g.: US securities, 5:315 1:312–313 GAAP effects of global recession,2: 166 frequency of compounding, convergence of IFRS and, 3:57–59 employee representation on boards, 1:310–312 financial reports with departures from, 4:19 with interim cash reinvested at same 3:619–620 equity risk premiums, 4:90 rate, 1:307–308 “GAAP, decision-useful, but EU membership, 2:360n.18 for lump sum, 1:309–310 sustainable?” financial reports, exchange rate regime, 2:434, 438 stated and effective rates for, 3:611–612 fixed-income indexes,5: 357 1:313–314 “GAAP, decision-useful, sustainable, flotation costs,4: 105 without interim cash, 1:308 and adequate returns” financial foreign direct investment, 2:339, 340 present and, 1:307, 336–337 reports, 3:610–611 frequency of capital budgeting, 4:67 FX market. see foreign exchange market non-GAAP measures in financial GIPS sponsor, 1:231 FX swaps, 2:407–408 reports, 3:614–618, 633–638 government liabilities/debt, 2:306 on REIT investing, 6:162 government revenues/expenditures, G “Within GAAP, but biased choices” 2:301, 302 G–7, 2:237, 342 financial reports,3: 612–618 government spending, 2:129 G-10, 2:276–277 “Within GAAP, but ‘earnings gross domestic product, 2:182–184 G-20. see Group of Twenty management’ ” financial reports, hyperinflation, 2:224 GAAP. see generally accepted accounting 3:618 IFRS adoption, 3:58 principles general meetings, 4:15–16 inflation-linked bonds,5: 326 “GAAP, decision-useful, but General Motors (GM) investments in BASF, 5:165 sustainable?” financial reports, diseconomies of scale for, 2:46 investment spending, 2:140 3:611–612 in method of comparables valuation, labor productivity, 2:180 “GAAP, decision-useful, sustainable, and 5:269 leading economic indicator, 2:241 adequate returns” financial reports, similar companies to, 5:189 management reporting requirements, 3:610–611 two-factor analysis of, 5:209 3:26 gains general obligation (GO) bonds, 5:650 MSCI multi-market index, 5:96 capital, 5:316, 533, 569 general partners (GPs) net borrowing/lending, 2:303 on debt forgiveness, 3:127 defined, 1:266 non-sovereign government bonds, extraordinary, 3:127 funds as, 6:132 5:371 foreign exchange, 5:169 in private equity investments, 6:149, overconfidence and mispricing in on income statement, 3:97 150, 158 markets, 5:137 on marketable securities, 3:188–189 Genomic Solutions, 5:158–159 residential mortgage loans, 5:486, 487 from market timing, 1:560–562 Genzyme, 5:209 returns from trade, 2:347–350 geographic classifications for fixed- on bonds, bills, and equities, 5:153 from voluntary exchange, 2:341 income markets, 5:354–355 real equity returns, 1:398 Galileo space program, 5:225 geographic segments, financial analysis total returns, 1:406, 410 gambling, speculation vs., 6:43 for, 3:327–329 risk tolerance and equity ownership, game theory, 2:92–94 geometric average of forward rates, 5:154 gamma, 4:436 5:441 sovereign bonds, 5:367–369 Gary, Elbert, 2:96 geometric mean, 1:416–420 trade balance with US, 2:130 Gascon, Henri (case study), 4:373–374, and arithmetic, 1:418–420 Treasury paper, 1:305n.3, 377n.16 376, 382–384 formula, 1:416–417 two-tier boards, 4:10 Gascon, Jacques (case study), 4:374–375 using, 1:456–457 underground economy, 2:124 gasoline market, concentration in, 2:107 geometric mean return, 1:417–420; Ghana, 2:285; 3:59; 5:96 GATS. see General Agreement on Trade 4:246–247 GICs. see Guaranteed Investment in Services Georgia, 3:58 Contracts GATT. see General Agreement on Tariffs German Asset Management Standards GICS. see Global Industry Classification and Trade Committee, 1:231 Standard Gazprom SP European Depositary German CFA Society, 1:231 Giffen, Robert,2: 21 Receipts (EDRs), 1:706, 707 Germany Giffen goods,2: 21 GB 250 Stamp Index, 6:175–176 auctions, 5:362 gifts GDF Suez, 1:423 automobile industry, 2:86 from clients, 1:67 GDP. see gross domestic product banking supervision, 2:276 limiting, 1:64 GDP deflator,2: 125–127 bank regulation, 3:47 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, 2:372–374 gilts, 2:296–297; 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, 3:624 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), 2:380, 383 CPI, 2:227 Section III), 1:256–257 General Agreement on Trade in Services cumulative voting rules, 4:16 purpose, 1:256 (GATS), 2:383 currency regime, 2:433 advertisement defined,1: 256 General Dynamics, 1:410; 5:209 current account imbalance, 2:375, 378 and GIPS regulatory requirements, General Electric (GE), 2:105; 3:82, 659 cyclically adjusted budget deficit,2: 315 1:256

Cumulative_Ind_L1 41 August 1, 2018 7:45 PM I-42 Index

GIPS Advertising Guidelines (GIPS Global Industry Classification Standard private equity with fund of funds by Section III) (Continued) (GICS) strategy, 1:279–282 information included in common-size analysis using, 3:142–143, private equity with fund of funds by advertisement, 1:256 200 vintage year, 1:282–284 requirements, 1:256–257 identifying similar companies with, private equity with primary fund sample advertisements, 1:289–291 5:189, 190 vehicle, 1:284–286 with annualized returns, 1:289–290 levels of, 5:192 real estate with closed-end funds, with five years of annual returns, Global Integrated Monetary and Fiscal 1:277–279 1:290–291 Model, 2:320 real estate with open-end funds, with period-to-date and annualized Global Investment Performance 1:275–277 returns, 1:290 Standards (GIPS), 1:126, 157, solutions to problems, 1:297 GIPS Council, 1:226, 230 221–297; 5:61 sponsors, 1:230–231 GIPS Executive Committee, 1:226 compliance structure, 1:224 clarifications by,1: 228, 233, 234, 259 benefits of,1: 222–223 Verification (GIPS Section IV), implementation recommendations of, claiming, 1:222, 229 1:223–224, 258–262 1:229–230 GIPS-compliant historical and performance examinations, objectives of, 1:227 performance, 1:228–229 1:262 GIPS Handbook, 1:228, 233, 234, 259 composites, 1:223 required procedures, 1:259–262 GIPS Valuation Principles (GIPS Section effective date,1: 229 scope and purpose, 1:258–259 II), 1:252–255 GIPS Advertising Guidelines (GIPS website, 1:228, 233, 234, 259 fair value, 1:252–253 Section III), 1:256–257 Global Investment Performance and input data, 1:232, 235 purpose, 1:256 Standards Committee, 1:226 Private Equity (GIPS Section I.7), requirements, 1:256–257 globalization, 2:336–337, 340–341 1:247, 248 GIPS Valuation Principles (GIPS global macro strategies, 4:236 for private equity, 1:254, 255 Section II), 1:252–255 global minimum-variance portfolios, for real estate, 1:253–255 fair value, 1:252–253 4:290 recommendations, 1:254–255 recommendations, 1:254–255 global registered shares (GRSs), 5:168 requirements, 1:253–254 requirements, 1:253–254 Global Reporting Initiative (GRI), 4:39 Giro system, 4:177–178 glossary of terms, 1:262–271 Global S&P REIT index, 6:126 Gitman, Lawrence, 4:107n.39 historical background, 1:226 global supply chains, 2:341 GlaxoSmithKline plc implementation of, 1:229–230 Global Sustainable Investing Alliance audit opinions on, 3:629 List of Composite Descriptions (GSIA), 4:39 capital budgeting at, 4:340–341 (Section V.0.1), 1:292–295 GM. see General Motors in pharmaceutical industry, 5:189 need for, 1:221–222, 227 GNP. see gross national product ROE for, 5:173–175 objectives, 1:227 GO bonds. see general obligation bonds stakeholder management at, 4:18 overview, 1:228 gold strategic analysis, 5:219–221 practice problems, 1:296 correlation with other asset classes, global bond mutual funds, 4:231 provisions, 1:231–252 4:386 global bonds, 5:314 Calculation Methodology (Section forward contracts on, 5:21–22 Global Commodity Composite, 1:293 I.2), 1:235–236 Goldcorp, 5:276 global debt markets, 5:349–350 Composite Construction (Section golden cross pattern, 1:706 global depository receipts (GDRs), 5:167 I.3), 1:236–237 Goldman Sachs global economic developments, IMF Disclosure (Section I.4), 1:237–240 accounting for financial liabilities, analysis of, 2:381 Fundamentals of Compliance 3:555 Global Equity Composite, 1:223 (Section I.0), 1:233–234 callable preference shares, 5:160 global equity markets, 5:349–350 Input Data (Section I.1), 1:235 as dealers, 5:30 global ETFs, 4:234 overview, 1:231–233 industry concentration and pricing global finance markets Presentation and Reporting (Section power, 5:209 and depository receipts, 5:166–169 I.5), 1:240–242 QUIDS at, 5:300 direct investing, 5:165–166 Private Equity (Section I.7), short interest ratio, 1:718 equity securities in, 5:150–155 1:247–250 Goldman Sachs Commodity Index. see integration and growth in, 5:164–165 Real Estate (Section I.6), 1:242–246 S&P GSCI global financial crisis (2007-2009). see Wrap Fee/SMA Portfolios (Section gold standard, 2:275, 432 also financial crisis (2008-2009) I.8), 1:250–252 good-on-close orders, 5:48 corporate governance and, 4:6 purpose, 1:225 good-on-open orders, 5:48 deflation in,2: 224 sample advertisements, 1:289–291 goods ethical dimensions of, 1:15 with five years of annual returns, capital, 2:128 housing sector behavior in, 2:209 1:290–291 cost of goods sold, 3:172, 294 IMF operations after, 2:381 with one-, three-, and five-year discretionary, 2:12 media’s effect on regulation following, annualized returns, 1:289 durable, 2:207 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, 3:56 1:290 Giffen, 2:21 velocity of money in, 2:234 sample presentations, 1:272–288 inferior, 2:15, 19–23 volatility and, 1:652–653 asset management company, intermediate, 2:121 global financial reporting standards, 1:273–274 manufacturers’ new orders for, 2:238 3:56–59. see also International investment firm balanced growth non-discretionary, 2:12 Financial Reporting Standards composite, 1:272–273 nondurable, 2:207 (IFRS) large-cap SMA composite, 1:286–288 normal, 2:15, 19–23

Cumulative_Ind_L1 42 August 1, 2018 7:45 PM Index I-43

substitution and income effects on, Government National Mortgage stagflation, 2:169–170 2:19–23 Association (Ginnie Mae), 5:490, external sector, 2:130–131 value of, 2:123–124 503 and foreign direct investment, Veblen, 2:21 Government of Singapore Investment 2:339–340 goods markets, 2:128 Corporation, 4:221 GNP vs., 2:334–335 good-till-cancelled orders (GTCs), 5:48 government policies, as risk drivers, and government liabilities/debt, goodwill 4:434 2:306–307; 5:648 accounting, 3:184 government receipts, fiscal policy and, and government revenues/ analyst adjustments for, 3:704–706 2:301–304 expenditures, 2:301–302 on balance sheets, 3:183–186 government-related sector, 5:348–349 government sector, 2:129–130 from business combinations, 3:422–423 government sector, 2:129–130; household and business sectors, 2:128 defined, 3:420 5:348–349 long-run growth rate vs. fluctuations economic, 3:184 government services, in GDP, 2:123 in, 2:150–151 and financial reporting issues,3: 648 government spending, 2:129–130 measuring, 2:120–123 financial reporting issues with,3: 654 and aggregate demand, 2:137–138, 155 and net borrowing/lending, 2:303 on income statements, 3:124 current, 2:309 nominal, 2:124–127 ratio comparisons for, 3:705–706 and fiscal policy,2: 153 and other income measures, 2:131–136 valuation of, 3:181–182 and taxes, 2:312–313 in performance projections, 3:682 goodwill impairment, 3:185–186 government-sponsored enterprises potential, 2:159 Google, 2:64; 3:54; 4:13, 244 (GSEs), 5:371, 490 and demand-pull inflation,2: 233 Gootkind, Christopher L., 5:608n.21 GPs. see general partners (GPs) and long-run equilibrium GDP, 2:163 Gordon, Myron J., 4:92n.18 Graham, Benjamin, 1:681 measuring growth of, 2:179–180, Gordon growth model, 5:256–261 Graham, John, 4:107 182–183 applying, 5:258–259 grand supercycle, Elliott wave, 1:724 production function of, 2:174–175 and dividend discount model based graphic presentations of data, 1:399–403 and price indexes, 2:231 approach, 4:92 for financial analysis,3: 288–290 and production function, 2:174–175 justified value of price multiple from, frequency polygons and cumulative real, 2:124–127 5:266 frequency distributions, 1:401–403 and economic growth, 2:173 with no current dividend, 5:260–261 histograms, 1:400–401 identifying recession with, 2:201–202 Gosset, W. S., 1:595n.15 Great Depression, 2:211, 224, 379–380 and international trade, 2:342 governance “greater than” alternative hypothesis, in Japan, 2:172–173 corporate (see corporate governance) 1:624, 625, 651–652 and shifts in aggregate supply/ risk, 4:417–424 GreatWall Information Industry Co., demand, 2:170–173 defined, 4:411 Ltd., 1:732, 736 in sovereign credit analysis, 5:647 for enterprises, 4:417–419 Greece sustainable growth in, 2:182–183 establishing risk tolerance level, EU membership, 2:360n.18 trade-to-GDP ratio, 2:337–340 4:419–421 exchange rate regime, 2:434 values of goods and services, example, 4:423–424 exports of service, 2:335 2:123–124 with risk budgeting, 4:421–423 fiscal crisis (2010),2: 363–364, gross investment, aggregate demand governance codes, 4:34 381–382, 384–386 and, 2:139 governance committee, 4:23 as GIPS country sponsor, 1:231 gross margin, financial reporting quality government(s) government debt, 2:260 and, 3:658 as Big Data sources, 4:458 government spending, 2:130 gross national product (GNP), 2:120n.2, ethical principles and laws by, 1:7–8 labor productivity, 2:180 336–337 in FX market, 2:411 MSCI multi-market index, 5:96 gross-of-fees, 1:264 and industry analysis, 5:203, 224–226 national debt, 2:305 gross-of-fees returns 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), 1:234 2:358 total returns, 1:406, 409 defined, 1:264 shareholder conflicts with,4: 13 underground economy, 2:124 Disclosure (GIPS Section I.4), 1:236 as stakeholders, 4:10 the “Greeks,” 4:436 GIPS Advertising Guidelines (GIPS and strategic analysis, 5:220 green bonds, 4:38 Section III), 1:255 governmental industry classification greenfields, constructing,5: 211 Presentation and Reporting (GIPS systems, 5:196–197 green finance,4: 38 Section I.5), 1:239, 240 ANZSIC system, 5:196 Green Mountain Coffee Roasters,1: 410 Private Equity (GIPS Section I.7), 1:246 ISIC system, 5:196 Greenspan, Alan, 2:214 Real Estate (GIPS Section I.6), 1:242, NACE system, 5:196 grey market, 5:361 244 NAICS system, 5:197 GRI. see Global Reporting Initiative gross-of-fees SI-IRR, 1:243, 247 governmental infrastructure, 4:14 gross domestic product (GDP), gross profit,3: 98 government bond mutual funds, 4:231 2:120–136 and inflation,3: 355–356 government bonds, 4:386 in business cycles, 2:212 and inventory valuation method, government-controlled authorization, components of, 2:127–131 3:350–352 2:97, 104 contributions to global, 5:150–151 and LIFO liquidation, 3:364, 366–367 government debt, 2:260, 314. see also and cyclically adjusted budget deficit, in periodic vs. perpetual inventory national debt; sovereign debt 2:315 systems, 3:352–354 government equivalent yield, 5:423 equilibrium, 2:163–173 gross profit margin,3: 307, 308 government expenditures inflationary gap,2: 167–168 calculating, 3:356 and business cycle theories, 2:219 long-run equilibrium, 2:163 and conversion from LIFO to FIFO, and fiscal policy,2: 301–304 recessionary gap, 2:163–167 3:362–363

Cumulative_Ind_L1 43 August 1, 2018 7:45 PM I-44 Index

gross profit margin (Continued) hard hurdle rate, 6:139 hedging pressure hypothesis, 6:173 defined, 3:308 Harley-Davidson Credit Corp., 5:479, 480 held-for-sale assets, impairment of, and income statement ratios, 3:144 Harley-Davidson Motor Company 3:451 on income statements, 3:98 customer loyalty to, 2:84 held for trading (term), 3:187 inventory management with, 3:376, RSI for, 1:691 held-to-maturity (term), 3:186 377 securitization by, 5:479–480, 482 Hellenic CFA Society, 1:231 and inventory write-downs, 3:375 Harley-Davidson Motorcycle Trust herding behavior, 5:137 in ratio analysis, 3:277 2005-2, 5:479, 480 HERE, 3:615, 616 gross reporting of revenue, 3:109–110 harmonic mean, 1:420–421 Herfindahl, O. C.,2: 107 gross return, 4:253–254 harmonic series, 1:420n.25 Herfindahl–Hirschman Index (HHI), group decision making, 1:157 Harmonized Index of Consumer Prices 2:107–108 Groupe Danone (Danone) (HICP), 2:228; 5:370 Hershey, 5:219–221 cash flow statement,3: 248–249 Harvard University, 4:218 Herstatt risk, 4:426n.19 income statement, 3:95–98, 131 Harvey, Campbell R., 4:100n.28, heterogeneous beliefs assumption, 4:347, market capitalization, 1:424 101n.32, 107 350–351 segment ratio evaluation, 3:328–329 HBOS, 5:324 heuristics, 6:157n.30 grouping by function (term), 3:98 head and shoulders patterns, 1:695–699 Hewlett-Packard Company grouping by nature (term), 3:98 about, 1:695–696 cash flow analysis of comparables, Group of Twenty (G-20), 5:476 determining price targets from, 1:698 3:256–257 Groupon, 3:635–638 inverse, 1:697–699 cross-sectional common-size analysis, group research, 1:157, 160 setting price targets with, 1:696–699 3:200, 203–204 growth headline inflation,2: 228–229 evaluation of liquidity measures, 3:301 economic, 2:173–184 Health Care sector, 5:193 peer groups for, 5:200 and aggregate demand, 2:155 health risk, 4:430 two-factor analysis, 5:209 in China, 2:179 healthy corrections, 1:701 HFRI. see Hedge Fund Research, Inc. in Mexico, 2:181 heavy truck industry, similar companies HFRI Fund of Funds Index, 6:134 production function and potential in, 5:189 HFRX Equal Weighted Strategies EUR GDP, 2:174–175 Heckscher–Ohlin model, 2:341, 352–353 Index, 5:104 and real GDP, 2:173 hedge fund indexes, 5:102; 6:125, 143 HFRX Global Hedge Fund Index, 5:104 RTAs and spillovers of, 2:362 Hedge Fund Research, Inc. (HFRI), HFT (high-frequency trading), 4:469 sources of, 2:176–179 6:134, 135 hhgregg, 5:162 sustainable, 2:173, 179–184 hedge funds, 6:133–149 HHI. see Herfindahl–Hirschman Index and trade, 2:338–339 about, 6:133–135 Hibor. see Hong Kong interbank offered industry, 5:613 as alternative investments, 5:15; 6:124 rate growth cyclical companies, 5:191n.3 classifying, 6:135 H I C P. see Harmonized Index of growth industries, 5:190, 191, 221 defined, 5:102; 6:128 Consumer Prices growth investors, 3:696 diversification benefits,6: 138–139 hidden orders, 5:47–48 growth rates downside frequencies, 6:131 highest requirement, following, 1:56 solving TMV problems for, 1:329–331 due diligence, 6:146–148, 178 high-frequency trading (HFT), 4:469 sustainable, 4:92–93 fees, 6:139–143 high net worth investors growth stage (industry life-cycle), global assets under management, 6:125 alternative investments of, 6:125, 5:214–215 historical returns and volatility, 6:126 127–128 growth stocks, 5:97 investment strategies for, 6:135–138 commercial property investment by, growth strategies, for hedge funds, 6:138 equity hedge strategies, 6:137–138 6:162 growth theory, 2:174–175 event-driven strategies, 6:136 high-quality financial reports GRSs. see global registered shares macro strategies, 6:137 and earnings quality, 3:609 Grupa Zywiec SA, 5:658, 666 relative value strategies, 6:136–137 on spectrum of quality, 3:610–612 GSEs. see government-sponsored and leverage, 6:143–144 high water marks enterprises performance of, 6:134–135 for fund investments, 6:133 G-spread, 5:442, 445 as pooled investments, 4:235–236; 5:19 hedge funds, 6:140 GTCs. see good-till-cancelled orders and redemptions, 6:144–145 high-yield bond mutual funds, 4:231 guarantee certificates,5: 382 registration of, 6:144 high yield bonds. see non-investment- Guaranteed Investment Contracts returns, 6:131, 139–143 grade bonds (GICs), 1:317–320 risks of, 6:132, 178 high-yield credit analysis, 5:638–645 Guatemala, 2:285; 3:58 sample selection bias for, 1:605 corporate structure in, 5:642–643 Guggenheim Mid Cap Value Fund Class shareholder activism with, 4:26 covenant analysis, 5:643–644 A, 1:433 Sharpe and Sortino ratios, 6:131 debt structure and leverage in, Guidance Statements, GIPS, 1:228, 233, valuation issues, 6:145–146 5:640–642 234, 259 hedge portfolios, 6:46 equity-like approach to, 5:644–645 Gulf Cooperation Council, 4:24 hedgers, 5:9–10, 21, 39 financial projections for,5: 639–640 Gulf of Mexico oil spill (2010), 4:38 hedges, risk budgeting with, 4:423 liquidity in, 5:638–639 Gupta, Parveen, P., 1:638 hedging and non-investment grade ratings, with credit default swaps, 6:32 5:638 H with derivatives, 6:67–68 high-yield indexes, 5:99 hackers, 4:428 with forward contracts, 6:17 Hillenbrand, Inc., 5:199 “haircuts,” 5:388; 6:146 with futures, 6:21 Hirschleifer, John, 4:82n.2 Halliburton, 5:219–221 in FX markets, 2:405 Hirschman, A. O., 2:107 Hamada, Robert S., 4:95n.24 inflation hedges,6: 158, 170–171 histograms, 1:400–401 Hang Seng Index, 1:442; 4:213–215 in OTC derivatives market, 6:12 historical cost, 3:66

Cumulative_Ind_L1 44 August 1, 2018 7:45 PM Index I-45

historical equity risk premium approach, Hong Kong SAR hybrid securities, 5:596n.4 4:89–92 Asian financial crisis,2: 341 Hynix, 5:209 historical mean return, 4:259–260 effects of global recession,2: 166 hyperinflation, 2:224–225 historical performance, GIPS-compliant, exchange rate regime, 2:434, 436–437 hypothesis(-es) 1:228–229 exchange rate targeting, 2:292 alternative, 1:624–625, 651–652 historical returns, 4:259–264 GIPS country sponsor, 1:231 defined, 1:623 of alternative investments, 6:125 and IFRS, 3:59 formulations of, 1:624–625 of commodities, 6:170 margin requirements of, 5:41 null, 1:624–625 estimating cost of equity with, 4:89–92 in MSCI EAFE, 1:406 hypothesis testing, 1:591, 621–676 historical mean return and expected MSCI multi-market index, 5:96 with correlation, 1:655–658 return, 4:259–260 Hong Kong Society of Financial in data mining, 1:601–602 of investment classes, 6:126 Analysts, 1:231 nonparametric inference, 1:654–658 nominal and real returns of asset Hong Kong Stock Exchange (HKSE) and parametric tests, 1:654–655, 658 classes in other countries, GDRs on, 5:167 and tests with correlation, 1:655–658 4:262–263 HSBC Holdings on, 4:317–318 use of, 1:654–655 nominal returns of major US asset total market capitalization in, 5:152 practice problems, 1:662–669 classes, 4:260–261 volatility of returns, 4:210–213 p-value approach, 1:631–632 of private equity investments, warrants on, 5:333 solutions to problems, 1:670–676 6:155–156 Honus Wagner baseball card, 6:176n.39 steps in, 1:623–631 of real estate investments, 6:164–165 Hopkins, Sheila, 1:722 tests with means, 1:632–648 real returns of major US asset classes, horizontal common-size analysis, mean differences,1: 639–648 4:261–262 3:141n.50, 282, 285–287 single mean, 1:632–639 risk–return tradeoff for,4: 263–264 horizontal demand schedule, 2:71–72 tests with variance, 1:648–654 historical risk horizontal equity, 2:310 equality of two variances, 1:650–654 risk of major asset classes, 4:263 horizon yield, 5:532–536, 571 single variance, 1:648–650 risk–return tradeoff,4: 263–264 host country, for FDI, 2:339 uses of, 1:622 historical simulation, 1:562–563 Hostess, 4:438n.30 Hyundai, 5:189 HKMA. see Hong Kong Monetary hostile takeovers, 4:26 Hyundai Steel, 1:329 Authority Hotchkis and Wiley Mid Cap Value A HKSE. see Hong Kong Stock Exchange Fund, 1:433 I HM Treasury, 5:306 Hotchkis and Wiley Small Cap Value A IAS. see International Accounting holder-of-record date, 5:249 Fund, 1:433 Standards holding companies, 5:306, 642 hot issue securities, 1:112 IASB. see International Accounting holding-period rate of return, 5:571 hours worked, 2:222 Standards Board holding period return (HPR), 4:245 household saving rate, 2:134, 152, 207 Ibbotson, Roger G., 1:426–428; 4:94n.23 defined, 1:367, 392 household sector, 2:119–120, 128 Iberdrola, 1:423 finding ending value of investment household wealth, aggregate demand IBM (International Business Machines) with, 1:554 and, 2:151–152 and Logitech, 2:342 formula, 1:392 housing industry, demographic presentation choices by, 3:633 and time-weighted rate of return, influences in,5: 224 security selection example, 4:394 1:370 housing prices, 2:152, 155 yield spread, 5:443, 444 holding periods housing sector, cyclical behavior of, IBRD. see International Bank for CAPM assumptions about, 4:336 2:208–209 Reconstruction and Development for private equity investments, 5:163 HPR. see holding period return ICB. see Industry Classification holding period yield (HPY), 1:376, 378 HPY. see holding period yield Benchmark holiday effect,5: 132 H&R Block, Inc., 5:199 iceberg orders, 5:47 Home Depot, 4:438; 5:208, 216–217 HSBC Holdings, 2:412; 4:317–318 Iceland, 2:285, 435 Homestead Small Company Stock Fund, human capital ICMA. see International Capital Market 1:433 collateral of companies based on, 5:626 Association homogeneity of expectations defined, 4:419n.12 ICOs. see initial coin offerings assumption, 4:317–318, 336–337, and economic growth, 2:176 IDA. see International Development 352 and long-run aggregate supply, 2:159, Association Honda Motor Company, 2:86; 5:189, 160 ideal currency regime, 2:431 270 human rights, 4:38, 40 identifiable intangible assets,3: 182–183 Honduras, 3:58 Hungary if-converted method for diluted earnings Honeywell, 2:105 exchange rate regime, 2:435 per share, 3:134–136 Hong Kong dollar GIPS country sponsor, 1:231 IFRS. see International Financial AUD/HKD exchange rate, 2:402–404, government debt, 2:260 Reporting Standards 408–410 hyperinflation, 2:224 IFRS Foundation, 3:48–49 currency code, 2:399 inflation targeting,2: 285 IG Group plc, 5:30 exchange rate regime for, 2:436–437 MSCI multi-market index, 5:96 IID returns. see independently and international bonds outstanding in, public sector spending, 2:261 identically distributed returns 5:351 hurdle rate, 1:363; 6:139 IKEA, 5:164 Hong Kong interbank offered rate Hurricane Katrina, 5:212 illegal activity, disclosure of, 1:132 (Hibor), 5:301, 353 Hutchison Whampoa, 4:210–213 illiquid asset investments Hong Kong Monetary Authority hybrid derivatives, 6:35 due diligence with, 6:178 (HKMA), 2:436–437 hybrid ETFs, 4:234 and historical returns, 6:126–127 Hong Kong Monetary Authority hybrid funds, 4:229–230, 232–233 risk issues with, 6:177 Investment Portfolio, 4:221 hybrid mortgages, 5:487 valuation of, 6:146

Cumulative_Ind_L1 45 August 1, 2018 7:45 PM I-46 Index

ILO. see International Labour comprehensive income statement method of tax Organization defined, 3:193n.20 recognition, 3:518n.3 image recognition algorithms, 4:462 IFRS on, 3:145, 148 income statement ratios, 3:143–145 IMF. see International Monetary Fund on income statements, 3:145–148 income statements, 3:93–159 IMM. see International Monetary on statement of comprehensive analysis of, 3:16–19, 141–145 Market income, 3:19–20 common-size, 3:141–143, 283–285 immediate or cancel orders (IOCs), US GAAP on, 3:145, 148 income statement ratios, 3:143–145 5:48 Conceptual Framework on, 3:65 and cash flow statements,3: 232–233 impact investing, 4:38 and consumer installment debt, 2:240 common-size analysis of, 3:141–143, impact lag, 2:316 and consumer spending, 2:207 283–285 Impairment of Assets (IAS 36), 3:448 convergence of, 2:175 components and format, 3:95–99 impairments deferred, 3:176 for CRA International Inc., 3:99 expected loss method of, 3:187 disposable, 2:134, 207, 313, 376 for Groupe Danone, 3:95–98 financial reporting quality and,3: 660 from foreign investments, 2:374 for Kraft Foods, 3:96–97 of goodwill, 3:185–186 and GDP, 2:131–136 comprehensive income on, 3:145–148 of intangible assets, 3:181, 450–451 on income statements, 3:100 consolidated of long-lived assets, 3:448–451, 623 interest, 5:536 of Alcatel-Lucent, 3:383–384 of PPE, 3:180, 449 national, 2:133, 375 of Volvo Group, 3:371 imperfect competition. see also net, 3:242–245 disclosures about long-lived assets in, monopolistic competition and asset revaluations, 3:445–446 3:454–455 breakeven analysis in, 2:40–41 coefficient of variation of,3: 322 earnings per share, 3:95n.5, 131–141 marginal revenue in, 2:29–30 defined, 3:98 basic, 3:132–134 revenue in perfect vs., 2:35–36 and direct method for overall changes in, 3:140–141 implementation statement of cash flows,3: 241–242 diluted, 3:134–140 compliance education and training, on income statement, 3:98 and simple vs. complex capital 1:149 and indirect method for overall structure, 3:132 ESG considerations, 4:37–38, 40 statement of cash flows,3: 242–245 expense recognition, 3:116–125 fiscal policy,2: 314–317 per employee, 3:322 and amortisation, 3:124 GIPS, 1:229–230 relationship of cash flow and,3: 657 applications, 3:120–124 investment strategy, 4:393–397 in ROE, 5:172–174 and depreciation/amortisation, implicit interest rate, 3:478–479 net operating, 5:504; 6:165 3:121–124 implicit price deflator for GDP, operating for doubtful accounts, 3:120 2:125–127 adjusted consolidated segment, and financial analysis,3: 125 implied forward rates, 5:438 3:635–638 general principles, 3:117–120 implied volatility, 6:41 coefficient of variation for,3: 322 for warranties, 3:120–121 import license, 2:357 and enterprise value, 5:276 function, 3:94–95 imports and operating leverage, 4:140 interest costs on, 3:428 in balance of trade, 2:372 other comprehensive leases on, 3:471 in business cycles, 2:209, 210 accumulated, 3:193 LIFO liquidation on, 3:365 defined, 2:335 defined, 3:145 non-operating items, 3:130–131 exchange rate and prices of, 2:155 on income statements, 3:147–148 non-recurring items, 3:125–131 terms of trade for, 2:335–336 on statement of comprehensive and changes in accounting policies, import-substitution policy, 2:350n.10 income, 3:19–20 3:128–130 impulse wave, 1:723–725 personal, 2:133–134 discontinued operations, 3:126 inadequate compliance procedures, and portfolio management, 4:222 extraordinary items, 3:126–127 1:147, 152 real, 2:18–19 unusual and infrequent items, inadequate supervision, 1:152–153 taxable, 3:508–513 3:127–128 “in arrears” payment structure, 5:426 total comprehensive, 3:145 practice problems, 3:151–155 InBev USA LLC, 3:423, 685, 686 income approach to GDP, 2:120, revenue recognition, 3:99–116 incentive fees 131–133 accounting standards issued May for fund investments, 6:133 income approach to real estate valuation, 2014, 3:112–116 for hedge funds, 6:139–140 6:165–166 for barter transactions, 3:109 for private equity, 6:150 income effects and financial statements,3: 111–112 incentives on elasticity of demand, 2:12 general principles, 3:100–103 establishing appropriate structures for, on Giffen and Veblen goods,2: 21 and gross vs. net reporting of 1:150 and law of demand, 2:18–19 revenues, 3:109–110 for low-quality financial reports, on normal and inferior goods, 2:19–23 for installment sales, 3:108–109 3:625–626 in perfectly competitive markets, for long-term contracts, 3:104–107 for monopolist firms,2: 100–101 2:69 in special cases, 3:103–110 in stakeholder management, 4:18 with price decrease, 2:20–23 solutions to problems, 3:156–159 in tax policy, 2:310 income elasticity of demand vertical common-size, 3:283–285 incident-reporting procedures, 1:137 calculating, 2:16 income sub-account, BOP, 2:369 income for consumers, 2:14–15 income taxes, 3:507–544 adjusted CSOI, 3:635–638 in perfect competition, 2:72–73 and accounting profit vs. taxable aggregate, 2:119–136 income inequality, 2:342 income, 3:508–513 in economy, 2:119–120 income per capita measure, 5:647 cash for, 3:239 and expenditures, 2:137–144 income returns current and deferred tax, 3:524–527 in gross domestic product, 2:120–136 defined, 1:266 disclosure of tax information, real personal, 2:239 Real Estate (GIPS Section I.6), 1:244 3:528–533

Cumulative_Ind_L1 46 August 1, 2018 7:45 PM Index I-47

IFRS vs. US GAAP, 3:508, 533–536 calculated statistical, 1:715–718 MSCI multi-market index, 5:96 and inventory method changes, 3:368 for collectibles investments, 6:175–176 one-tier boards, 4:10 practice problems, 3:538–542 commodity, 5:101; 6:126, 168–169 pension fund investment restrictions, presentation, 3:528–533 diffusion, 2:240n.a, 242 4:380 solutions to problems, 3:543–544 fixed-income, 5:98–100, 357–358 regulatory authorities, 3:627 and taxable vs. accounting profit, hedge fund, 5:102; 6:125, 143 reserve requirements, 2:283 3:518–523 high-yield, 5:99 trade balance with US, 2:129 tax bases, 3:513–518 managing to, 1:121 underground economy, 2:122 of assets, 3:513–515 market, 4:94 Indian rupee, 2:399 and changes in tax rates, 3:517–518 multi-market equity, 5:95–96 indicators, economic. see economic of liabilities, 3:515–517 price, 2:225–231; 5:78–81 indicators unused tax losses and credits, real estate investment trust, 5:101– indifference curves 3:523–524 102; 6:163, 164 of optimal investor portfolio, Income Taxes (ASC 740), 3:508 of real estate returns, 6:163–165 4:294–295 Income Taxes (IAS 12), 3:508, 515, relative strength, 1:710–712 in portfolio selection, 4:274–276 518n.3, 520, 522, 523 security market, 5:77–114 and risk aversion, 4:269–271 income tax paid, 3:509 for alternative investments, and strategic asset allocation, 4:391 income tax payable, 3:174, 177, 509 5:101–104 indirect currency quote, 2:416 income trusts, 5:224–225 construction of, 5:82–91 indirect exchange rate, 2:416 increasing marginal returns, 2:23 defined, 5:78 indirect-format statements, 3:223–226 increasing returns to scale, 2:45 equity indexes, 5:95–97 indirect investment incremental cash flow,4: 51 fixed-income indexes,5: 98–100, 357 in commercial real estate, 6:162 incremental cash flows,1: 360n.1 index values over multiple time in infrastructure assets, 6:174 incremental costs, 3:115 periods, 5:81–82 in real assets, 5:26 indefinite lives, intangible assets with, management, 5:91–93 indirect method for cash flow from 3:451 origins of, 5:78 operating activities, 3:648–649 indenture. see bond indenture practice problems, 5:106–111 indirect method for overall statement of independence representative, 5:103–104 cash flows,3: 242–245 of central banks, 2:286, 321 single-period returns for, 5:79–81 adjustments to net income, 3:242–245 of directors, 4:21 solutions to problems, 5:112–114 converting direct method and, in probability, 1:474 uses of, 5:93–95 3:245–246 for random variables, 1:504 short-term trading, 1:718–720 defined, 3:23, 222–223 Independence and Objectivity [Standard total return, 5:78–82 indirect taxes, 2:309, 311 I(B)], 1:58–70 index funds Inditex, 1:423 application of the standard, 1:64–70 actively managed funds vs., 4:232 individual investors compliance procedures, 1:63–64 diversification with,4: 286 and enterprise risk management, guidance, 1:58–63 ETFs vs., 4:233, 235 4:418–419 buy-side clients, 1:59 indexing, 1:584 operational risks for, 4:430 credit rating agency opinions, index-linked bonds, 5:325–328 portfolio management for, 4:216 1:61–62 Index of Leading Economic Indicators risk drivers for, 4:435 fund manager and custodial (LEI), 1:680; 2:237, 240 risk interactions for, 4:431–432 relationships, 1:60 index swaps, 6:36 risk management as concern of, 4:408 influence in manager selection/ index weighting of security market risk management process for, 4:415 procurement process, 1:62 indexes, 5:83–91 risk tolerance of, 4:420n.14 investment banking relationships, equal weighting, 5:85–86 individually managed accounts, 4:235; 1:60–61 fundamental weighting, 5:89, 91 6:170 issuer-paid research, 1:62–63 market-capitalization weighting, 5:85, individuals performance measurement and 87–90 as Big Data sources, 4:459, 460 attribution, 1:61 price weighting, 5:83–85 borrowing by, 5:8 public companies, 1:61 India financial system functions for,5: 7–12 travel funding, 1:63 business investment, 2:177 information-motivated trading by, text of, 1:44, 58 capital goods expenditures, 2:128 5:10–12 independence policies, 1:64 common law system, 4:27 raising of equity capital by, 5:9 independent analysis, 1:97 comparative advantage, 2:346–350, rationality of markets vs., 5:137 independent contractors, 1:136–137 352, 353 risk management by, 5:9–10 independent events, 1:483–486 coupon payment structures, 5:323 savings of, 5:7–8 independent float currency regimes, CPI, 2:227 spot market trading by, 5:10 2:435 debt and equity outstanding, 5:350 Indonesia independently and identically demand for commodities, 6:167–168 Asian financial crisis,2: 341 distributed (IID) returns, 1:554 domestic and international debt business investment, 2:177 independent practice, 1:134 securities, 5:315 exchange rate regime, 2:435 independent projects, 4:51 effects of global recession,2: 166 floating-rate bonds,5: 369 independent samples, hypothesis tests exchange rate regime, 2:435 foreign investment, 5:164 for, 1:639–644 exports from, 2:335, 352 IFRS adoption, 3:59 indexed-annuity bonds, 5:327 foreign direct investment, 2:339, 340 inflation targeting,2: 285 indexed-referenced ARM, 5:487 globalization of production, 2:340 MSCI multi-market index, 5:96 indexes, 5:78. see also specific indexes as growth country, 5:190n.2 industrial countries, terms of trade for, appraisal, 6:163 IFRS adoption, 3:59 2:335 bond, 1:584–585 labor supply, 2:176 industrial loans, 2:239

Cumulative_Ind_L1 47 August 1, 2018 7:45 PM I-48 Index

Industrial/Producer Durables sector, industry concentration, 5:208–211, 219 and monetary policy in developing 5:193 industry experts, 1:87–88 countries, 2:290–291 Industrial Production Index, 2:239 industry life-cycle model, 5:213–218 transparency of, 2:287–289 industry(-ies) airline industry in, 5:227 by US Federal Reserve system, 2:290 in company analysis, 5:229–230 example, 5:217–218 inflation uncertainty,2: 280–281 defined, 5:189 industry classifications based on, inflows, 1:362, 599–601 describing, 5:202–203 5:203 information diversification according to,4: 381 limitations of, 5:217 account, 1:105 fundamentals of, 5:613 stages of industry life cycle, 5:213–216 additional, 1:262 ICB definition,5: 192 in strategic analysis, 5:220 in advertisements, 1:256 peer group vs., 5:200 using, 5:216–217 on applicable laws, 1:55 performance of, 5:202–203 industry-specific ratios, for equity comparative growth, 3:288 recovery rate variation by, 5:598 analysis, 3:321–323 confidential, 1:131–133, 143, 193–194 as risk drivers, 4:434 industry-specific regulation, of financial considering, before taking action, statistics on fundamentals for, 5:613 statements, 3:47–48 1:105 structure of, 5:612 inefficient markets, intrinsic value in, decision-useful, 3:610–612 industry analysis, 5:187–242 5:119 dissemination of, 1:88, 112–113, and company analysis, 5:228–232 inelastic demand, 2:71 189–190 in credit analysis, 5:614–615 defined, 2:10 electronic, 1:130 elements of, 5:229–232 perfectly inelastic demand, 2:11 for financial statement analysis, spreadsheet modeling in, 5:232 price changes and total expenditure 3:11–30 defined, 5:188 with, 2:13–14 auditor’s reports, 3:27–29 describing industries for, 5:202–203 infant industry argument, 2:354 balance sheet, 3:12–16 external influences,5: 222–228 inferior goods cash flow statement,3: 20, 22–23 in airline industry, 5:227–228 defined, 2:15, 19 financial notes,3: 24–25 demographic, 5:223–224 substitution and income effects on, internal and external sources of governmental, 5:224–226 2:19–23 information, 3:29–30 macroeconomic, 5:222 infinite divisibility assumption,4: 337 management commentary/MD&A, social, 5:226–227 inflation 3:26 technological, 5:222–223 and business cycles, 2:203, 223–237 statement of changes in equity, 3:20, industry classification systems, core, 2:228–229 21 5:192–202 cost-push (wage-push), 2:231–233 statement of comprehensive income, commercial, 5:192–196 costs of, 2:279–281 3:16–20 governmental, 5:196–197 defined, 2:167, 223 supplementary information, 3:11–12 and peer groups construction, deflation, hyperinflation, disinflation, supplementary schedules, 3:24–25 5:198–202 2:224–225 income tax, 3:528–533 strengths and weakness, 5:197 demand-pull, 2:233–234 manipulation of, 1:100–101 practice problems, 5:237–240 expectations about, 2:234–235 market anomalies and prior, 5:135–136 with similar companies, 5:189–191 expected, 2:279, 281 market efficiency and availability of, solutions to problems, 5:241–242 expected rate of, 4:259 5:122 strategic, 5:204–222 and GDP deflator,2: 125–127 material, 1:85, 92–94 barriers to entry in, 5:206–208 headline, 2:228–229 material nonpublic (see material capacity in, 5:211–212 and LIFO vs. FIFO, 3:354–356 nonpublic information) example, 5:219–222 monetary policy and inflation rate, misrepresentation of (see five forces framework,5: 205–206 2:295 misrepresentation) industry concentration in, 5:208–211 and New Classical school, 2:217 nonpublic industry life-cycle model in, 5:213–218 and nominal interest rates, 2:272–274 acting on, 1:91, 94 market share stability in, 5:212–213 in phases of business cycle, 2:200 analyst recommendations as, 1:93–94 price competition in, 5:218–219 price indexes, 2:225–229 controlling, 1:92 uses, 5:188–189 in stagflation,2: 169–170 defined, 1:86 industry capacity. see capacity targets for, 2:287–288 standards for priority of transactions Industry Classification Benchmark types of, 2:231–234 with, 1:186 (ICB), 5:189–190, 192–193 and unemployment, 2:219–220 in strong-form efficient markets, industry classification systems,5: 192–202 unexpected, 2:279–281 5:128 commercial, 5:192–196 inflationary gap,2: 167–168 out-of-date, 1:80–81 example, 5:194–196 inflation duration,5: 574 outside, 1:75 GICS standard, 5:192 inflation hedges,6: 158, 170–171 potential misrepresentation of, 1:77 ICB system, 5:192–193 inflation-linked bonds (linkers), public, 5:125–128 representative sectors in, 5:193–194 5:325–328, 370 retention of, on new media, 1:175 RGS system, 5:192 inflation premium,1: 305 from SEC forms, 3:52–55 governmental, 5:196–197 inflation-protected bond mutual funds, supplementary, 1:270; 3:11–12 ANZSIC system, 5:196 4:231 verification of outside,1: 75 ISIC system, 5:196 inflation rate,2: 167n.19, 223–224, 295 information-acquisition costs, NACE system, 5:196 Inflation Reports,2: 287 5:123–124 NAICS system, 5:197 inflation targeting,2: 285–291 informationally efficient financial and peer group construction, 5:198–202 credibility of, 2:286–287 systems, 5:58–59 for Brink’s Home Security, 5:199–200 exceptions to, 2:289–290 informationally efficient markets,4: 318; for semiconductor industry, 5:200–202 and independence of central banks, 5:58–59, 117. see also efficient strengths and weakness, 5:197 2:286 market(s)

Cumulative_Ind_L1 48 August 1, 2018 7:45 PM Index I-49

information asymmetry, 4:12 fixed-income securities for,5: 358 share price and FTC investigation, information-based manipulation, 1:96 portfolio management for, 4:216–222 5:127, 128n.21 information cascades, 5:138 banks, 4:220 sub-industry classification,5: 200, 201 information discovery, 6:40–41 defined-benefit pension plans,4: 217 technological influences,5: 223 information-motivated trading, 5:10–12, endowments and foundations, intellectual-capital based companies, 26 4:218–220 collateral of, 5:626 information ratio, 4:350 insurance companies, 4:220 interbank funds, 5:385–386 information technology (IT) sector, investment companies, 4:221 interbank market, 2:413–414; 5:352, 2:178 sovereign wealth funds, 4:221 385–386 infrastructure, risk, 4:412 qualified, 5:362 interbank money market, 5:352 infrastructure assets, 6:129, 173–174 relative risk objectives of, 4:370 Intercontinental Exchange, 5:209 infrastructure exchange traded funds, insurance interdepartmental communications, 1:89 6:129 credit, 4:176 interdepartmental referral arrangements, infrastructure investments, 6:173–175 and credit default swaps, 6:31, 32 disclosure of, 1:191 assets for, 6:129 and derivatives, 6:7 interest categories of, 6:174 risk transfer with, 4:441–443 accrued, 1:376–377; 5:413–417 forms of, 6:174 for risky portfolios, 4:287 and amortisation of bonds, 3:550–554 risks and returns with, 6:175 insurance companies, 4:220, 440 capitalization of, 3:419, 428–431, infrequent items, 3:127–128 as financial intermediaries,5: 33–34 650–651 ING, 1:424 monoline, 5:479 carried, 1:247, 263 initial coin offerings (ICOs),4: 472 regulation of, 5:62 cash for, 3:238–239 initial margin requirements, 5:22, 41; 6:18 insurance contracts, 5:25 discount, 4:169 initial PAC collar (initial PAC band), 5:499 Insurance Medical Group, Ltd., 3:127 as form of payment, 2:119 initial period fixed-rate mortgages,5: 487 insurance recoverables, 3:623 neutral rate of, 2:294 initial public offerings (IPOs),6: 154 intangible assets open, 6:20 and conflicts of interest,1: 186–187 acquisition of, 3:420–423 shifting interest mechanism, 5:503 defined, 5:50 as alternative investments, 6:129 short, 1:717–718 duties to clients, 1:115 in asset-based valuation, 5:277–278 simple, 1:306 ethical decision-making framework for, on balance sheets, 3:181–186 in USCP vs. ECP markets, 5:376–377 1:22–25 from business combinations, Interest (ASC 835), 3:428n.11 in markets, 5:51–52 3:422–423 interest coverage ratio, 3:305, 325, 587 and pricing anomalies, 5:135 capitalization of, 3:647–648, 653 interest expenses and technical analysis, 1:722 depreciation/amortisation of, 3:121, accounting for, 3:550–554 and venture capital, 5:162 181 classification of,3: 471n.32 initial recognition, taxable and and ethical conduct, 1:16 EBITDA/interest expenses, 5:617 accounting profit at,3: 522 identifiable, 3:182–183 EBIT/interest expenses, 5:617 initiation date, forward contracts at, impairment of, 3:181, 450–451 and revenue, 5:648 6:74–76 on income statements, 3:124 interest income, 5:536 innovation internally-developed, 3:420–422 interest-indexed bonds, 5:327 and international trade, 2:342 long-lived, 3:416 interest-only mortgages, 5:487–488 and perfect competition, 2:83 not from business combinations, interest-only tranches, structured, input(s) 3:420 5:497n.11 model, 1:100 and research, 3:182, 421 interest payments, 3:550–554 productivity in terms of, 2:23–24 Intangible Assets (IAS 38), 3:444 interest rate(s) and short-run aggregate supply, 2:158, integrated analysis with ratios, and AD curve, 2:146–147 160 3:311–318 capped floating,5: 511 Input Data (GIPS Section I.1), 1:235 DuPont analysis, 3:313–318 default, 5:505 about, 1:232 liquidity of company, 3:311–312 effective, 3:547, 551 recommendations performance of company, 3:312–313 equilibrium, 5:12–13 general, 1:235 ROE decomposition, 3:313–318 and equilibrium price for money, for private equity, 1:250 integrity, 1:20, 83, 197 2:270–271 for real estate, 1:246 Integrity of Capital Markets [Standard of forwards on, 6:77–79 requirements Professional Conduct II], 1:44–45, and housing sector behavior, 2:208 general, 1:235 84–101 implicit, 3:478–479 for private equity, 1:247 Market Manipulation [Standard II(B)], market, 3:547 for real estate, 1:243 1:96–101 maturity structure of, 5:433–441 INSEAD, 6:127 application of the standard, 1:97–101 in monetary policy, 2:153–154 insider trading, 1:679; 5:61, 122 guidance, 1:96–97 and monetary transmission installment credit accounts, 4:176 text of, 1:45, 96 mechanism, 2:283–285 installment method of revenue Material Nonpublic Information and money, 2:273 recognition, 3:108–109 [Standard II(A)], 1:84–95 and money duration, 5:572 installment sales, revenue recognition application of the standard, 1:91–95 and mutual fund cash position for, 3:108–109 compliance procedures, 1:88–91 indicator, 1:721 Institute of Supply Management (ISM), guidance, 1:84–88 net interest pass-through rates, 5:491 2:242 text of, 1:44–45, 84 neutral, 2:296 institutional investors Intel Corporation nominal, 1:305; 2:272–274 alternative investments of, 6:125 industry concentration and pricing official, 2:282 commercial property investment by, power, 5:209 and private equity valuation, 6:158 6:162 as multinational, 2:340 quoted, 1:310

Cumulative_Ind_L1 49 August 1, 2018 7:45 PM I-50 Index

interest rate(s) (Continued) internal rate of return (IRR) supranational bonds from, 5:372 real, 1:305; 2:140 for capital budgeting, 4:53–54 use of ISIC system, 5:196 and repo rate, 5:387 multiple IRR problem, 4:64–66 in World Bank Group, 2:382–383 of residential mortgage loans, no IRR problem, 4:64–66 International Business Machines. see 5:486–487 defined, 4:248 IBM and returns on fixed-income securities, discounted cash flows,1: 362–367 International Capital Market Association 5:531–536 evaluating R&D programs with IRR (ICMA), 5:365 risk-free rule, 1:363–364 International Development Association and equity risk premium, 4:93n.19 NPV and IRR rules, 1:364–365 (IDA), 2:382–383 and expected return, 4:259 problems with IRR rule, 1:365–367 international ETFs, 4:234 nominal, 1:305 ranking conflicts of NPV and IRR, International Federation of Accountants, and option pricing/valuation, 6:89 4:60–63 3:27 real, 1:305; 4:259 due to cash flow patterns,4: 60–61 International Federation of Technical and sovereign debt, 5:645–646 due to project scale, 4:62–63 Analysts, 1:681 term structure of, 5:419 SI-IRR International Financial Reporting solving TMV problems for, 1:329–331 defined, 1:269 Standards (IFRS). see also stated annual, 1:310 gross-of-fees, 1:245, 249 Conceptual Framework for and swap rates/foreign exchange rates, net-of-fees, 1:245, 249 Financial Reporting 2010 2:424–428 Private Equity (GIPS Section I.7), adoption of, 3:58–59 term structure of, 5:568; 6:79 1:247, 250 on amortisation, 3:121, 550, 551 and time value of money, 1:304–305 Real Estate (GIPS Section I.6), 1:245 on available-for-sale classification, as underlying, 6:36–37 internal sources of information, for 3:146–147 interest rate risk, 4:171; 5:537–574 financial statement analysis, for balance sheets, 3:14–15 approximate modified duration, 3:29–30 on barter transactions, 3:109 5:543–545 internal valuation on bond cost reporting, 3:555 bond convexity, 5:559–567 defined, 1:266 on borrowed funds, 3:419 defined, 5:531 Real Estate (GIPS Section I.6), 1:244, business segments in, 5:189n.1 duration of bond portfolio, 5:555–557 254 on capitalisation of interest costs, effective duration,5: 545–548 International Accounting Standards 3:428n.11, 430 and floating-rate notes,5: 323 (IAS), 3:66–70 for cash flow statements,3: 22, 220 and investment horizon, 5:569–574 Borrowing Costs (IAS 23), 3:428n.11 on comprehensive income, 3:145, 148 key rate duration, 5:549 Employee Benefits (IAS 19), 3:584n.17 on debt issuance costs, 3:557 Macaulay duration, 5:538–542, Impairment of Assets (IAS 36), 3:448 on decision-useful information, 569–574 Income Taxes (IAS 12), 3:508, 515, 3:610n.2 modified duration,5: 542–543 518n.3, 520, 522, 523 on deferred tax assets/liabilities, 3:510, money duration, 5:557–559 Intangible Assets (IAS 38), 3:444 511, 525 price value of a basis point, 5:558 Inventories, 3:369 on depreciation, 3:121, 441 properties of bond duration, Leases (IAS 17), 3:467n.29 on diluted earnings per share, 3:139 5:549–554 Presentation of Financial Statements on direct-format statements, yield volatility, 5:568–569 (IAS 1), 3:68–70, 94n.1 3:226–228 interest rate sensitivity, 1:584 Statement of Cash Flows (IAS 7), disclosure requirements, 3:79–81, interest rate swaps, 5:23–24; 6:22–23 3:471n.32 453–454; 5:200 interest received in advance, 3:516–517, International Accounting Standards for EU capital markets, 3:55 521, 522 Board (IASB), 1:252; 3:48–49 fair value definition,3: 417n.2 interests (client), 1:106 benefits of common financial standards on financial statement ratios, interests (in businesses) from, 5:61 3:677–678 as investments, 3:523 development of standards, 3:45, 46, 78 and global reporting standards, minority/noncontrolling, 3:17, 193 disclosure requirements, 3:628 3:56–59 intergenerational data mining, 1:602 Framework for the Preparation on impairments, 3:180, 181, 448–451, interim cash, 1:307–308 and Presentation of Financial 454 interim period disclosures, 3:115n.26 Statements, 3:45, 116 income definition,3: 100 intermarket analysis, 1:726–728 and GAAP, 3:70–72 for income statements, 3:94, 98 Intermarket Technical Analysis and global reporting standards, on income taxes, 3:508 (Murphy), 1:726 3:56–57 for indirect-format statements, intermediate goods, 2:121 on income, 3:100 3:223–226 internal control systems, 3:29 income statement standards, 3:94n.1 for intangible assets, 3:420–422 internal credit enhancements, 5:308–309, management reporting framework of, on interest, 3:238, 419, 471n.32, 554 479 3:26 on inventory valuation, 3:346–348, internal development costs, 3:431–435 on objective of financial reporting, 367–369, 377 internal (executive) directors, 4:9, 21 3:44 on investment property, 3:464 internal dispersion revenue recognition standards, and IOSCO, 3:51 defined, 1:266 3:99–100, 112 on leases, 3:468, 476, 480, 484n.36, Disclosure (GIPS Section I.4), 1:238 as standard-setting body, 3:47 565, 566, 570, 572, 577–578, Presentation and Reporting (GIPS International Bank for Reconstruction 582–583 Section I.5), 1:241 and Development (IBRD; World non-IFRS measures in financial Real Estate (GIPS Section I.6), 1:245 Bank) reports, 3:634 Verification (GIPS Section IV),1: 261 bonds issued by, 5:349 on pension plans, 3:584 internally-developed intangible assets, definition of emerging markets, on percentage-of-completion method, 3:420–422 5:646n.42 3:104

Cumulative_Ind_L1 50 August 1, 2018 7:45 PM Index I-51

on residual value, 3:121 elasticities approach to trade balance, inventory management with, on revaluation, 3:435, 444, 445, 2:443–447 3:376–377 447–448 global investors’ concerns, 2:333–334 and inventory turnover, 3:294–295 on revenue recognition, 3:101, 112, patterns and trends, 2:337–341 and inventory write-downs, 113, 622 practice problems, 2:390–393 3:374–375 on ROE, 5:173n.28 solutions to problems, 2:394–396 as drag on liquidity, 4:158 SEC’s adoption of, 3:357 terminology, 2:336–337 ending, 3:346, 350–356 on segment reporting, 3:327 trade organizations, 2:379–386 and financial reporting issues, and Swiss financial statements,3: 50 function and objectives, 2:384–386 3:656–657 on taxable profit vs. accounting profit, International Monetary Fund, finished goods,3: 346, 377 3:518–520 2:380–382 and GDP, 2:127 on tax issues, 3:515 World Bank Group, 2:382–383 growth in, 3:656–657 and US GAAP World Trade Organization, of manufacturing and merchandising conservatism in, 3:622–624 2:383–384 companies, 3:346 on financial reporting standards, trade restrictions/agreements, number of days of, 4:161, 185 3:74–77 2:354–367 practice problems, 3:391–406 frameworks of, 3:70–72 capital restrictions, 2:364–367 precautionary stocks, 4:182 on income taxes, 3:508, 533–536 export subsidies, 2:357–359 presentation and disclosure of, 3:376 International Labour Organization quotas, 2:357 purchasing–inventory–payables (ILO), 2:221 tariffs, 2:354–359 process, 4:186–187 International Monetary Fund (IMF) trading blocs, common markets, and raw materials, 3:346, 377 bailouts by, 2:381–382 economic unions, 2:360–364 safety stock, 4:183 capital restrictions study, 2:366 International Trade Organization (ITO), solutions to problems, 3:407–414 exchange rate regime classification, 2:380 valuation, 3:118–120, 172, 348–368 2:434 Internet of Things (IoT),4: 459 changes in, 3:367–368 founding of, 2:380 interpolated spread (I-spread), 5:443 comparison of, 3:354–356 and globalization, 2:337 interquartile range (IQR), 1:429n.27 cost of sales, gross profit, and ending Greek bailout, 2:364, 384–386 inter-temporal trade, 2:375, 376 inventory, 3:350–352 and ISIC, 5:196 intervals, 1:393–394. see also confidence first-in, first-out,3: 118–119, 172, loans to governments from, 5:646 intervals 349–352 mandates of, 2:381 modal, 1:412 last-in, first-out,3: 119, 172, 349–352, monetary and fiscal policy model, time, 1:690 357–367 2:320 interval scales, 1:390 LIFO liquidation, 3:363–367 as supranational agency, 5:372 Intesa Sanpaolo, 1:423 LIFO reserve, 3:357–363 International Monetary Market (IMM), in the money, 6:27, 87 periodic vs. perpetual inventory 2:406 intrafirm pressure,1: 65, 70 systems, 3:352–354 International Organization for intra-industry trade, 2:341 retail method, 3:171 Standardization (ISO), 2:399 intrinsic value specific identification,3: 118, 349–352 International Organization of Securities book vs., 5:176–177 specific identification methods,3: 172 Commissions (IOSCO), 3:26, 48, deviations from, 1:680 weighted average cost, 3:172, 51, 627–628 from dividend discount model, 5:251 349–352 International Paper Company, in equity valuation, 5:244 weighted average cost method, 3:119 3:462–464 of European options, 6:86 work-in-progress, 3:346, 377 International Private Equity and Venture market vs., 5:119–120 inventory blanket liens, 4:192 Capital Valuation Guidelines, 6:156 Introduction, IPS, 4:369 inventory management, 3:375–388; International Standard Industrial introductory paragraph, audit report, 4:182–185 Classification of All Economic 3:27 and accounts payable management, Activities (ISIC), 5:196 Inventories (IAS 2), 3:369 4:186 international standards for auditing inventory(-ies), 3:345–414 approaches, 4:183–184 (ISAs), 3:27 adjustments to, 3:368–375 comparisons of companies, 3:378–381 International Swaps and Derivatives declines and recoveries of inventory evaluating, 4:184–185 Association (ISDA), 6:11 value, 3:369–370 in financial analysis,3: 377–388 international trade, 2:333–396 inventory write-downs and financial financial impact of inventory methods, and aggregate demand, 2:153 ratios, 3:370–375 4:185 balance of payments, 2:367–379 with LIFO reserve, 3:357 and inventory costs, 4:184 BOP accounts, 2:368–369, 375–377 alternative costing methods, 3:118–120, inventory ratios, 3:376–377 components of, 2:369–371 654 in MD&A of annual report, 3:381–382 imbalances since 1996, 2:377–379 analyst adjustments for, 3:699–702 presentation and disclosure of paired transactions, 2:372–374 anticipation stock, 4:183 inventories, 3:376 for United States, 2:370–371 average inventory period, 4:161 for single company, 3:383–388 benefits and costs,2: 341–345 on balance sheets, 3:171–173 inventory ratios, 3:376–377 and capital flows,2: 354–367 and business cycle, 2:202, 203 inventory revenues, 3:117–118 comparative advantage, 2:345–353 commodity, 3:623 inventory–sales ratio, 2:205–206, 239 absolute vs., 2:345–352 cost of, 3:117–118, 346–348; 4:184 inventory turnover ratio, 3:293–295 Ricardian and Heckscher–Ohlin cyclical levels of, 2:205–206 and activity ratio, 3:293–294 models, 2:352–353 days of inventory on hand activity ratio definition,3: 292 and currency exchange rates, 2:441–451 and activity ratios, 3:292–294 calculating, 3:356; 4:160 absorption approach to trade balance, and conversion from LIFO to FIFO, and conversion from LIFO to FIFO, 2:447–448 3:362 3:362

Cumulative_Ind_L1 51 August 1, 2018 7:45 PM I-52 Index

inventory turnover ratio (Continued) Record Retention [Standard V(C)], applications of, 4:465–469 and DOH, 3:294–295 1:174–176 algorithmic trading, 4:469 inventory management with, 3:376–377; application of the standard, 1:176 natural language processing, 4:184–185 compliance procedures, 1:175 4:465–466 inventory ratios, 3:657 guidance, 1:174–175 risk analysis, 4:468–469 and inventory write-downs, 3:374 text of, 1:46, 174 robo-advisory services, 4:466–468 inventory value, 3:369–370 Investment and Financial Services text analytics, 4:465 inventory write-downs Association Limited–Performance artificial intelligence,4: 460–461 in financial analysis,3: 378 Analyst Group, 1:230 Big Data, 4:457–460 and financial ratios,3: 370–375 investment banking, 1:60–61 challenges of, 4:460 US GAAP vs. IFRS on, 3:368–369 investment banks, 5:29 extracting information from, inverse demand function, 2:8 investment characteristics of assets, 4:463–465 inverse effect,5: 407, 408 4:244–267 sources of, 4:458–460 inverse floating-rate bonds (inverse distributional characteristics, data science, 4:463–465 floaters), 5:383 4:264–266 data processing methods, 4:463 inverse floating-rate notes,5: 324 market characteristics, 4:266–267 data visualization, 4:463–465 inverse head and shoulders patterns, return characteristics, 4:244–259 defining, 4:456–457 1:695, 697–699 covariance of return, 4:257 distributed ledger technology, inverted yield curve, 5:434 historical returns, 4:259–264 4:469–473 invest (term), 5:8 types, 4:245 about, 4:469–471 investing activities variance of returns, 4:257 applications of, 4:472–473 on cash flow statement,3: 219, risk characteristics, 4:258–259 permissioned and permissionless 239–240 investment committee, 4:24 networks, 4:471 defined, 3:20, 22 investment companies, portfolio machine learning, 4:460–462 net cash flow from,3: 220 management for, 4:221 practice problems, 4:475–476 investment(s). see also specific types Investment Company Act (1940), 4:235; solutions to problems, 4:477 analyst adjustments for, 3:698 6:133n.14 Investment Management Association, in business subsidiaries, branches, Investment Company Institute, 1:231 associates, or interests, 3:523 4:226–227 Investment Management Association of and economic growth, 2:176–177 Investment Constraints, IPS, 4:369 Singapore, 1:231 failed, 1:163 investment decision investment management fees net, 2:139–140 in capital budgeting, 4:52–68 Calculation Methodology (GIPS restricting, 1:64 average accounting rate of return, Section I.2), 1:236 saving–investment differential, 4:57–58 defined, 1:266 2:141–143 internal rate of return, 4:53–54 Disclosure (GIPS Section I.4), 1:238 short-term funds management, net present value, 4:52–53 Input Data (GIPS Section I.1), 1:235 4:168–171 payback period, 4:54–57 Private Equity (GIPS Section I.7), investment actions. see also Investment popularity and use of capital 1:247–250 Analysis, Recommendations, and budgeting methods, 4:66–68 Real Estate (GIPS Section I.6), 1:244 Actions [Standard of Professional profitability index,4: 58 investment managers, selection of, 4:397 Conduct V] for CFOs, 4:107–108 investment multiple (TVPI) fair dealing in, 1:111–112 in hypothesis testing, 1:631 defined, 1:266, 271 firm policies on,1: 105–106 investment firm balanced growth Private Equity (GIPS Section I.7), 1:249 impact of, 1:40–41 composite, 1:272–273 Real Estate (GIPS Section I.6), 1:245 unethical, 1:57 Investment Foundations. see CFA investment objectives investment analysis Institute Investment Foundations™ establishing, 1:105 due diligence in, 1:61 certificate program in IPSs, 1:121, 176; 4:369 independent, 1:97 investment-grade bonds investment opportunity schedule (IOS), limitations of, 1:167–168 and classification of bond market, 4:82 Investment Analysis, Recommendations, 5:350–351 investment opportunity set, 4:288–289 and Actions [Standard of correlations of other asset classes with, investment performance, standardized, Professional Conduct V], 4:386 1:227 1:154–176 credit ratings of, 5:602, 603 Investment Performance Council (IPC), Communication with Clients and credit risk with, 5:299–300 1:226 Prospective Clients [Standard V(B)], yield spreads of, 5:631–632 investment personnel. see personnel 1:165–174 investment-grade indexes, 5:99 investment policies application of the standard, Investment Guidelines, IPS, 4:369 components, 4:172–173 1:169–174 investment horizon evaluating, 4:173–174 compliance procedures, 1:168–169 for fixed-income securities, short-term funds management in, eleventh edition revision, 1:36 5:536–537 4:171–174 guidance, 1:166–168 and interest rate risk, 5:569–574 investment policy statements (IPSs), text of, 1:46, 165–166 share value for three-year, 5:252 4:368–381 Diligence and Reasonable Basis investment ideas, in capital budgeting in compliance procedures, 1:121 [Standard V(A)], 1:154–165 process, 4:48 components of, 4:369 application of the standard, investment industry, ethics in, 1:5–28, defined, 4:222 1:158–165 39–43 developing, 1:119 compliance procedures, 1:158 investment management, fintech in, and investor constraints, 4:376–381 guidance, 1:154–157 4:455–477 legal and regulatory factors, text of, 1:46, 154 about, 4:455–456 4:379–380

Cumulative_Ind_L1 52 August 1, 2018 7:45 PM Index I-53

liquidity, 4:376–378 in fixed-income markets,5: 357–359 Irving, Bryan, 3:127 tax concerns, 4:379 high net worth ISAs. see international standards for time horizon, 4:378–379 alternative investments of, 6:125, auditing unique circumstances, 4:380–381 127–128 IS curve, 2:137–144 in planning step of portfolio commercial property investment by, ISDA. see International Swaps and management, 4:222–223 6:162 Derivatives Association and portfolio construction, 4:389–392 and information-motivated traders, iShares Morningstar ETFs, 5:104 record retention of objectives/ 5:10–11 iShares Russell 2000 Index, 1:444 recommendations in, 1:176 institutional ISIC. see International Standard requirements and limitations of, alternative investments of, 6:125 Industrial Classification of All 1:123–124 commercial property investment by, Economic Activities return objectives, 4:375–376 6:162 ISM. see Institute of Supply reviews of, 1:124 fixed-income securities for,5: 358 Management risk objectives, 4:370–375 qualified, 5:362 ISM new order index, 2:238 trades not aligned with, 1:120–121 market efficiency and number of,5: 121 ISO. see International Organization for updating, 1:120, 123 objectives of, 4:243–244 Standardization investment pools, 5:18–19, 32 preferences of, 4:299–300 I-spread. see interpolated spread investment practice, impact of required rates of return for equities, Israel, 1:406 misrepresentation on, 1:72 5:177–178 exchange rate regime, 2:435 investment process retail, 5:358 and IFRS, 3:59 changes to, 1:170–172 risk for, 4:371–373; 6:63–64, 69–70 inflation-linked bonds,5: 326, 370 informing clients of, 1:166–167 vulture, 6:153 inflation targeting,2: 285 investment products, applicable laws for, Investors Intelligence Advisors MSCI multi-market index, 5:96 1:51–53 Sentiment reports, 1:715 issuance, bond, 3:546–550 investment property, 3:180–181, IOCs. see immediate or cancel orders issuer-paid research, 1:62–63, 76 464–467 IOS. see investment opportunity schedule issuer pay model, 5:601n.13 investment risks, short-term funds IOSCO. see International Organization issuer relationship pressure, 1:65–66 management and, 4:170–171 of Securities Commissions issuers investment spending, aggregate demand IoT. see Internet of Things of commercial paper, 5:374 and, 2:139–140, 146–147 iPad, 3:674–676 credit ratings of issues vs., 5:603–605 investment strategies IPC. see Investment Performance Council of fixed-income securities,5: 299–300 AD and AS curves as basis for, iPhone, 3:9, 129–130, 274, 674–676 and classification of market, 2:171–172 iPod, 2:65; 3:9, 674–676 5:348–350 during decreases in aggregate demand, IPOs. see initial public offerings legal identity, 5:305–306 2:164–165 IPS. see investment policy statement in securitization process, 5:478 for hedge funds, 6:135–138 IPSs. see investment policy statements Italian CFA Society, 1:231 for inflationary gaps,2: 168 IQR. see interquartile range Italian Investment Performance in portfolio construction, 4:393–397 Iran, 2:434 Committee, 1:231 for private equity, 6:150–154 Iraq, 2:434 Italy for shifts in aggregate supply, Ireland banking supervision, 2:276 2:169–170 budget deficit,2: 377 bonds outstanding, 5:354, 360 investment system, disclosure of, 1:169, business investment, 2:177 business investment, 2:177 171 debt burden, 5:646 capital goods expenditures, 2:128 investor confidence,1: 227 effects of Greek fiscal crisis,2: 364 civil law system, 4:27 investor pay model, 5:601n.13 equity risk premiums, 4:90 consumption expenditures, 2:139 investor psychology, 1:678, 716 EU membership, 2:360n.18 disinflation, 2:225 investor questionnaires, 4:467 exchange rate regime, 2:434 domestic and international debt investors. see also individual investors exports from, 2:340 securities, 5:315 behavioral biases and decision making GIPS sponsor, 1:231 equity risk premium, 4:90 by, 5:139 IFRS adoption, 3:58 EU membership, 2:360n.18 beliefs of, 4:336–337, 347, 350–351 international investments in BASF, exchange rate regime, 2:434 benefits of securitization for, 5:165 expected inflation,2: 280 5:474–475 labor productivity, 2:180 GIPS sponsor, 1:231 buy-and-hold, 1:560–562 MSCI multi-market index, 5:96 globalization of production, 2:340 capital market expectations of, 4:385 residential mortgage loans, 5:486, 487 government debt, 2:260 CAPM assumptions about, 4:336 returns government spending, 2:129, 130 composition of, 4:33–34 on bonds, bills, and equities, 5:153 housing sector, 2:211 constraints on real equity returns, 1:398 inflation-linked bonds,5: 326 in investment policy statements, total returns, 1:406, 409 investment spending, 2:140 1:121 sovereign bonds, 5:368 labor productivity, 2:180 legal and regulatory factors, wealth effect,2: 152 MSCI multi-market index, 5:96 4:379–380 Irish Association of Investment national debt, 2:307 liquidity, 4:376–378 Managers, 1:231 non-sovereign government debt, 5:650 and portfolio planning, 4:376–381 IRR. see internal rate of return public sector spending, 2:265 tax concerns, 4:379 IRR rule, 1:362–367 returns time horizon, 4:378–379 evaluating R&D programs with, on bonds, bills, and equities, 5:153 unique circumstances, 4:380–381 1:363–364 real equity returns, 1:399 in debt vs. equity securities, 5:155 NPV rule and, 1:364–365 total returns, 1:406, 409 defined, 5:8 problems with, 1:365–367 securitization, 5:475

Cumulative_Ind_L1 53 August 1, 2018 7:45 PM I-54 Index

Italy (Continued) gross domestic product, 2:155, Jobs, Steve, 3:9 trade balance with US, 2:130 182–184 John D. and Catherine T. MacArthur underground economy, 2:124 housing sector, 2:209 Foundation, 4:219 ITO. see International Trade IFRS vs. GAAP use, 3:59 John Deere, 5:198, 219 Organization and inflation targeting,2: 290 Johnson & Johnson IT sector. see information technology interest rates, 2:296n.11 credit ratios, 5:622, 624–625 sector labor productivity, 2:180 long-term debt disclosures, 3:561–563 iTunes, 3:273–274, 674 labor supply, 2:176 market share stability, 5:213 Izumiya, Naoki, 3:677 maturity of mortgages, 5:486 operating profit forecasts,3: 683, monetary policy, 2:297–299 684 J money measures, 2:268 joint normal distribution, 1:544 J. Paul Getty Trust, 4:219 in MSCI EAFE, 1:406 joint probability, 1:479 Jamaica, 5:96 MSCI multi-market index, 5:96 joint probability function, 1:502–504 Jankowitsch, Ranier, 1:642–643 natural resources, 2:178 Jones, Alfred Winslow, 6:133 January effect,5: 131 net borrowing/lending, 2:303 Jones, Edward D., 5:78 Japan overconfidence and mispricing in Jong, Abe de, 4:108 aggregate demand and supply in, markets, 5:137 Jordan, 2:292; 5:96 2:172–173 pension fund investment restrictions, J.P. Morgan Emerging Market Bond banking supervision, 2:277 4:380 Index (EMBI) Global, 5:357 benchmark rate, 5:442 proxy for market portfolio, 5:94 JPMorgan, 5:166 benefits of conservatism in,3: 624 public sector spending, 2:261 junior tranche, 6:34 bonds regulatory body of, 3:47 junk bonds. see non-investment-grade bonds outstanding, 5:354, 360 residential mortgage loans, 5:486, 487 bonds foreign bonds, 5:313, 314 returns justified values of price multiples, inflation-linked bonds,5: 326 on bonds, bills, and equities, 5:153 5:266–269 returns on, 5:153 real equity returns, 1:399 just-in-time (JIT) method, 4:183–184 sovereign bonds, 5:367, 369 securities backed by quasi-government tax considerations with, 5:316 entities, 5:490 K budget deficit,2: 315 trade balance with US, 2:131 %K (stochastic oscillator), 1:712, 713 business investment, 2:177 Treasury bills, 1:305n.3 Kahn, Robert L., 1:622 capitalization level and contributions underground economy, 2:124 kangaroo bonds, 5:313 to global GDP, 5:151 VERs on exports, 2:357 Kaplan, Paul D., 4:94n.23 civil law system, 4:27 Japan Airlines Group, 5:166–167 Kaserer, Christoph, 4:105 companies and derivatives in, 1:655 Japan Bank for International Kazakhstan comparative advantage, 2:353 Cooperation (JBIC), 5:372 GIPS country sponsor, 1:231 “comply or explain” codes, 4:34 Japanese Business Accounting Council, and IFRS, 3:59 consumption expenditures, 2:139 3:57 MSCI multi-market index, 5:96 corporate governance systems, 4:14 Japanese Financial Services Agency, 5:29 steel import quotas, 2:357 CPI, 2:229 Japanese GAAP, 3:57, 59 Kazakhstan Association of Financial and credit rating services, 5:602 Japanese government bonds (JGBs), Investment Analysts, 1:231 cumulative voting rules, 4:16 5:367, 368, 423 Kenya, 2:166; 3:59; 5:96 current account imbalance, 2:375, 378 Japanese yen Keynes, John Maynard, 2:213, 214, 272, debt cross-rate calculations with, 2:420–421 432 and equity outstanding, 5:350 currency code, 2:399 Keynesian school, 2:212–213, 301 government debt, 2:260, 306; 5:650 exchange rate quotes with, 2:416–417 key rate duration, 5:549 national debt, 2:307 foreign exchange gains, 5:169 Khaitan, Aditya, 3:677 deflation, 2:224, 296 international bonds outstanding in, Kidder Peabody, 3:659 demographic influences,5: 224 5:351 kimchi bonds, 5:313 discipline for financial reporting JPY/USD currency pair, 2:414 Kingdom of Saudi Arabia Capital Market quality in, 3:627 as reserve currency, 5:19 Authority, 3:51n.10 disinflation, 2:225 Japan Housing Finance Agency (JHF), kinked demand curve analysis, 2:89–90, domestic and international debt 5:490 95 securities, 5:315 Jarque-Bera (JB) statistical test of Kiwi exchange rate, 2:416 economic indicators, 2:240–242 normality, 1:456n.49 Knight Securities, 5:30 employee involvement with decision Java (programming language), 4:465 knowingly (term), 1:71 making, 4:19 JBIC. see Japan Bank for International knowledge of the law, failure to maintain equity risk premiums, 4:90 Cooperation knowledge, 1:57 exchange rate regime, 2:435, 438 JC Penney Company, Inc., 1:412 Knowledge of the Law [Standard I(A)], fundamental analysis, 1:681 J-curve effect,2: 447 1:49–57 GIPS sponsor, 1:231 Jensen, Michael C., 4:94n.20 application of the standard, 1:55–57 globalization of production, 2:340 Jensen’s alpha compliance procedures, 1:54–55 global recession and, 2:165, 166 defined, 4:343–344 CFA members and candidates, 1:54 government and security characteristic line, 4:346 dissociation, 1:54 debt, 2:260, 306; 5:650 and security selection, 4:347 distribution area laws, 1:54 government-sponsored enterprises, Jensen’s inequality, 1:419n.21 firms, 1:54–55 5:490 JetBlue Airways, 1:476 legal counsel, 1:54 liabilities, 2:306 JGBs. see Japanese government bonds guidance, 1:49–53 revenues/expenditures, 2:301, 302 JHF. see Japan Housing Finance Agency Code/Standards and applicable law, spending, 2:129 JIT method. see just-in-time method 1:50–53

Cumulative_Ind_L1 54 August 1, 2018 7:45 PM Index I-55

investment products and applicable large-cap SMA composite, 1:286–288 direct financing,3: 480–485, 577–580, law, 1:51–53 large cash flows,1: 235, 266 582–583 violations by others, participation or large country (term), 2:354 finance association with, 1:51 large-denomination negotiable CDs, accounting/reporting by lessee, text of, 1:44, 49 5:386 3:566–577 known errors, noncorrection of, 1:76 Laspeyres index, 2:226 accounting/reporting by lessor, Kodak, 5:223 last-in, first-out (LIFO) method 3:577–583 Koedijk, Kees, 4:108 analyst adjustments related to, defined, 3:468 Kohlberg Kravis Roberts & Co. L.P., 3:699–702 direct financing leases,3: 480–485, 3:685 financial reporting issues with,3: 654, 577–580, 582–583 Kohl’s Corporation, 1:412; 4:162–163 657 financial statement impact of, Komatsu, 5:209, 219 of inventory valuation, 3:349–367 3:580–583 Kondratieff, Nikolai,1: 722 assigning costs in, 3:350 operating leases vs., 3:467–485, Kondratieff Wave,1: 722 conversion from LIFO to FIFO, 565–583 Koninklijke KPN N.V., 3:447–448 3:358–363 operating vs., 3:565–583 Koninklijke Philips Electronics, 5:209 and cost of goods sold, 3:172 recognition and measurement of, Korea GIPS Committee, 1:231 defined, 3:119, 350 3:567–569, 578–580 Korea interbank offered rate (Koribor), inflation and FIFO vs.,3: 354–356 sales-type, 3:577, 578, 580–583 5:353 and inventory write-downs, 3:370 sales-type leases, 3:484, 485, 577, KOSPI Composite Index, 1:442, 652 LIFO liquidations, 3:363–367 578, 580–583 KPMG SA, 3:630 LIFO reserve, 3:357–363 treating operating leases as, KPS Capital Partners, L.P., 3:685 other valuation methods vs., 3:476–480 Kraft Foods 3:349–352 for long-lived assets, 3:467–485 derecognition of long-lived assets, in periodic vs. perpetual inventory finance vs. operating leases, 3:453 systems, 3:352–354 3:467–485 income statement, 3:97–98 late buying, in housing sector, 2:209 lease versus buy decision, 3:467–470 income statement ratios, 3:143–145 late expansion phase (business cycle), multiple-year, 6:158 statement of earnings, 3:96 2:199–201 operating krona, Swedish, 2:399; 5:351 later-stage financing (venture capital), accounting/reporting by lessee, krone, Norwegian, 2:399; 5:351 6:153 3:566–567, 570–577 Kunkel, Robert A., 4:94n.21 Latin America. see also specific countries accounting/reporting by lessor, 3:577, kurtosis, 1:452–456 Brady bonds in, 5:357 582–583 calculating, 1:454–456 currency regimes, 2:434 analyst adjustments related to, defined, 1:452 debt and equity outstanding, 5:350 3:707–713 evaluating effect of,4: 265–266 exchange rate regimes, 2:437–438 and analyst adjustments to debt, sample, 1:453–456 institutionally owned real estate, 6:159 3:710–712 Kuwait, 2:434; 5:96, 351 trade-to-GDP ratio, 2:338 coverage ratio for analyst adjustment, Kuwait Investment Authority, 4:221 Latvia, 2:360n.18 3:712–713 Kydland, Finn E., 2:215 laundry business, asset-based equity defined, 3:468 Kyrgyz Republic, 3:59 valuation, 5:277 finance vs.,3: 467–485, 565–583 law(s). see also applicable law financial statement impact of, L distribution area, 1:54 3:582–583 LabCorp, 5:209 ethical influences on,1: 7–8, 17–18 sales-type, 3:484, 485, 577, 578, labeling problems, 1:510 and governance, 4:20 580–583 labor knowledge of (see Knowledge of the synthetic, 3:467, 565 average product of, 2:25–28 Law [Standard I(A)]) Leases (ASC 840), 3:467n.29, 577n.14 as factor of production, 2:24 more strict law, 1:50 Leases (ASC 842), 3:468 in Heckscher–Ohlin model, 2:352 religious tenets as basis for, 1:56–57 Leases (IAS 17), 3:467n.29 in long-term economic growth, 2:175 law of demand Leases (IFRS 16), 3:78, 220, 468, 566 marginal product of (see marginal defined, 2:6 lease versus buy decision, 3:467–470 returns) exceptions for, 2:21 leaving an employer, 1:134–135, 143 productivity of, 2:160, 180–184 in perfect competition, 2:75 Lebanon in Ricardian model, 2:352 and substitution/income effects, exchange rate targeting, 2:292, 434 supply of, 2:159, 160, 176 2:18–19 IFRS adoption, 3:59 total product of, 2:25–28 law of diminishing marginal returns, 2:23 MSCI multi-market index, 5:96 labor costs law of diminishing returns, 2:79 Lee, Inmoo, 4:105 and aggregate supply, 2:158–160 law of one price, 5:269; 6:47, 67 Lee, Rafaelina M., 4:100n.30 unit, 2:232, 239 lawyers, in securitization process, Leeson, Nick, 4:428 labor force, 2:176, 220 5:478–479 legal counsel, 1:54 labor laws, 4:19 Lay, Kenneth M., 1:13n.10 legal environment, 4:27 labor markets, 2:216 layoffs, 2:221–222 legal factors labor unions, 4:19 LBOs. see leveraged buyouts with fixed-income securities, laddering strategies, 4:172 Leading Credit Index, 2:238 5:313–316 Laffer, Arthur,2: 310 leading economic indicators, 2:237–241 in IPSs, 4:379–380 lagging economic indicators, 2:237, lead underwriter, 5:50 legal form of bonds, 5:305–306 241–242 learning, personal, 5:138 legal identity, bond issuer, 5:305–306 Lam Research Corporation, 5:200–202 leases, 3:564–583; 4:86 legal infrastructure, 4:14 Large Cap Equity Growth Composite, advantages of, 3:564–565 legal maturity, mortgage-backed 1:293 analyst adjustments for, 3:707–713 security, 5:495

Cumulative_Ind_L1 55 August 1, 2018 7:45 PM I-56 Index

legal risk, 4:29, 426–427 and derivatives, 6:44 on balance sheets, 3:191–192 legal standards, ethical standards vs., financial, 4:136–140 changes in tax rates, 3:517–518 1:17–20 degree of financial leverage, defined, 3:509 legal tender, 2:275, 434, 435 4:137–138 defined, 3:162 Lehman Brothers, 4:429, 438; 5:386, 639 leveraged positions in markets, and financial position,3: 9 Lehman Brothers Aggregate Bond Index, 5:41–44 income tax bases of, 3:515–517 5:99 leveraging role of debt, 4:139–140 long-term, 3:191 Lehman Brothers Global Aggregate and solvency ratio, 3:303–304 total liabilities-to-equity ratio, 3:363 Bond Index, 5:103 fixed costs as,4: 125 Liber Abaci (Fibonacci), 1:724 Lehman Brothers Government Index, and hedge funds, 6:143–144 Liberia, 2:435 1:584–585 and historical returns, 6:126–127 Libor. see London Interbank Offered LEI. see Index of Leading Economic measuring, 4:438 Rate Indicators operating Libya, 2:434 lenders of last resort, 2:275 and capacity, 5:612 Liechtenstein, 1:231 lenders’ rights, in foreclosures, degree of, 4:130–135, 140–143 Liechtenstein Bankers’ Association, 5:488–489 financial leverage vs.,3: 303 1:231 lending, 5:8–9, 32–33 practice problems, 4:149–152 liens, 5:596, 644 lending facilities, 1:542–543; 2:381 in real estate investing, 6:167 life-cycle stage lending portfolios, 4:322 risk associated with, 6:177 of airline industry, 5:227 lending rates, effects on leveraged solutions to problems, 4:153–154 industry classifications based on, portfolios, 4:324–326 total, 4:140–143 5:203 Lenovo Group Limited leveraged accounts, in FX market, 2:410 in strategic analysis, 5:220 activity ratios, 3:294–296 Leveraged Bond Composite, 1:293 life of contract, pricing/valuation over, liquidity measures, 3:301 leveraged buyouts (LBOs), 6:150–152 6:76–77 ratio analysis, 3:275–277 covenants for, 5:626–627 LIFO conformity rule, 3:357 two-factor analysis, 5:209 defined, 6:148 LIFO liquidations, 3:363–367 leptokurtic, 1:452, 453 financing of,6: 150–151 disclosure of, 3:364–366 lessees as pooled investments, 4:237 example, 3:366–367 defined, 3:467, 564 as private equity investments, 5:162, on financial statements,3: 364–366 finance vs. operating leases for 163 and LIFO reserve, 3:363–364 financial statement impact of leases, target companies for, 6:151–152 LIFO method. see last-in, first-out 3:471–480 leveraged instruments, 5:383 method leases on long-lived assets, 3:471–480 leveraged loans, covenants with, 6:151 LIFO reserve, 3:357–363 leases on non-current liabilities, leveraged ownership, of real estate, converting LIFO to FIFO inventory 3:566–577 6:160 with, 3:358–363 treating operating leases as finance leveraged portfolios defined, 3:357 leases, 3:476–480 capital market line for, 4:322–326 and LIFO liquidations, 3:363–364 lessors with different lending and borrowing Li & Fung, 4:210–213 defined, 3:467, 564 rates, 4:324–326 Light Sweet Crude Oil futures contract, finance vs. operating leases for with equal lending and borrowing 5:23 direct financing leases,3: 480–485 rates, 4:323 likelihood, 1:506 financial statement impact of leases, leveraged positions, 4:255, 323; 5:41–44 Lilly Endowment, 4:219 3:480–485 leveraged returns, 4:255 limitations, investment policy, 4:172 leases on long-term assets, 3:480–485 leveraged transactions, call options vs., limitations on liens covenant, 5:644 leases on non-current liabilities, 6:91–92 limit down, 6:19 3:577–583 leverage ratios limited partners (LPs), 1:267 sales-type leases, 3:485 for credit analysis, 5:616–617 investors as, 6:132 less strict (LS) countries, 1:52–53 evaluating solvency with, 3:587–589 in private equity, 6:149, 150, 158 “less than” alternative hypothesis, 1:624, interpretation of, 3:305 in real estate, 6:160 625, 651–652 and risk associated with leveraged limited partnerships, 1:267; 5:18 letras del Tesoro, 5:368 positions, 5:41–42 broker-sponsored, 1:179 letters of credit, 5:309 Levitt, Arthur, 3:624–625 master, 5:26; 6:174, 175 Level I ADRs, 5:168 Lexmark, 5:209 real estate, 6:160 Level II ADRs, 5:168 LG Group, 5:315–316 limit order book, 5:45–46 Level III ADRs, 5:168 Li, Wei, 4:89n.12 limit orders, 1:482–483; 5:44–49 level of service, disclosure of, 1:114 liabilities. see also non-current liabilities limits, on private placements, 1:187 level of significance,1: 626–628 on balance sheets, 3:162, 165–166, limit up, 6:19 leverage, 4:125–154 174–178, 191 Lindsay, Don, 3:10–11 about, 4:126–128 Conceptual Framework on, 3:64 linear interpolation, 1:422–423 and asset revaluation, 3:445 contingent, 5:648 linear scale, 1:688, 689 breakeven points, 4:143–145 current line charts, 1:682–683 business risk, 4:128–136 of Apple Inc., 3:175 line costs, 3:648 components of business risk, 4:128 on balance sheets, 3:165–166, 174–178 line graphs, 3:290 for creditors and owners, 4:145–147 deferred revenue analysis, 3:176–178 lines of credit financial risk,4: 136–140 of SAP Group, 3:175 backup, 5:375 operating risk, 4:130–136 current tax, 3:509–510 committed, 4:190; 5:618 sales risk, 4:128–130 deferred tax liquidity from, 5:639 and debt structure, 5:640–642 accounting profit vs. taxable income restrictions on, 4:159 defined, 4:125 for, 3:510–513 for short-term financing,4: 189–191

Cumulative_Ind_L1 56 August 1, 2018 7:45 PM Index I-57

linked performance interpretation, 3:300–301 loan-to-value ratio (LTV), 5:486, 504; Disclosure (GIPS Section I.4), 1:240 cash conversion cycle, 3:301 6:162 Presentation and Reporting (GIPS cash ratio, 3:300 local requirements, for record retention, Section I.5), 1:241, 242 current ratio, 3:300 1:175 Real Estate (GIPS Section I.6), 1:244 defensive internal ratio, 3:300 location, measures of, 1:404 Wrap Fee/SMA Portfolios (GIPS quick ratio, 3:300 Lochhead, Scott, 4:105 Section I.8), 1:252 in working capital management, lockbox systems, 4:178 linked time-weighted rates of return, 4:159–160 locked limit, 6:19 1:244 liquidity risk lockout period, 5:508, 511 linkers. see inflation-linked bonds as financial risk,4: 425–426 lockup period, hedge fund, 6:133, 144 links, 1:267 with fixed-income securities, logarithmic scale, 1:688, 689 Lintner, John, 4:216, 335 5:574–575 Logitech, 2:342 liquid asset requirement, 3:322 interactions of market and solvency lognormal distribution, of continuous liquidating dividend, 5:249n.1 risk with, 4:431 random variables, 1:551–557 liquidation(s) market, 5:593–594 Lombardy region, Italy, 5:650 absolute priority rule in, 5:483 safety measures for, 4:171 London Interbank Offered Rate (Libor), LIFO, 3:363–367 solvency risk vs., 4:429n.23 2:428 disclosure of, 3:364–366 liquidity traps, 2:296 asset returns vs., 6:170 example, 3:366–367 liquid markets as benchmark for returns, 4:375 on financial statements,3: 364–366 information-motivated trading in, 5:12 and coupon rate, 5:301 and LIFO reserve, 3:363–364 raising capital in, 5:9 defined, 4:190; 6:23n.11 priority of claims in, 5:599–600 risk management in, 5:10 floating-rate debt,4: 86 priority of preference shares in, secondary, 5:53 in forward rate agreements, 6:78 5:159n.14 Liquidnet, 5:30 historical returns and volatility, 6:126 private equity, 6:154, 157 List of Composite Descriptions (GIPS interest rate swaps, 5:23–24 reorganizations vs., 4:146, 147 Section V.0.1), 1:292–295 and I-spread, 5:443 stockholders’ rights in, 5:157 Lithuania, 2:360n.18, 435n.14; 3:58; 5:96 marginal cost of capital structure, liquidation value, of private equity, 6:157 litigation losses, 3:623 4:104 liquidity, 4:156–164 litigation risk, 5:608 as reference rate, 5:352–353, 425 of alternative investments, 6:177 Lleras, Miguel Palacios, 4:89n.12 setting, 5:353 on balance sheet, 3:15, 165–167 Lloyd’s of London, 4:442–443 swaps based on, 6:23 broad measure of, 2:268 LMC. see long-run marginal cost and TED spread, 6:24 in credit analysis, 5:618 LM curve, 2:144–145 as underlying, 6:37 from dealers, 5:30 LM Ericsson Telephone Company, London Stock Exchange defined, 3:8, 164–165, 196; 4:156–157 3:588–589 board composition rules, 4:24 of derivatives, 6:41 load funds, 4:228–229 and Committee on the Financial drags and pulls on, 4:158–159 loan covenants, 3:634 Aspects of Corporate Governance, evaluation of measures, 3:301 loan loss reserves, allowances for, 3:653 4:7 of exchange-traded derivatives market, loans GDRs on, 5:167 6:10 amortizing, 5:487, 508 information availability, 5:122 external, 5:647 asset-based, 4:192 in intermarket analysis, 1:726 and forward contracts, 5:22 auto loan ABS, 5:508–511 total market capitalization in, 5:151, 152 in high-yield credit analysis, 5:638–639 bank, 5:349, 350, 373–374 long (term), 6:7 integrated analysis of, 3:311–312 bilateral, 5:373, 374 long hedge fund strategies, 4:236 as investor constraints, 4:376–378 to borrowers abroad, 2:372 longitudinal data, 1:587n.2 liquidity management, 4:157–159 bullet, 5:374 long-lived assets, 3:415–506. see also as market characteristic, 4:266–267 collateralized, 4:189, 191 non-current assets measuring, 4:159–164, 438 commercial and industrial, 2:239 acquisition of, 3:417–435 and operating cash flow,5: 639 leveraged, 6:150–151 accounting for, 3:417 of OTC derivatives market, 6:12 margin, 5:41 capitalisation of costs, 3:423–435 and portfolio management, 4:222 mortgage, 5:485–490 and financial reporting issues,3: 648 primary sources, 4:157 non-amortizing, 5:508 intangible assets, 3:420–423 and returns, 1:426–428 non-recourse, 5:488 property, plant, and equipment, and secondary bond markets, 5:365 prime, 5:486 3:417–420 secondary sources, 4:157–158 recourse, 5:488 amortisation of, 3:443–444 and securitization, 5:475 residential mortgage, 5:485–490 defined, 3:121, 416 in sovereign credit analysis, 5:647 amortization schedule, 5:487–488 depreciation of, 3:435–443, 643–647, and valuation, 6:146 interest rates, 5:486–487 653 and yield-to-maturity, 5:433 lender’s rights in foreclosures, derecognition of, 3:451–453 liquidity duration, 5:574 5:488–489 disclosures for, 3:453–466 liquidity enhancement, 5:375 maturity, 5:486 Daejan Holdings PLC, 3:465–466 liquidity management, 4:157–159 prepayment options and penalties, fixed asset turnover and average age liquidity premium, 1:305 5:488 of depreciable assets, 3:462–464 liquidity ratios, 3:298–303 stand-alone mortgage, 6:160–161 Vodafone Group Plc, 3:455–460 bounds and context of, 3:302–303 subprime, 5:486 impairment of, 3:448–451, 623 calculations, 3:299 syndicated, 5:364, 374 investment property as, 3:464–467 in company analysis, 5:231 and taxable/deductible temporary leases on, 3:467–485 defined, 3:204, 291, 299 differences, 3:521, 522 finance vs. operating leases,3: 467–485 evaluation, 3:301 and tax bases of liabilities, 3:516, 517 lease versus buy decision, 3:467–470

Cumulative_Ind_L1 57 August 1, 2018 7:45 PM I-58 Index

long-lived assets (Continued) tax-loss selling hypothesis, 5:131 EU membership, 2:360n.18 practice problems, 3:489–500 unused tax, 3:523–524 exchange rate regime, 2:434 presentation of, 3:453–466 loss aversion, 5:137 Luxembourg Stock Exchange, 5:167 comparing fixed asset turnover and loss given default, 5:592 LVMH Moët Hennessy, 1:424 average age of depreciable assets, loss severity, 5:592, 593 3:462–464 lot allocations, minimum, 1:116–117 M Daejan Holdings PLC, 3:465–466 Lotte Group, 3:677 M0 money measure, 2:268 Vodafone Group Plc, 3:455–460 low-cost strategy, for companies, 5:228 M1 money measure, 2:267, 268 revaluation model for, 3:444–448 lower bound, 1:589 M2 money measure, 2:267, 268 solutions to problems, 3:501–506 lower Tier 2 securities, 5:596n.4 M2 money supply, 2:240, 241 long positions, 5:39 Lowe’s, 5:208 M2 portfolio measure, 4:342–343 long-run aggregate supply, 2:159–161 low liquidity positions, 4:159 M3H money measure, 2:268 defined, 2:148–149 low-quality financial reports M3 money measure, 2:268 and human capital, 2:159, 160 conditions conducive to, 3:626 M4 money measure, 2:268 and labor, 2:159 and earnings quality, 3:609, 618 Macaulay, Frederick, 5:538 and natural resources, 2:159–161 motivations for, 3:625–626 Macaulay duration and physical capital, 2:159, 160 on spectrum of quality, 3:619–620 calculating, 5:538–542 and productivity/technology, 2:160 Loyalty, Prudence, and Care [Standard and interest rate risk/investment long-run aggregate supply (LRAS) curve, III(A)], 1:101–109 horizon, 5:569–574 2:148–150 application of the standard, 1:106–109 and modified duration,5: 549–551 long-run average cost (LRAC), 2:102 compliance procedures, 1:105–106 of portfolio, 5:555–557 long-run average total cost (LRAC) client approval, 1:105 MACD line, 1:714–715 curve, 2:44–48 firm policies,1: 105–106 McDonald’s Corporation, 1:410; long-run cost curves regular account information, 1:105 5:216–217 average, 2:44–48 guidance, 1:101–105 MACD oscillator. see moving-average scale and profit maximization on, client’s portfolio, developing, convergence/divergence oscillator 2:43–44, 47–48 1:103–104 Macedonia, 3:58 time frame for, 2:43 identifying actual investment client, machine learning (ML), 4:460–462 long-run demand, elasticity of, 2:12 1:103 defined, 4:461 long-run equilibrium proxy voting policies, 1:104–105 in risk analysis, 4:469 macroeconomic, 2:163 soft commission policies, 1:104 types of, 4:461–462 in monopolies, 2:104–105 understanding application of Macintosh® computers, 3:9 in monopolistic competition, 2:86–87 standard, 1:102–103 MacKinnon, James G., 1:632n.15 in oligopolies, 2:96 text of, 1:45, 101 McLeod Russel India Ltd., 3:677 in perfect competition, 2:81–82 Loyalty [Standard IV(A)], 1:133–143 macroeconomic factor models, long-run marginal cost (LMC), 2:30, 102 application of the standard, 1:137–143 4:328–329 long sales, clearing instructions on, 5:50 compliance procedures, 1:137 macroeconomics, 2:117–196 Long-Term Capital Management, 4:431; competition policy, 1:137 aggregate demand, 2:137–148 6:43 employee classification,1: 137 AD curve, 2:145–148 long-term contracts, revenue incident-reporting procedures, 1:137 defined, 2:136 recognition for, 3:104–107 termination policy, 1:137 IS curve, 2:137–144 long-term debt guidance, 1:133–137 LM curve, 2:144–145 on cash flow statement,3: 241 employer responsibilities, 1:134 shifts in, 2:150–157 disclosure of, 3:561–564 independent practice, 1:134 aggregate output and income, and lease disclosure, 3:572–577 leaving employers, 1:134–135 2:119–136 presentation of, 3:561–564 nature of employment, 1:136–137 in economy, 2:119–120 long-term financial liabilities,3: 191 social media, 1:136 in gross domestic product, 2:120–136 long-term risk management, 4:35 whistleblowing, 1:136 aggregate supply long-term unemployed (term), 2:220 text of, 1:45–46, 133 about, 2:148–150 look-ahead bias, 1:605, 606; 3:696 loyalty to clients, 1:109 defined, 2:136 L’Oreal, 1:424 LPs. see limited partners shifts in, 2:150–151, 157–162 loss(es) LRAC. see long-run average cost defined, 2:5 capital, 5:316, 533–535, 569 LRAC curve. see long-run average total economic growth, 2:173–184 on commodities, 6:171 cost curve production function and potential in conservative accounting choices, LRAS curve. see long-run aggregate GDP, 2:174–175 3:620–621 supply curve sources, 2:176–179 deadweight, 2:354, 355 LRATC. see long-run average total cost sustainable growth, 2:179–184 economic, 2:40 curve equilibrium GDP and prices, expected, 5:593 LS countries. see less strict countries 2:163–173 expected, as impairment method, LT V. see loan-to-value ratio business cycle and AD/AS curves, 3:187 lump sum 2:170–173 impairment, 3:449 funding annuity with, 1:333–336 inflationary gap,2: 167–168 on income statement, 3:98 future, 1:317–319 long-run equilibrium, 2:163 litigation, 3:623 future value of, 1:309–310 recessionary gap, 2:163–167 on marketable securities, 3:188–189 present value of, 1:317–320 stagflation, 2:169–170 scenario, 4:422 Lund, Susan, 5:348n.1 and industry analysis, 5:203, 222 stock-out, 4:182 Luxembourg microeconomics vs., 2:118 stop-loss orders, 5:48–49 customs union, 2:360 new classical, 2:215 tax loss carry forward, 3:509 employee laws in, 4:19 practice problems, 2:190–194

Cumulative_Ind_L1 58 August 1, 2018 7:45 PM Index I-59

risk drivers from, 4:434 relations with board, 4:13 margin bond, 6:11 solutions to problems, 2:195–197 selection of, 1:62, 69–70, 164 margin calls, 5:43; 6:19, 144 macro strategies, with hedge funds, shareholder relationships, 4:11–12 margin debt, 1:716–717, 720 6:135, 137 as stakeholders, 4:9 margin loans, 5:41 Macy’s Inc., 1:412 use of fintech by,4: 455 margin stability, 3:691 MAD. see mean absolute deviation mandates margin transactions, 6:91–92 Maersk Line, 5:210 following, 1:123 Mariscal, Jorge O., 4:100n.30 maintenance covenants, 5:644 managing to, 1:121 marketable limit orders, 5:45 maintenance margin requirement, 5:22, notification of change in,1: 170 marketable securities, 3:169, 187–189 43–44; 6:18 manipulation, of financial reports,3: 608, Market Abuse Regulation, 5:122n.11 maintenance of records, 1:90, 262 631–632 market anomalies, 5:129–136 make-whole calls, 5:330 Mann-Whitney U test, 1:655 and closed-end investment fund make-whole charge, 5:505 manufacturers discounts, 5:133–134 making a market, 5:45, 46, 631 inventories of, 3:346 cross-sectional, 5:133 Malawi, 3:59 new orders of, 2:238 and earnings surprises, 5:134–135 Malaysia manufacturing resource planning (MRP) for initial public offerings,5: 135 Asian financial crisis,2: 341 systems, 4:183–184 investment strategies using, 5:136 capital restrictions, 2:366–367 manufacturing sales, 2:239 and predictability of returns, exchange rate regime, 2:435 maple bonds, 5:313 5:135–136 and IFRS, 3:59 Marathon Oil, 5:209 time-series, 5:130–132 MSCI multi-market index, 5:96 margin. see also profit margin market-based valuation, 3:682–687 Malaysian GAAP, 3:59 contribution, 4:131 market bid–ask spread, 5:44 Maldives, 2:293 discount, 5:426–429 market capitalization Malta, 2:360n.18, 436 for futures, 6:18–19 of equity markets, 5:150–152 Malthus, Thomas,2: 174 for hedge funds, 6:144 style indexes based on, 5:97 managed accounts, 4:235 initial margin requirements, 5:22, 41 total, 5:87 managed float currency regimes,2: 435, maintenance margin requirements, market-capitalization weighting, of 438 5:22, 43–44 indexes, 5:85, 87–90 managed futures funds, 6:169 quoted, 5:426 market characteristics of assets, management repo, 5:388 4:266–267 and book value, 5:172 required, 5:426 market concentration, 2:105–106 risk governance by, 4:419 segment, 3:328–329 market cycles, 1:722–723 in risk management framework, variation margin payments, 5:22 decennial pattern, 1:723 4:413–414 marginal cost of capital (MCC), 4:82–83 18-year cycle, 1:722 management (executive) board, 4:10 marginal cost of capital (MCC) schedule, Kondratieff Wave,1: 722 management buy-ins (MBIs), 6:150 4:102–105 presidential cycle, 1:723 management buyouts (MBOs), 5:162; marginal costs (MC) market demand function, 2:16 6:150 defined, 2:23 market discount rate management commentary, 3:26, 628 interactions of other costs and output bond price and, 5:407–411 “Management Commentary” (IFRS with, 2:31–35 calculating, 5:402–406 Practice Statement), 3:615 long-run, 2:30, 102 market efficiency,5: 115–146 management discussion and analysis and marginal revenue/profit and active manager selection, 5:116 (MD&A), 3:12 maximization, 2:30 anomalies, 5:129–136 “Critical Accounting Estimates,” 3:625 in monopolies, 2:36–37, 102 and closed-end investment fund on derecognition, 3:557 in perfectly competitive markets, discounts, 5:133–134 in financial statement analysis,3: 26 2:36–37, 79–80 cross-sectional, 5:133 information in, 3:564 marginal probabilities, 1:478 and earnings surprises, 5:134–135 inventory management in, 3:381–382 marginal product, 2:23 for initial public offerings,5: 135 LIFO liquidation in, 3:364 marginal product of labor (MPL), 2:25–28. investment strategies using, 5:136 of Microsoft, 3:431 see also marginal returns and predictability of returns, of PACCAR, 3:613–614 marginal propensity to consume (MPC), 5:135–136 policy disclosure requirements, 3:79 2:139, 312–314 time-series, 5:130–132 as SEC requirement, 3:557n.5 marginal propensity to save (MPS), and arbitrage opportunities, 6:50, 138 of Volvo Group, 3:381–382 2:139, 313 in behavioral finance,5: 136–139 management fees marginal returns, 2:23–28 contributing factors, 5:120–123 for fund investments, 6:133 and definition of productivity,2: 23–25 of derivatives market, 6:42 for hedge funds, 6:139–140, 143 increasing, 2:23 description of efficient market, for private equity investments, 6:149–150 law of diminishing, 2:23 5:117–119 management strategy, as company and total/average product of labor, forms of, 5:124–129 fundamental, 5:613–614 2:25–28 and market vs. intrinsic value, 5:119–120 managers marginal revenue (MR) and portfolio management, 5:129 digital wealth, 4:468 and marginal cost/profit maximization, practice problems, 5:142–144 financial reporting quality and 2:29–30 semi-strong-form efficient markets, disclosure by, 3:659 in monopolies, 2:98–102 5:125–128 fixation on earnings reports by,3: 659 in monopolistic competition, 2:85–87 solutions to problems, 5:145–146 merger and acquisition orientation of, in oligopolies, 2:90, 91, 94, 96 strong-form efficient markets,5: 128 3:660 in perfect competition, 2:70, 78–79 and transaction/information- motivations for issuing low-quality and price elasticity, 2:73–74 acquisition costs, 5:123–124 reports by, 3:625–626 marginal value curve, 2:75 weak-form efficient markets,5: 125

Cumulative_Ind_L1 59 August 1, 2018 7:45 PM I-60 Index

market float, securities’,5: 87 complete, 5:58 capital allocation efficiency,5: 13–14 market functions, in FX markets, continuous trading, 5:54, 56–57 determining rates of return, 5:12–13 2:404–410 contract, 5:20–25, 27–28, 54–58 for individuals, 5:7–12 market index, for beta, 4:94 contracts for difference,5: 20–21 futures, 6:21 market indicators, 1:721 execution mechanisms, 5:54–57 geographic limitations of, 2:64 market information systems, 5:58 forwards, 5:21–22 global debt, 5:349–350 market liquidity risk, 5:593–594 futures, 5:22–23 global equity, 5:349–350 market makers, 6:10–11 insurance contracts, 5:25 global finance market making, 1:91 market information systems, 5:58 and depository receipts, 5:166–169 Market Manipulation [Standard II(B)], options, 5:24–25 direct investing, 5:165–166 1:96–101 swaps, 5:23–24 equity securities in, 5:150–155 application of the standard, 1:97–101 trading sessions on, 5:54 integration and growth in, 5:164–165 guidance, 1:96–97 debt, 5:592 goods, 2:128 information-based manipulation, defined, 4:319 inefficient, 5:119 1:96 derivatives, 6:9–14, 38–39 informationally efficient,4: 318 transaction-based manipulation, 1:97 duopoly, 2:90–93 interbank, 5:352, 385–386 text of, 1:45, 96 in economy, 2:128 labor, 2:216 market model, 4:94n.20, 330–333 efficient liquid market multiple models, 5:247. see arbitrage opportunities in, 6:50, 138 exchanging assets for immediate also multiplier models for equity derivatives market as, 6:42 delivery in, 5:10 valuation description of, 5:117–119 information-motivated trading in, 5:12 market neutral strategies, for hedge intrinsic value in, 5:119–120 raising capital in, 5:9 funds, 6:137 semi-strong-form, 5:125–128 risk management in, 5:10 market-on-close orders, 5:48 strong-form, 5:128 secondary, 5:53 market or comparables valuation weak-form, 5:125 making, 5:45, 46, 631 approach, for private equity, emerging orders in, 5:44–50 6:156–157 bonds in, 5:355 over-the-counter, 2:406; 5:55, 168, 358, market orders, 5:44, 45, 47–48 capitalization level and contributions 365 market-oriented investors, 3:696 to global GDP, 5:151 positions in, 5:38–44 market participants fixed-income securities for,6: 146 practice problems, 5:66–72 fair treatment of, 5:122 hedge funds in, 4:236 primary and market efficiency,5: 120–122 securitization in, 5:475 bond, 5:359–365 and technical analysis, 1:678–680 sovereign debt of, 5:646 capital, 5:13–14 market portfolio, in CAPM, 4:352 technical analysis for, 5:125 securities, 5:14–15, 50–53 market power, 2:97, 105 World Bank definition of,5: 646n.42 quote-driven, 5:54, 55, 57, 98 market price equity rationality of individuals vs., 5:137 and estimated value, 5:245–246 efficiency of,6: 42 regulation of, 5:60–63 of risk, 4:273 global, 5:349–350 secondary market rate(s) hedge fund strategies with neutrality bond, 5:359, 365–367 for bonds payable, 3:554–555 in, 4:236 security, 5:15, 50, 53–58 of interest, 3:547 OTC derivatives market vs., 6:9–10 solutions to problems, 5:73–76 market risk, 4:171, 425, 431 and ethics, 1:15–17 spot, 5:10, 15; 6:5 markets, 5:5–76. see also fixed-income Eurocommercial paper, 5:376–377 sustainable securitization, 5:476 market factor, 2:128 taking, 5:46 algorithmic trading and fragmentation financial, 2:128 target, for security indexes, 5:82 of, 4:469 and financial analyst decisions,5: 6 traditional investment, 5:15 assets in, 5:14–20 financial intermediaries,5: 28–38 US commercial paper, 5:376–377 and classification of markets,5: 14–16 arbitrageurs, 5:34–36 in well-functioning financial systems, currencies, 5:19–20 brokers, exchanges, and alternative 5:58–60 real assets, 5:26–28 trading systems, 5:28–30 yield spread and performance of, 5:631 securities, 5:16–19 dealers, 5:30–31, 34–36 market segmentation, 6:130 bear, 1:560–562, 723 depository institutions and financial market sentiment, 5:93 benefits of securitization for, corporations, 5:32–33 indicators of, 1:715–718 5:474–476 insurance companies, 5:33–34 and technical analysis, 1:678–679 as Big Data sources, 4:458 securitizers, 5:31–32 market share bull, 1:560–562, 724–726 for settlement and custodial services, and industry concentration, 5:208–209 call, 5:54 5:36–37 stability of, 5:212–213, 220 capital transactions facilitated by, 5:38 Markets in Financial Instruments analyzing developments in, 2:381 foreign exchange, 2:397–416 Directive (MiFID), 4:368 and benefit of ethics to society,1: 40 about, 2:397–398 market structures, 2:63–115 functions of, 2:404–405 currency conventions, 2:399–400 analysis of, 2:64–68 primary, 5:13–15 functions, 2:404–410 determining factors for, 2:66–68 regulation of, 3:55 nominal vs. real exchange rates, identification of,2: 105–108 sustainability of, 1:40–41 2:400–404 importance of, 2:63–64 CAPM assumptions about, 4:336 participants in, 2:410–413 monopolistic competition, 2:83–87 cash, 6:5 size and composition of, 2:413–416 demand analysis, 2:84–85 central bank funds, 5:385 forward, 5:437 long-run equilibrium, 2:86–87 commodities in, 5:25–26 and functions of financial system, optimal price and output, 2:85 common, 2:360–364 5:6–14 supply analysis, 2:85

Cumulative_Ind_L1 60 August 1, 2018 7:45 PM Index I-61

monopoly, 2:97–105 materiality, determining, 1:92, 95 mean(s) about, 2:97–98 material nonpublic information arithmetic, 1:404–408 demand analysis, 2:98–99 adopting compliance procedures for, and coefficient of variation, long-run equilibrium, 2:104–105 1:88 1:441–442 optimal price and output, 2:101–102 analyst recommendations as, 1:93–94 cross-sectional mean, 1:405–407 price discrimination and consumer legal vs. ethical restrictions on, 1:18 defined, 1:398n.9, 404 surplus, 2:102–104 Material Nonpublic Information and median, 1:410–411 supply analysis, 2:99–100 [Standard II(A)], 1:84–95 population mean, 1:404–405 oligopoly, 2:87–96 application of the standard, 1:91–95 properties, 1:407–408 demand analysis and pricing compliance procedures, 1:88–91 sample mean, 1:405–407 strategies, 2:88–94 achieving public dissemination, 1:88 using, 1:456–457 long-run equilibrium, 2:96 adopting, 1:88 and weighted mean, 1:414n.19 optimal price and output, 2:95–96 adopting disclosure procedures, of binomial random variables, 1:537 supply analysis, 2:94–95 1:88–89 cross-sectional, 1:405–407 perfect competition, 2:68–83 appropriate interdepartmental geometric, 1:416–420 demand analysis, 2:69–76 communications, 1:89 and arithmetic mean, 1:418–420 long-run equilibrium, 2:81–82 communication to employees, 1:91 formula, 1:416–417 optimal price and output, 2:77–81 firewall elements,1: 89 using, 1:456–457 supply analysis, 2:76–77 issuing press releases, 1:89 harmonic, 1:420–421 practice problems, 2:110–113 personal trading limitations, 1:90 hypothesis testing with, 1:632–648 solutions to problems, 2:114–115 physical separation of departments, tests with mean differences, types of, 2:64–66 1:89 1:639–648 Market Technicians Association, 1:681 preventing personnel overlap, 1:90 tests with single mean, 1:632–639 market timing, 1:560–562 proprietary trading procedures, 1:91 of lognormal distribution, 1:553, market-to-book ratio, 5:175 record maintenance, 1:90 556–557 market value reporting systems, 1:90 of normal distribution, 1:543, 546 and asset-based valuation, 5:276, 277; guidance, 1:84–88 population, 1:404–405 6:157 industry experts, 1:87–88 estimates of, 1:591–601 and book value, 5:172 investment research reports, 1:88 test static for single, 1:633–636 of debt, 5:274–275 material information defined,1: 85 sample, 1:405–407, 588n.3 defined, 1:267 mosaic theory, 1:86–87 distribution of, 1:588–591 of derivatives, 6:38–39 nonpublic information defined,1: 86 as point estimator, 1:591, 593 GIPS Valuation Principles (GIPS social media, 1:87 standard error of, 1:588–589 Section II), 1:252 text of, 1:44–45, 84 of standard normal distribution, 1:544 Input Data (GIPS Section I.1), 1:235n.2 Mathews International Corporation, trimmed, 1:408n.14 intrinsic vs., 5:119–120 5:199 weighted, 1:413–416 Real Estate (GIPS Section I.6), 1:243n.6 matrioshka bonds, 5:313 Winsorized, 1:408n.14 total, 5:175 matrix pricing, 4:85; 5:417–420 mean absolute deviation (MAD), market value to book value (MV/BV) mature stage (industry life-cycle), 1:429–431 ratio, 3:705–706 5:215 mean differences,1: 639–648 Market Vane Bullish Consensus, 1:715 maturity in tests with dependent samples, Market Vectors Vietnam ETF, 5:95 balloon maturity provisions, 5:505 1:644–648 marking to market, 3:187; 6:18, 73n.7, 80 classifying fixed-income markets by, in tests with independent samples, Markit iBoxx, 5:98 5:351 1:639–644 Markit iBoxx Euro High-Yield Bond of corporate notes/bonds, 5:377–378 mean returns on S&P 50, 1:640–642 Indexes, 5:103 of fixed-income securities,5: 300 recovery rates on defaulted bonds, Markowitz, Harry, 1:428; 4:215, 335 of forward contracts, 2:424n.5 1:642–644 Markowitz efficient frontier,4: 291, and forward points, 2:427–428 mean return(s), 4:246 319–320 legal, 5:495 excess, 1:443–444 Marsh, Paul, 4:89–90 of residential mortgage loans, 5:486 geometric, 1:417–420; 4:246–247 Marshall-Lerner condition, 2:443–447 weighted average, 5:491–494 historical, 4:259–260 Mars/Wrigley, 5:209, 219–221 maturity effect,5: 408, 409 mean–variance analysis, 1:496n.10, 549 Marvell Technology Group, 1:695, 696, maturity premium, 1:305 measurement scales, 1:390–391 698 maturity structure of interest rates, measures of central tendency, 1:404–422 Mason, Andrew, 3:635 5:433–441 arithmetic mean, 1:404–408 Massachusetts Institute of Technology, maturity value. see par value and coefficient of variation, 4:218 Mauritius, 3:59; 5:96 1:441–442 Massachusetts Mutual Life Insurance MBIs. see management buy-ins cross-sectional mean, 1:405–407 Company, 4:224–225 MBOs. see management buyouts defined, 1:404 Massey Energy, 4:35 MBS. see mortgage-backed securities and median, 1:410–411 MasterCard, 5:206, 209 MBSs. see mortgage-backed securities population mean, 1:404–405 master limited partnerships (MLPs), MC. see marginal costs properties, 1:407–408 5:26; 6:174, 175 MCC. see marginal cost of capital sample mean, 1:405–407 matador bonds, 5:313 MCC schedule. see marginal cost of using, 1:456–457 matching principle, 3:117 capital schedule and weighted mean, 1:414n.19 matching strategies, 4:171–172, 192 MD&A. see management discussion and geometric mean, 1:416–420 material adverse change provisions, analysis and arithmetic mean, 1:418–420 5:375 MDURATION financial function, formula, 1:416–417 material information, 1:85, 92–94 5:542n.4 using, 1:456–457

Cumulative_Ind_L1 61 August 1, 2018 7:45 PM I-62 Index

measures of central tendency (Continued) exchange rate regime, 2:435 global, 4:290 harmonic mean, 1:420–421 floating-rate bonds,5: 369 minimum-variance frontier, 4:290 median, 1:409–411 government spending, 2:129 minority equity investing, 6:153 and arithmetic mean, 1:410–411 IFRS adoption, 3:58 minority interests, 3:17, 193 defined, 1:409 inflation-linked bonds,5: 326 minority (non-controlling) shareholders, mode, 1:411–413 inflation targeting,2: 285 4:9, 12, 16 weighted mean, 1:413–416 labor productivity, 2:180 Minsky, Hyman, 2:214 measures of location, 1:404 labor supply, 2:176 Minsky moment, 2:214 measuring implication, triangle pattern’s, MSCI multi-market index, 5:96 Misconduct [Standard I(D)], 1:81–84 1:703–704 NAFTA, 2:360, 362–363 application of the standard, 1:82–84 media, governance and, 4:27 NAICS system, 5:197 compliance procedures, 1:82 median, 1:409–411 trade balance with US, 2:131 guidance, 1:81–82 Medical Equipment Trust (MET), underground economy, 2:124 text of, 1:44, 81 5:477–478, 481–483 mezzanine bond classes, 5:513 mismatching strategies, 4:171–172 medical industry, governmental mezzanine financing, for leveraged misrepresentation influences on,5: 225 buyouts, 6:151 avoiding, 1:80 Mediquip, 5:476–478, 482–483 mezzanine-stage financing (mezzanine of information, 1:79 Medium Term Financial Strategy venture capital), 6:153 potential, 1:77 (MTFS), 2:274 mezzanine tranche, 6:34 Misrepresentation [Standard I(C)], medium-term notes (MTNs), 5:378 Mian, Shehzad L., 4:175n.5 1:71–81 Medtronic, 5:213 Mibor. see Mumbai interbank offered application of the standard, 1:76–81 members rate compliance procedures, 1:74–75 CFA (see Responsibilities as a Michelin Group, 5:68, 74 factual presentations, 1:74–75 CFA Institute Member or CFA microeconomics maintaining webpages, 1:75 Candidate [Standard of Professional defined, 2:5 plagiarism policy, 1:75 Conduct VII]) demand and supply analysis in, 2:5–6 qualification summary,1: 75 exchange, 6:10n.4 macroeconomics vs., 2:118 verifying outside information, 1:75 Membership Agreement, 1:51 Micronesia, 1:231 guidance, 1:71–74 membership status, CFA Institute, Micron Technology, Inc., 3:528–533 impact on investment practice, 1:72 1:198–199, 201 consolidated balance sheet, 3:529–530 omissions, 1:73 mental accounting, 5:138 consolidated statement of operations, performance reporting, 1:72–73 menu costs, 2:217–218, 280 3:528–529 plagiarism, 1:73–74 Mercedes, 2:86; 5:218 notes to consolidated financial social media, 1:73 merchandise trade sub-account, BOP, statement, 3:530–531 work completed for employer, 1:74 2:369 Microsoft Corporation, 2:98; 3:431 text of, 1:44, 71 merchandising companies, inventories Microsoft Excel, 1:631n.14 Mitchell, Arthur F., 2:198 of, 3:346 Microsoft Word, 2:98 Mittoo, Usha, 4:108 Merck & Co. Middle East. see also specific countries ML. see machine learning industry concentration and pricing debt and equity outstanding, 5:350 MLPs. see master limited partnerships power of, 5:209 foreign exchange reserves, 2:412 MNCs. see multinational corporations in strategic analysis, 5:219–221 and IFRS, 3:59 modal interval, 1:412 MERCOSUR. see Southern Cone industrial comparative ratio analysis, mode, 1:411–413 Common Market 5:617 model building, financial analysis for, Mercurio, V., 4:107n.39 institutionally-owned real estate, 3:330 merger and acquisition orientation, 6:164–165 model portfolios, security market 3:660 natural resources, 2:178 indexes in, 5:94–95 merger arbitrage strategy, for hedge terms of trade, 2:336 Model Request for Proposal, 1:157 funds, 6:136 trade-to-GDP ratio, 2:338 model risk, 4:427 mergers, market concentration and, mid-swaps (term), 5:442 models 2:105–106 MiFID. see Markets in Financial manipulating inputs for, 1:100 mesokurtic, 1:452 Instruments Directive in quantitatively oriented research, MET. see Medical Equipment Trust migration, credit ratings, 5:606–607 1:156–157 MetaCarta, 3:617 Mikuni & Co., 5:602 understanding technical aspects of, method of comparables Miles, James A., 4:83n.3 1:164–165 and multiplier models for equity Miller, Merton, 4:95n.24 modern portfolio theory (MPT) valuation, 5:269–272 “mind maps,” 4:464 and CAPM, 4:435 price multiples in, 5:266 minimalist disclosure approach, 3:659 development of, 4:215–216 Metropolitan Life Insurance Company, minimum cash balances, 4:165 and mean-variance analysis, 1:549 4:225 minimum efficient returns to scale,2: 46 security-specific risk in,4: 335 Mexican Comisión Nacional Bancaria y minimum lot allocations, 1:116–117 modified duration de Valores, 5:29 minimum prices annual, 5:542–544 Mexican peso, 2:399, 419; 5:10 of American options, 6:105–106 approximate, 5:543–545 Mexico of European options, 6:91–93 calculating, 5:542–543 accounting standards and ROE minimum required rate of return, 5:177 and credit risk/return, 5:633–635 comparisons, 3:678–680 minimum-variance frontier, 4:290 and effective duration,5: 547–548 business investment, 2:177 minimum-variance portfolios, and Macaulay duration, 5:549–551 consumption expenditures, 2:139 4:289–291 of portfolio, 5:555–557 economic growth in, 2:181 and efficient frontier of risky assets, Modigliani, Franco, 4:95n.24, 342 effect of global recession,2: 166 4:291 Modigliani, Leah, 4:342

Cumulative_Ind_L1 62 August 1, 2018 7:45 PM Index I-63

Moldova, 3:58 money duration, 5:557–559, 572 potential gains from market timing, momentum anomalies, 5:132 money managers, estimation of client 1:560–562 momentum effect, of market- inflows by,1: 599–601 process, 1:558–559 capitalization-weighted indexes, money market funds, 4:169, 230–231 random observations in, 1:559–560 5:91 money market instruments, 5:429–433 for risk assessment, 3:690 momentum oscillators, 1:708–715 money markets Montenegro, 2:434 about, 1:708–710 capital markets vs., 5:15 monthly billing terms, 4:177 MACD oscillator, 1:714–715 equilibrium in, 2:144–145 Moody, John, 5:601 relative strength index, 1:710–712 fixed-income instruments in,5: 17 Moody’s Analytics, 4:438 stochastic oscillator, 1:712–714 interbank, 1:375 Moody’s Investors Service, 1:412–413 Monetarist school, 2:215, 269, 274, 301 money market securities, 5:300 commercial paper ratings, 5:375 monetary accommodation, 2:320 money market yields, 1:374–379 in credit markets, 5:601, 602 Monetary Authority of Singapore, 5:161 bank discount yield, 1:375–376 evaluation of quantifiable rating monetary base, 2:436 calculating, 4:170 factors, 3:692–693 monetary flexibility, in sovereign credit discount rate for, 1:378–379 investment-grade ratings, 5:299n.2, analysis, 5:648 other yields vs., 1:378–379 350 monetary policy, 2:260–300 money multiplier, 2:266 long-term ratings matrix, 5:602–603 and aggregate demand, 2:153–154 moneyness, 6:87 municipal debt ratings, 5:650, 651 central banks money neutrality, 2:268–269, 272 ratings for Ford Motor Company, roles and responsibilities, 2:275–278 money supply 5:607 tools of, 2:281–283 and aggregate demand/supply, 2:154 sovereign ratings, 5:368 and concept of money, 2:262–274 changes in, 2:270–272 Moore’s law, 5:222 contractionary and expansionary and interest rates, 2:273 moral hazard, insurance and, 5:34 policies, 2:294–295 M2, 2:240, 241 moral principles, 1:7 and currency regime, 2:431 real, 2:144–146 more strict (MS) countries, 1:52–53 defined, 2:261 money-weighted rate of return more strict law, 1:50 of developing countries, 2:290–291 for portfolios, 1:368–369, 372–374 Morgan, J. P., 2:96 evaluating, 2:299–300 time- vs., 1:372–374 Morgan Stanley, 5:300 exchange rate targeting, 2:291–294 money-weighted return, 4:248–249 Morl, Ian, 3:127 and fiscal policy,2: 318–322 monitoring Morningstar, 1:390, 426; 5:98, 104 and inflation,2: 166 in capital budgeting process, 4:48–49 Morningstar US Market Index, 5:104 inflation targeting,2: 285–291 of financial reporting standards, Morocco, 3:59; 5:96 central bank independence, 2:286 3:77–83 mortality risk, 4:430 credibility, 2:286–287 by CFA Institute, 3:78–79 mortgage-backed securities (MBSs), exceptions to inflation-targeting rule, with company disclosures, 3:79–83 5:308; 6:162–163 2:289–290 for new products/types of commercial, 5:503–508 and monetary policy in developing transactions, 3:77–78 balloon maturity provisions, 5:505 countries, 2:290–291 in portfolio management, 4:225 call protection, 5:504–505 transparency, 2:287–289 in risk management framework, 4:412 credit risk, 5:504 influence on economy,2: 260–262 Monitronics International, Inc., 5:199 structure, 5:504–508 limitations, 2:295–299 monoline insurance companies, 5:479 coupon frequency, 5:300–301 and New Classical school, 2:217 monopolist firms,2: 100–101 defined, 5:474 objectives, 2:278–281 monopolistic competition, 2:83–87. see effective duration of,5: 546 in sovereign debt analysis, 5:648 also imperfect competition overcollateralization with, 5:309 and stock returns, 1:585–586 benefits of trade for,2: 341–342 repayment structure for, 5:320 of United Kingdom, 2:274 characteristics of, 2:67 residential, 5:490–503 monetary reserve requirement, 3:322 defined, 2:65 collateralized mortgage obligations, monetary transmission mechanism, demand analysis, 2:84–85 5:497–503 2:283–285, 295–296 long-run equilibrium, 2:86–87 mortgage pass-through securities, monetary unions, 2:360, 363–364, 434 optimal price and output, 2:85 5:31, 491–496 money, 2:262–274. see also time value of supply analysis, 2:85 non-agency residential mortgage- money (TMV) monopoly, 2:97–105 backed securities, 5:503 creation process, 2:264–267 about, 2:97–98 and securitizers, 5:31 defined, 2:153, 267–268 breakeven point in, 2:38–39 mortgage crisis (2007–2008), 2:275–276 demand for, 2:269–272 characteristics of, 2:67 mortgage debt, 5:596 Fisher effect,2: 272–273 defined, 2:66 mortgage design, 5:486, 489–490 functions of, 2:263–264 demand, average, and marginal costs mortgage loans (mortgages) and interest rates, 2:273 under, 2:37 defined, 5:485 New Classical school models with, demand analysis, 2:98–99 fixed-rate, 1:332–333 2:217–219 long-run equilibrium, 2:104–105 residential, 5:485–490; 6:161 New Classical school models without, marginal revenue in, 2:29 amortization schedule, 5:487–488 2:216–217 optimal price and output, 2:101–102 interest rates, 5:486–487 quantity theory of, 2:144, 268–269 price discrimination and consumer lender’s rights in foreclosures, supply and demand relationship, surplus, 2:102–104 5:488–489 2:270–272 supply analysis, 2:99–100 maturity, 5:486 surplus of, 2:233–234 Monte Carlo simulation, 1:557–563 prepayment options and penalties, velocity of, 2:144, 234 of capital expenditures, 1:589–590 5:488 money convexity, 5:564–565 historical simulation vs., 1:562–563 securitization of, 6:160–163 money creation, 2:264–267 number of trials for, 1:559 stand-alone, 6:160–161

Cumulative_Ind_L1 63 August 1, 2018 7:45 PM I-64 Index

mortgage pass-through securities, 5:31, MSPs. see Multiple Strategy Portfolios short-term investment, 4:169 491–496 MTFS. see Medium Term Financial skewness of, 1:450–452 cash flow construction,5: 493–494 Strategy SMAs vs., 4:235 characteristics, 5:491–492 MTNs. see medium-term notes types, 4:230–233 collateralized mortgage obligations vs., MTR Gaming Group, Inc., 3:429–430 bond mutual funds, 4:231–232 5:497 multi-factor model, 4:328 hybrid/balanced funds, 4:232–233 defined, 5:491 Multi Fiber Agreement, 2:343 money market funds, 4:230–231 prepayment rate measures, 5:492–493 multilateral trading facilities (MTFs), stock mutual funds, 4:232 prepayment risk, 5:492 5:29–30 mutually exclusive events, 1:475 weighted average life, 5:495–496 multi-market equity indexes, 5:95–96 mutually exclusive projects, 1:361; 4:51 mortgage pools, 5:31 multinational corporations (MNCs), MV/BV ratio. see market value to book mortgage rates, 5:486–487 2:339–340 value ratio mortgage real estate investment trusts, multinomial formula, 1:510 6:162 multiple-class share structure, 4:12–13 N mortgage sector, 5:491n.9 multiple-delivery arrangements, 3:656 NACE. see Statistical Classification mosaic theory multiple IRR problem, for capital of Economic Activities in the applying, 1:93, 94 projects, 4:64–66 European Community and material nonpublic information, multiple-period financial performance, NAFTA. see North American Free Trade 1:86–87 projecting, 3:687–690 Agreement Mossin, Jan, 4:335 multiple-price auctions, 5:362 Nagler, Florian, 1:642–643 Motally, 3:617 multiple put bonds, 5:332 NAICS. see North American Industry motivation Multiple Strategy Portfolios (MSPs), Classification System for manipulating financial reports, 1:251 NAIRU. see non-accelerating inflation 3:631–632 multiple-year leases, 6:158 rate of unemployment for producing low-quality financial multiplication rule for expected value names, fictitious,1: 202 reports, 3:618, 625–626 of product of uncorrelated random Namibia, 3:59 Motley Fool, 1:602 variables, 1:504 Napoleonic Wars, 2:305 Motorola Solutions, 3:616 multiplication rule for independent NAREIT. see National Association of moving-average convergence/divergence events, 1:483–486 Real Estate Investment Trusts (MACD) oscillator, 1:714–715 multiplication rule for probabilities, narrow framing, 5:138 moving averages, 1:705–707 1:479, 481 narrow money, 2:267 Mozambique, 3:59 multiplication rule of counting, NARU. see natural rate of MPC. see marginal propensity to 1:509–510 unemployment consume multiplier models for equity valuation, NASDAQ. see National Association MPL. see marginal product of labor 5:265–276 of Securities Dealers Automated MPS. see marginal propensity to save defined, 5:247 Quotations MPT. see modern portfolio theory enterprise values in, 5:274–276 NASDAQ 100 Index, 4:332; 6:10, 155 MR. see marginal revenue example, 5:272–273 NASDAQ OMX, 5:151, 152 MRP systems. see manufacturing fundamentals in, 5:266–267 Nash, John, 2:92 resource planning systems method of comparables, 5:269–272 Nash equilibrium, 2:92–93, 96 MSCI ACWI Index, 6:134, 165, 175 other models vs., 5:246–248, 279–280 NASSCOM, 2:352n.11 MSCI All Country World Index, 5:103 price multiples in, 5:266–269 National Association of Pension Funds, MSCI Argentina Index, 5:96n.1 multistage dividend discount models, 1:231 MSCI Barra 5:261–264 National Association of Real Estate company classifications,5: 192 multi-step format, income statement, Investment Trusts (NAREIT), developed equity market index, 3:98 5:101, 102; 6:164 2:366–367 multi-strategy strategies, for hedge National Association of Securities multi-market indexes of, 5:95–96 funds, 6:137 Dealers Automated Quotations MSCI Developed Markets Index, 5:96 multivariate distribution, 1:544 (NASDAQ), 5:151n.3 MSCI Emerging Markets Index, multivariate normal distribution, 1:544 American depositary shares, 5:168 4:258–259, 386; 5:96 Mumbai interbank offered rate (Mibor), Arms index, 1:719–720 MSCI Europe, Australasia, and Far East 5:353 correlations of stocks, 4:284 (EAFE) Index, 5:96 Munich RE, 1:423 delisted companies, 1:605 co-movement patterns, 4:213–215 municipal bonds (munis), 4:379; 5:355 performance of UEC and, 5:93 correlation with other indexes, 4:386 Murphy, John, 1:726 National Bureau of Economic Research cross-sectional mean of, 1:406–407 must (term), 1:267 (NBER), 1:680; 2:201, 238 portfolio expected return and variance must not (term), 1:267 National Bureau of Statistics of China, of return, 1:496, 497, 500, 501 mutual fund cash position indicator, 2:121 tracking objective, 1:536 1:720–721 National Council of Real Estate MSCI Europe Index, 4:386 mutual funds, 4:226–233 Investment Fiduciaries (NCREIF), MSCI Frontier Markets Index, 5:96 about, 4:226–230 6:164 MSCI GCC Countries Index, 5:96n.4 barriers to entry for, 5:207 National Datacomputer Inc., 3:300–301 MSCI Jamaica Index, 5:96n.3 derivatives vs., 6:6 national debt, 2:305–307. see also MSCI Pakistan Index, 5:96n.2 hedge funds vs., 4:235–236 government debt MSCI Trinidad & Tobago Index, 5:96n.3 performance of, 1:485–486; 5:129 National Highways Authority of India MSCI US Index, 4:386 as pooled investments, 5:18–19 (NHAI), 5:355 MSCI World Index, 1:464–465; 4:386; predictability of performance for, national income, 2:133, 375 5:94; 6:155, 156 1:480–481 National Income and Product Accounts MS countries. see more strict countries risk/returns of, 1:634–635, 649–650 (NIPA), 2:120

Cumulative_Ind_L1 64 August 1, 2018 7:45 PM Index I-65

nationalization, of monopolies, 2:104 GIPS sponsor, 1:231 net return, 4:253–254 National League of Management IFRS adoption, 3:58 Netscape, 2:98 Companies, 1:231 imports in, 2:335 net tax rate, 2:312 national tax-free bond mutual funds, in MSCI multi-market index, 5:96 network effects, in monopolies,2: 98 4:231 residential mortgage loans, 5:486–488 net working capital, in credit analysis, National Welfare Fund, 4:221 returns 5:618 natural language processing (NLP), on bonds, bills, and equities, 5:153 networks 4:465–466 real equity returns, 1:399 neural, 4:461, 462 natural level of output, 2:150 total returns, 1:406, 410 permissioned and permissionless, natural monopolies, 2:97–98, 104 say on pay, 4:18 4:471 natural rate of unemployment (NARU), sovereign bonds, 5:368 neural networks, 4:461, 462 2:150, 232 two-tier boards, 4:10 neutrality, in financial reporting,3: 621 natural resources. see also raw materials Netherlands Antilles, 2:292 neutral rate of interest, 2:294 and aggregate supply, 2:160, 161 Netherlands Beroepsvereniging van new accounts, temporary, 1:237, 270 and economic growth, 2:178 Beleggingsprofessionals, 1:231 New Century Financial, 3:619 nature of employment, 1:136–137 net income new classical macroeconomics, 2:215 nature of expense method, 3:454–455 and asset revaluations, 3:445–446 New Classical school of economic NAV. see net asset value cash flow and,3: 657 thought, 2:215–219 Navistar, 5:189 coefficient of variation for,3: 322 new entrants, in strategic analysis, NAVTEQ, 3:617 defined, 3:98 5:205–208 Nayar, Nandkumar, 1:638 and direct method for overall new equity issuance indicator, NBC, 4:443n.36 statement of cash flows,3: 241–242 1:721–722 NBER. see National Bureau of Economic and financial reporting issues,3: 657 new firms, starting,1: 140 Research on income statement, 3:98 New Keynesians, 2:217 NCREIF. see National Council of Real and indirect method for overall new media, retention of information on, Estate Investment Fiduciaries statement of cash flows,3: 242–245 1:175 NCREIF Farmland index, 6:164 per employee, 3:322 Newmont Mining, 5:276 NCREIF Property index, 6:164 in ROE, 5:172–174 new product bias, of price index, 2:226 negative correlation, 4:277 net interest margin, 3:322 new products negative covenants, 3:559; 5:310–311, net interest pass-through rate, 5:491 capital budgeting for, 4:49 626 net investment, 2:139–140 financial reporting standards for, negative pledges, 5:310 net-of-fees returns 3:77–78 negative screening, 4:37 Calculation Methodology (GIPS New York Mercantile Exchange negotiable CDs, 5:386 Section I.2), 1:236 (NYMEX), 5:23 Neiman Marcus Group, Inc., 1:412 defined, 1:267 New York Society of Security Analysts, Neoclassical school of economic Disclosure (GIPS Section I.4), 1:238 1:681 thought, 2:211–212 GIPS Advertising Guidelines (GIPS New York Stock Exchange (NYSE) Neo-Keynesians, 2:217 Section III), 1:257 ADRs on, 5:168 Nestlé Group, 3:630, 685–687 for hedge funds, 6:142 Arms index, 1:719–720 Nestlé SA Presentation and Reporting (GIPS board composition rules, 4:24 in hedge funds, 6:143 Section I.5), 1:241 correlations of stocks, 4:284 justified forward P/E of,5: 267–269 Private Equity (GIPS Section I.7), cross-sectional data from, 1:585 strategic analysis, 5:219–221 1:247, 248 delisting of Allianz SE on, 5:165 subsidiary of, 5:159 Real Estate (GIPS Section I.6), 1:244, equities trading on, 6:9 net asset value (NAV) 246 industry concentration and pricing breaking the buck, 4:231 net-of-fees SI-IRR, 1:245, 249 power of, 5:209 closed-end investment fund, 5:134 net operating cycle, 4:163–164 information availability of, 5:122 and drawdown, 6:144 net operating income (NOI), 5:504; intermarket analysis, 1:726 mutual fund, 4:226–227 6:165 trading volume, 4:336 of REITs, 6:166 net present value (NPV), 4:58–63 New Zealand trading vs. reporting, 6:146 in capital-budgeting decisions, 4:83 business investment, 2:177 net book value, 3:123 defined, 4:52–53 coupon payment structures, 5:323 net cash flow,3: 220, 325 and IRR, 4:53–54 current account imbalance, 2:378 net client inflows, estimating,1: 599–601 and net present value rule, 1:360–362 exchange rate regime, 2:435 net coupon pass-through rate, 5:491 NPV profile,4: 58–60 export subsidies, 2:357 net debt, 5:616 ranking conflicts between IRR and, GIPS country sponsor, 1:231 net exports, 2:140, 336 4:60–63 IFRS adoption, 3:59 Netherlands and stock prices, 4:67–68 inflation-linked bonds,5: 327 banking supervision, 2:277 net profit margin,3: 307, 308 inflation targeting,2: 285, 287–289 bonds outstanding, 5:354, 360 calculation of, 3:278 in MSCI multi-market index, 5:96 “comply or explain” codes, 4:34 and conversion from LIFO to FIFO, Policy Targets Agreement, 2:288–289 customs union, 2:360 3:363 returns domestic and international debt defined, 3:308 on bills and bonds, 5:152–153 securities, 5:315 and income statement ratios, 3:143 on equities, 5:152–153 equity risk premiums, 4:90 and inventory write-downs, 3:375 real equity returns, 1:399 EU membership, 2:360n.18 in ratio analysis, 3:277 total returns, 1:406 exchange rate regime, 2:434 net realisable value (NRV), 3:171–172, risk tolerance and equity ownership, fact finding requirements,4: 381 368 5:155 frequency of capital budgeting, 4:67 net reporting of revenues, 3:109–110 New Zealand dollar, 2:399, 416, 417n.4

Cumulative_Ind_L1 65 August 1, 2018 7:45 PM I-66 Index

New Zealand Stock Exchange, 1:527 property, plant, and equipment, non-profit organizations,4: 10–11 NHAI. see National Highways Authority 3:179–180 non-public companies, related-party of India SAP Group, 3:178–179 transactions with, 3:655 Nicaragua, 3:58 non-current liabilities, 3:545–604 nonpublic information Nigeria, 3:59; 5:96 balance sheets, 3:190–192 acting on, 1:91, 94 Nigerian Federal Executive Council, 3:59 of Apple Inc., 3:190–191 analyst recommendations as, 1:93–94 Nikkei 225 Index, 1:405, 690 deferred tax liabilities, 3:191–192 controlling, 1:92 Nikkei 300 Index, 4:318 long-term financial liabilities,3: 191 defined, 1:86 Nikkei 500 Index, 4:213–215 of SAP Group, 3:190 material (see Material Nonpublic Nikkei-Dow Jones Average, 1:582 on balance sheets, 3:166 Information [Standard II(A)]) Nikkei Stock Average, 5:103 bonds payable, 3:546–564 standards for priority of transactions Nikon Corporation, 5:223 amortisation of bonds, 3:550–554 with, 1:186 Nintendo, 2:340 debt covenants, 3:559–561 in strong-form efficient markets,5: 128 NIPA. see National Income and Product derecognition of debt, 3:557–559 nonrated debt, cost of, 4:86 Accounts disclosure of long-term debt, non-recourse loans, 5:488 Nissan Motor Company, 5:189, 270 3:561–564 non-recurring items N L P. see natural language processing fair value reporting, 3:554–557 financial reporting quality issues with, no arbitrage, principle of, 6:70 interest expense, 3:550–554 3:658 no-arbitrage value, 5:411 interest payment, 3:550–554 on income statements, 3:125–131 nodes, 1:491, 538 issuance of bonds, 3:546–550 and changes in accounting policies, NOI. see net operating income presentation of long-term debt, 3:128–130 no IRR problem, for capital projects, 3:561–564 discontinued operations, 3:126 4:64–66 defined, 3:546 extraordinary items, 3:126–127 noise, on point and figure charts,1: 687 leases, 3:564–583 unusual and infrequent items, Nokia Corporation, 3:588–589, 615–618; advantages of, 3:564–565 3:127–128 5:217 finance vs. operating,3: 565–583 non-recurring restructuring events, Nokia Siemens Networks, 3:615, 616 pension plans, 3:583–586 3:624 no-load funds, 4:228 practice problems, 3:592–597 non-renewable resources, 2:178 nominal exchange rates, 2:400–404 solutions to problems, 3:598–604 non-sovereign bonds, 5:307, 371–373 nominal GDP, 2:124–127 solvency of, 3:586–589 non-sovereign government debt, nominal interest rates, 1:305; 2:272–274 non-cyclical companies, 5:190–191, 613 5:650–651 nominal rate. see coupon rate non-discretionary goods, 2:12 non-sovereign governments, 5:299 nominal returns non-domestic equity securities, nonsystematic risk, 4:326–328 of asset classes in other countries, 5:164–169 non-traded investments, valuation of, 4:262–263 depositary receipts, 5:166–169 6:146 of asset classes in United States, direct investing in, 5:165–166 no par shares, 3:192 4:260–261 nondurable goods, 2:207 Nordstrom, Inc., 1:412 defined, 4:254 non-executive (external) directors, normal distribution nominal scales, 1:390 4:9–10, 21 characteristics of, 4:264 nominal wages, 2:157, 160 nonfinancial assets, purchase of,2: 374 confidence intervals for population nomination committee, 4:23 non-financial risks mean with, 1:594 Nomura, 5:30 defined, 4:424 cumulative probabilities for, 1:740–741 non-accelerating inflation rate of financial vs.,4: 432–433 estimating probability with, 1:551 unemployment (NAIRU), 2:232 types of, 4:426–430 hypothesis tests of normally- non-agency residential mortgage-backed non-investment-grade bonds (high-yield distributed populations securities, 5:490, 491, 503 bonds), 5:603 difference between population non-amortizing loans, 5:508 and classification of bond market, means, 1:640–644 nonbank finance companies,4: 190 5:350–351 differences between variances,1: 651 non-callable, non-convertible perpetual credit analysis of, 5:638, 643–645 mean differences,1: 645–648 preferred shares, 5:254–255 credit risk with, 5:299–300 single population mean, 1:633–636 non-cash activities, on cash flow non-investment grade credit ratings, value of population variance, 1:649 statements, 3:219–221 5:638 normal distribution of continuous noncompete agreements, 1:135 nonmarket securities, weight of, 4:350 random variables, 1:543–551 non-conforming mortgages, 5:490 non-mortgage asset-backed securities, applications of, 1:549–551 noncontrolling interest, 3:17, 193 5:508–512 and probabilities for common stock non-controlling (minority) shareholders, auto loan ABSs, 5:508–511 portfolio, 1:548 4:9, 12, 16 credit card receivable ABSs, 5:511–512 safety-first optimal portfolio, nonconventional cash flow,4: 51 non-operating items 1:549–551 noncorrection of known errors, 1:76 financial reporting quality issues with, reliability factors for confidence non-cumulative preference shares, 3:658 intervals based on, 1:594–595, 5:160 on income statements, 3:130–131 598–599 non-current assets. see also long-lived nonparametric inference, 1:654–658 skewed vs., 1:446–449 assets and parametric tests, 1:654–655, 658 standard, 1:544, 740–741 on balance sheets, 3:165, 178–189 and tests with correlation, 1:655–658 Student’s t-distribution vs., 1:596–597 Apple Inc., 3:179 use of, 1:654–655 normal goods financial assets,3: 186–189 nonparametric test, 1:654–655 defined, 2:15, 19 goodwill, 3:183–186 non-participating preference shares, substitution and income effects on, intangible assets, 3:181–186 5:160 2:19–23 investment property, 3:180–181 non-price competition, 2:67 normal profit,2: 33

Cumulative_Ind_L1 66 August 1, 2018 7:45 PM Index I-67

norms-based screening, 4:37 outside compensation, 1:145 offering day,5: 362 Norse Energy Corp., 3:651 of risks/limitations, 1:173–174 offerings North Africa, trade-to-GDP ratio, 2:338 notional principal best efforts,5: 51 North America, 3:58; 6:159. see also in currency swaps, 6:23n.12 initial public specific countries and regions defined, 6:23 defined, 5:50 North American Free Trade Agreement as measure of OTC market, 6:39 in markets, 5:51–52 (NAFTA), 2:360, 362–363 Novarra, 3:617 and pricing anomalies, 5:135 North American Industry Classification Novartis AG and venture capital, 5:162 System (NAICS), 5:197 industry concentration and pricing public, 5:50–53, 360–364 Northern Rock Bank, 2:275–276 power, 5:209 rights, 5:52 Northern Telecom, 4:209–210 in pharmaceutical industry, 5:189 seasoned, 5:50 Northern Trust, 5:210 ROE for, 5:173–175 syndicated, 5:361 Northwestern University, 4:218 strategic analysis, 5:219–221 underwritten, 5:50, 51, 360–362 Norwalk Agreement, 3:56 Novartis Group, 3:629–630, 685 offer prices,5: 44, 574 Norway, 2:285 Novo Nordisk, 3:585–586 Office of the Comptroller of the exchange rate regime, 2:435 NPV. see net present value Currency, 2:277; 3:47 GIPS sponsor, 1:231 NPV profile,4: 58–60 Office of the Superintendent of Financial IFRS adoption, 3:58 NPV rule Institutions, 2:276 MSCI multi-market index, 5:96 defined, 1:361 official interest rate (official policy rate), returns evaluating R&D programs with, 1:362 2:282 on bonds, bills, and equities, 5:153 and IRR rule, 1:364–365 off-market forwards,6: 83–84 real equity returns, 1:399 NRV. see net realisable value offsetting transactions, with futures, total returns, 1:406, 409 NS countries. see no securities laws 6:20 Norwegian Government Pension Fund- countries off-the-run securities,5: 442 Global, 4:221 null hypothesis, 1:624–625 O’Halloran, Elizabeth, 4:89n.12 Norwegian krone, 2:399; 5:351 number of days of inventory, 4:161, 185 oil, supply and price of, 2:158 Norwegian Society of Financial Analysts, number of days of payables, 3:292, 296; oil and gas industry, 3:621–622 1:231 4:161, 188 oil services industry, strategic analysis no securities laws (NS) countries, number of days of receivables, 4:160, of, 5:219–221 1:52–53 181 oligopoly, 2:87–96 NoSQL (database), 4:465 numeraire, 2:432n.10 characteristics of, 2:67 notching, 5:604 NYMEX. see New York Mercantile defined, 2:66 “not equal to” alternative hypothesis, Exchange demand analysis and pricing strategies, 1:624, 625, 651–652 NYSE. see New York Stock Exchange 2:88–94 note rates, 5:486–487 NYSE Euronext, 5:29, 151, 152; 6:143 long-run equilibrium, 2:96 notes optimal price and output, 2:95–96 bonds vs., 5:17 O supply analysis, 2:94–95 corporate, 5:377–380 OAS. see option-adjusted spread Oman, 2:293; 5:96 credit-linked, 5:382; 6:31 OAS duration, 5:548 omissions, 1:73 exchange-traded, 5:19 objective probabilities, 1:476 1 and 10 fee structure, 6:139 floating-rate objectives one price, law of, 6:47, 67 cash flows from,5: 323–324 of central banks, 2:278–279 one-sided (one-tailed) hypothesis test, as corporate debt, 5:378 of financial analysis,3: 271–272 1:624 coupon rate for, 5:301 of financial reporting,3: 44–46 one-tier board structure, 4:9–10, 21 inverse, 5:324 of financial reports,3: 61–62 one-time sales, 3:658 yield measures for, 5:425–429 investment, 1:105, 121, 176 ongoing purchases, 3:427 medium-term, 5:378 of investors, 4:243–244 Ontario Securities Commission, 5:29 privately placed, 5:510 of monetary policy, 2:278–281 on-the-run securities, 5:368, 442 publicly offered,5: 509 return, 4:375–376 OPEC. see Organization of Petroleum US Treasury, 5:368, 547–548 risk, 4:370–375 Exporting Countries variable-rate, 5:323 of strategic asset allocation, 4:388–389 open book credit accounts, 4:176 notes payable, 3:176 tracking, 1:536 open distributed ledger networks, notes to financial statements of trade organizations, 2:384–386 4:471 by Alcatel-Lucent, 3:385–386 Objectives and Principles of Securities open economies, 2:336 by Caterpillar Inc., 3:360 Regulation (IOSCO), 3:51 benefits of trade,2: 341 disclosures in, 3:70 objectivity. see Independence and investment in, 2:376 in financial statement analysis,3: 24–25 Objectivity [Standard I(B)] national income identity, 2:375 LIFO liquidation in, 3:365 obligaciones del Estado, 5:368 open-end funds by PACCAR, 3:613 obligations closed-end funds vs., 4:228; 5:18 by Volvo Group, 3:372–373 in contracts, 3:113 defined, 1:247 notice period, hedge fund, 6:133 performance, 3:114 Private Equity (GIPS Section I.7), 1:267 notification obligations assimilables du Trésor real estate with, 1:275–277 changes to investment process, (OATs), 5:367, 368 open interest, 6:20 1:170–172 occupancy rate, 3:323 open market operations, 2:281; 5:358 client bonus compensation, 1:144–145 OCI. see other comprehensive income operating activities Code and Standards, 1:142 odds, probabilities stated as, 1:476–479 on cash flow statement,3: 219, of errors, 1:172 OECD. see Organisation for Economic 235–239 fund mandate change, 1:170 Co-Operation and Development cash for income taxes, 3:239 known violations, 1:55 off-balance-sheet financing,3: 706–713 cash for interest, 3:238–239

Cumulative_Ind_L1 67 August 1, 2018 7:45 PM I-68 Index

operating activities (Continued) operating margins, 3:658 investor preferences and optimal cash for other operating expenses, operating profit portfolio, 4:299–300 3:238 defined, 3:18 minimum-variance portfolios, cash from customers, 3:235–236 and depreciation method, 3:645–646 4:289–291 and cash generation activities, EBIT vs., 3:99 portfolio selection example, 3:649–650 forecasts of, 3:683–684 4:294–299 cash to employees, 3:237–238 on income statement, 3:99 risk-free assets, 4:291–294 cash to suppliers, 3:236–237 operating profit margin,3: 307, 308 and investment characteristics of direct vs. indirect reporting method, defined, 3:308 assets, 4:244–267 3:648–649 and depreciation method, 3:645–646 distributional characteristics, defined, 3:20 and income statement ratios, 3:144 4:264–266 operating breakeven points, 4:143–145 operating risk market characteristics, 4:266–267 operating cash flows (cash flows from defined, 4:95, 128 return characteristics, 4:244–259 operating activities), 3:221–232 and leverage, 4:130–136 as investor objective, 4:243–244 and capitalising vs. expensing of costs, operating ROA, 3:308 for investor with heterogeneous beliefs, 3:427–428 Operating Segments (IFRS 8), 5:189n.1 4:350–351 direct-format statement under IFRS, operational efficiency,3: 691; 4:30 optimal risky portfolio, 4:313–314 3:226–228 operational independence, 2:285, 286 and portfolio risk, 4:276–287 direct method for calculating, 3:648 operationally efficient financial systems, diversification of risk,4: 282–287 financing vs.,3: 221 5:58–59 portfolio with many risky assets, in free-cash-flow-to-equity valuation, operational risk, 4:428–430, 438–439 4:281–282 5:252 operations, statement of, 3:17, 528–529. portfolio with two risky assets, free operating cash flow to debt,3: 325 see also income statements 4:276–281 indirect-format statement under IFRS, opinion paragraph, audit report, 3:27 practice problems, 4:302–308, 356–361 3:223–226 opinion polls, 1:715 pricing of risk, 4:326–328 indirect method for calculating, opinions and risk aversion, 4:267–276 3:648–649 about CFA Program or Institute, 1:194 concepts, 4:267–268 and issuer liquidity, 5:618, 639 audit, 3:27–28 indifference curves,4: 269–271 and leases, 3:471 of credit rating agency, 1:61–62 utility theory, 4:268–276 under US GAAP, 3:228–232 facts in reports vs., 1:168 solutions to problems, 4:309–312, operating cycle, 4:163 group research, 1:160 362–364 operating efficiency ratios,3: 292. see integrity of, 1:63 optimal price also activity ratios providing, as facts, 1:169 in monopolies, 2:101–102 operating history, as company Oppenheimer, Peter, 3:9 in monopolistic competition, 2:85 fundamental, 5:613 opportunity costs in oligopolies, 2:95–96 operating income in capital budgeting, 4:50, 51 in perfect competition, 2:77–81 adjusted consolidated segment, defined, 1:304 optimal risky portfolio 3:635–638 and economic vs. accounting profit, and capital market line, 4:320 coefficient of variation for,3: 322 2:77 and homogeneity of expectations, and enterprise value, 5:276 of money invested, 6:65 4:317–318 and operating leverage, 4:140 and productivity, 2:24 portfolio selection for, 4:313–314 operating leases and required rate of return, 6:63 option-adjusted price, 5:425 accounting/reporting by lessee, optimal output option-adjusted spread (OAS), 5:445, 3:566–567, 570–577 in monopolies, 2:101–102 631 accounting/reporting by lessor, 3:577, in monopolistic competition, 2:85 option-adjusted yield, 5:425 582–583 in oligopolies, 2:95–96 optionlike features, debt with, 4:86 and adjustments to debt, 3:710–712 in perfect competition, 2:77–81 option premium (option price), 5:24; analyst adjustments for, 3:707–713 optimal portfolio, 4:243–364 6:26 coverage ratio for, 3:712–713 beta, 4:328–335 options (options contracts), 5:329; defined, 3:468 calculation and interpretation, 6:25–30, 33. see also embedded finance leases vs. 4:331–332 options; specific types, e.g.: call options for lessees, 3:471–480, 566–577, estimation, 4:332–333 agent, 1:182 582–583 and expected return, 4:333–335 binomial valuation of, 6:100–104 for lessors, 3:480–485, 577–583 return-generating models, 4:328–329 call, 1:539, 558–559, 563, 568; 5:24 on long-lived assets, 3:467–485 and capital asset pricing model, commodity, 6:169 on non-current liabilities, 3:565–583 4:335–354 in contract markets, 5:24–25 financial statement impact of, applications, 4:340–351 dealers of, 5:35 3:582–583 assumptions, 4:335–337 defined, 6:7, 25, 61 treating, as finance leases,3: 476–480 extensions, 4:353–354 European-style, 1:558, 563, 566 operating leverage limitations, 4:351–352 forward commitments vs., 6:30 and capacity, 5:612 security market line, 4:337–340 forwards vs., 5:25 degree of and capital market theory, 4:314–326 in FX market, 2:408 calculating, 4:135 capital market line, 4:318–326 implied volatility with, 6:41 defined, 4:130 risk-free and risky assets, portfolio of, long and short sides of, 5:39 and degree of total leverage, 4:314–318 pricing 4:142–143 and efficient frontier,4: 288–300 American options, 6:104–107 and financial risk,4: 140–142 indifference curve,4: 294–295 European options, 6:85–100 and operating risk, 4:130–135 investment opportunity set, volatility in pricing models, financial leverage vs.,3: 303 4:288–289 1:555–556

Cumulative_Ind_L1 68 August 1, 2018 7:45 PM Index I-69

put, 1:566; 5:24, 643 outcomes, of random variables, of completed prior work, 1:139 risk shifting with, 4:444–445 1:474–475 of firm’s records,1: 175, 176 on stocks, 6:36 outflows, 1:362 of real estate, 6:160 underlying risk exposures of, 5:39 out-of-date information, 1:80–81 stock, 1:179–181 option writers, 5:24 out-of-sample tests, 1:602 and voting rights, 4:31–32 Orange County, California, 6:44 out of the money, 6:27, 87 own price (term), 2:7 order-driven markets, 5:54–57 output own-price elasticity of demand, ordering costs, 4:184 aggregate, 2:119–136 2:9–14 Order Machine, 5:30 in economy, 2:119–120 calculating, 2:9–11 order matching rules, 5:55 in gross domestic product, 2:120–136 defined, 2:9 order precedence hierarchy, 5:55 and costs, 2:31–35 extremes of, 2:11–12 orders, 5:44–50 full employment/natural level, 2:150 predicting, 2:12–13 clearing instructions for, 5:44, 49–50 optimal and total expenditure, 2:13–14 execution instructions for, 5:44–48 in monopolies, 2:101–102 size/frequency of, 2:93 in monopolistic competition, 2:85 P validity instructions for, 5:44, 48–49 in oligopolies, 2:95–96 P2P basis. see peer-to-peer basis, of ordinal scales, 1:390 in perfect competition, 2:77–81 record keeping ordinary annuities, 1:314 recessionary gap in, 2:205 Paasche index, 2:227 and annuity due, 1:322–323 value of final output method for GDP, PACCAR, 3:612–614; 5:189 with equal cash flows,1: 315–316 2:121–122, 132 PAC tranches. see planned amortization present value of, 1:321, 327 outside compensation, 1:145 class tranches projected present value of, 1:323–325 outside information, verifying, 1:75 paid-in capital, 1:249, 267 ordinary shares, 3:132 outside organizations, referral paired comparisons test, 1:644 ordinary terms, 4:176 arrangements with, 1:192 paired observations, 1:644 Organisation for Economic outside parties, referral arrangements paired transactions, in BOP system, Co-Operation and Development and, 1:190–192 2:372–374 (OECD), 4:38 outsourcing, 2:340 pairs arbitrage trade, 1:478 capacity utilization, 2:153 overall payroll employment, 2:222 Pakistan corporate governance guidelines by, overall statement of cash flows, GDP vs. GNP, 2:335 4:7 3:241–246 GIPS country sponsor, 1:231 cyclically adjusted budget deficit, direct method, 3:241–242 IFRS adoption, 3:59 2:315 adjustments to net income, MSCI multi-market index, 5:96 economic indicators, 2:237 3:241–242 Panama, 2:434, 435; 3:58 GDP reported by, 2:120 converting indirect and, 3:245–246 panda bonds, 5:313 government liabilities/debt for, 2:306 defined, 3:23, 222 panel data, 1:587n.2 government revenues/expenditures by, indirect method, 3:242–245 Pan-European Aggregate Bond Index, 2:301, 302 adjustments to net income, 5:357 institutional investors in OECD 3:242–245 Papaconstantinou, George, 2:385 countries, 4:216–217 converting direct and, 3:245–246 Paraguay, 2:360; 3:58 net borrowing/lending by, 2:303 defined, 3:23, 222–223 parallel shift, 5:556 spillover effects for,2: 362 overbought conditions, 1:708 parameters, 1:389, 582. see also specific trade-to-GDP ratio, 2:338, 339 overcapacity, 5:208 parameters organizational infrastructure, 4:14 overcollateralization, 5:309 parametric tests, 1:654–655, 658 Organization for the Harmonization of overconfidence, 5:137 par curve, 5:436–437 Business Law, 3:59 overconfidence bias,1: 11–12 parent companies, on income Organization of Petroleum Exporting overdraft lines of credit, 4:189 statements, 3:17 Countries (OPEC), 2:88, 93 overfitting, of data,4: 461 pari passu ranking, 5:597, 644 organized exchanges, 5:365 overinvestment, in inventory, 4:182–183 parity value, 5:333 Oriental Brewery, 3:685 overnight indexed swaps, 6:24 Parmalat, 3:619; 5:608 original issue discount tax provision, overnight repo, 5:387 partial duration, 5:549 5:317 overreaction anomalies, 5:132 partial fills,1: 113 orthopedic device industry, market share oversold conditions, 1:708 partially amortized bonds, 5:318–320 stability in, 5:212–213 over-the-counter (OTC) markets, 2:406. partially amortizing loans, 5:487 Osborne, George, 2:377 see also quote-driven markets participating preference shares, 5:160 oscillators. see momentum oscillators American depositary receipts in, 5:168 participation instruments, 5:382–383 Österreichische Vereinigung für for derivatives, 6:11–14 participation ratio, 2:220 Finanzanalyse und Asset equities market vs., 6:9–10 partnerships Management, 1:230 exchange-traded vs., 6:13–14 limited, 1:267; 5:18 OTC markets. see over-the-counter execution of trades in, 5:55 broker-sponsored limited markets for fixed-income securities,5: 358, 365 partnerships, 1:179 other comprehensive income (OCI) size of, 6:38–39 master limited partnerships, 5:26; accumulated, 3:193 overvalued (term), 5:245 6:174, 175 defined, 3:145 Owens Corning Corporation, 4:146–147, real estate, 6:160 on income statements, 3:147–148 209–210 private energy, 6:170 on statement of comprehensive owners’ equity, 3:12, 162, 192; 6:161. see public–private, 6:173 income, 3:19–20 also equity par value other current assets, on balance sheets, ownership of fixed-income securities,5: 300 3:173–174 beneficial, 1:186, 187 and market discount rate, 5:403–406 other operating expenses, 3:238 and business risk, 4:145–147 of owners’ equity, 3:192

Cumulative_Ind_L1 69 August 1, 2018 7:45 PM I-70 Index

passing exams in consecutive years, PCE index, 2:227 perfectly inelastic demand, 2:11 1:201 P/CF. see price-to-cash-flow ratio perfect price elasticity, 2:72 passive crawling peg currency regime, P/CF ratio. see price to cash flow ratio perfect price inelasticity, 2:72 2:437 P C P. see Professional Conduct Program performance passive investment strategies, 5:117 PDI. see personal disposable income of hedge funds, 5:102 passive management, 6:129 P/E. see price-earnings ratio; price-to- risk-adjusted, 5:94 passive portfolio management, 5:129 earnings ratio standards for, 5:61 passive portfolios, 4:318 peak phase (business cycle), 2:198–201, performance appraisal, 1:367, 425–426 passive strategies 205 performance attribution, 1:128; 5:189 borrowing, 4:191 Pearson coefficient of skewness, performance-based fees, 1:238, 267 employed by robo-advisors, 4:467 1:449n.42 performance bond, 6:11 short-term investing, 4:171 peer comparison ratios, 3:694 performance calculation, 1:126–127 pass-through rate, 5:491 peer groups, 5:197–202 disclosing methodology for, 1:128–129 passthrough securities, on investment constructing, 5:198–202 with selected accounts, 1:128 pools, 5:32 defined, 5:197 performance evaluation(s), 1:367n.8 patents, 2:97 peer-to-peer (P2P) basis, of record benchmarks for, 1:121 path dependence, 5:218n.14 keeping, 4:457 financial, 3:673–681 payable date (payment date), 5:249 penal sum, 5:309 accounting standards and ROE, payables penalties, prepayment, 5:488 3:678–680 accounts payable, as current liability, pennant patterns, 1:704–705 and changes in business strategy, 3:176 pension funds 3:673–677 bonds payable, 3:546–564 enterprise risk management for, 4:418 and war chests, 3:677 and amortisation of bonds, investment restrictions for, 4:379–380 objectivity of, 1:61 3:550–554 regulation of, 5:62 portfolio, 4:341–346 debt covenants, 3:559–561 pension plans example, 4:344–346 derecognition of debt, 3:557–559 defined-benefit, 3:583–584 Jensen’s alpha, 4:343–344, 346 disclosure of long-term debt, accounting for, 3:583 M2, 4:342–343 3:561–564 defined, 3:584 Sharpe ratio, 4:342 fair value reporting, 3:554–557 effective duration in,5: 546–547 Treynor ratio, 4:342 and interest expense, 3:550–554 as investment clients, 4:217 performance examination report, 1:262, and interest payments, 3:550–554 Monte Carlo simulations for, 1:557 268 and issuance of bonds, 3:546–550 defined-contribution, 3:583; 4:216 performance examinations presentation of long-term debt, disclosure of, 3:585–586 defined, 1:268 3:561–564 as non-current liabilities, 3:583–586 Disclosure (GIPS Section I.4), 1:238 income tax payable, 3:174, 177, 509 Pensions Act (1995), 4:368 Verification (GIPS Section IV),1: 262 notes payable, 3:176 Pensions Regulator, 4:369 performance fees, 6:133, 177 number of days of payables, 3:292, 296 pension trust fund, 3:584 performance measurement, 1:367; payables turnover, 3:292, 296 Pentax Imaging Company, 5:223 4:226 payback period People’s Bank of China, 5:475 performance obligation, 3:114 capital budgeting, 4:54–56 PepsiCo, Inc., 5:209, 211 performance presentation, 1:127–128 discounted, 4:56–57 P/E ratio. see price to earnings ratio Performance Presentation [Standard drawbacks of, 4:55–56 per capita real GDP, 2:124 III(D)], 1:125–129 payment-in-kind (PIK) coupon bonds, percentage-of-completion method of application of the standard, 1:126–129 5:325, 378 revenue recognition, 3:104–106, compliance procedures, 1:126 payments. see also balance of payments 114 guidance, 1:125–126 (BOP) system %D (stochastic oscillator), 1:712–713 text of, 1:45, 125 central banks in payments system, percentiles, 1:421–425 performance reporting, 1:72–73, 2:277 %K (stochastic oscillator), 1:712, 713 456–457; 4:226 fixed-rate mortgage,1: 332–333 perfect competition, 2:68–83 period costs, 3:117 forms of, 2:119 breakeven point in, 2:38–39 periodic inventory systems, 3:352–354 interest, 3:550–554 characteristics of, 2:67 periodicity as pull on liquidity, 4:158 defined, 2:65 of annual rate, 5:420–421, 433 receivable, 1:635–636 demand, average, and marginal costs of beta return interval, 4:94 transfer, 2:129, 310–311 under, 2:36–37 conversions for, 5:421–422 on underlying assets, 6:90–91 demand analysis, 2:69–76 defined, 1:268 payments-in-lieu of dividends, 5:40 and consumer surplus, 2:74–76 Presentation and Reporting (GIPS payoffs cross-price elasticity of demand, 2:73 Section I.5), 1:241 from call options, 6:26–28 elasticity of demand, 2:70–72 periods, number of, 1:331–332 with contingent claims, 6:25 income elasticity of demand, 2:72–73 PerkinElmer, 5:158–159 from forward contracts, 6:15–16 and innovation, 2:83 permanent crops, 6:163 with futures, 6:20–21 long-run equilibrium, 2:81–82 permanent differences, in taxable and from put options, 6:28–30 marginal revenue in, 2:29–30 accounting profit,3: 518–519 payout ratio, 5:266–269 and oligopoly, 2:96 permissioned networks, 4:471 pay-to-play scandals, 1:62 optimal price in, 2:77–81 permissionless networks, 4:471 P/B. see price-to-book ratio output optimization in, 2:77–81 permutation, 1:511 PCAOB. see Public Company revenue in imperfect vs., 2:35–36 permutation formula, 1:511 Accounting Oversight Board shutdown decision in, 2:39–40 Pernod Ricard, 5:209 PCE. see personal consumption supply analysis, 2:76–77 perpetual bonds, 5:300 expenditures perfectly elastic demand, 2:12 perpetual inventory systems, 3:352–354

Cumulative_Ind_L1 70 August 1, 2018 7:45 PM Index I-71

perpetuities PIK coupon bonds. see payment-in-kind Porsche, 2:86 defined, 1:314; 5:550 coupon bonds Porter, Michael, 2:68; 5:205, 228, 612 present value of, 1:325–326 Piotowski, John, 5:348n.1 Porter, R. Burr, 4:106n.37 and present value of ordinary annuity, PIPEs. see private investments in public Porter’s five forces,2: 68 1:327 equity portfolio(s) present value of projected, 1:326–327 pips, 2:423 bond, 1:537–538; 5:555–557 personal actions, 1:83 plagiarism, 1:77–79 Calculation Methodology (GIPS personal consumption expenditures and misrepresentation, 1:73–74 Section I.2), 1:236 (PCE), 2:227 policies on, 1:75 common stock, 1:548 personal disposable income (PDI), 2:134 plain vanilla (conventional) bonds, 5:301 Composite Construction (GIPS personal income, 2:133–134 cash flows for,5: 302, 318 Section I.3), 1:236, 237 personal learning, 5:138 outstanding, 5:334 composition of, 4:212–213 personal trading plain vanilla swaps, 6:22–23, 37 defined, 1:268; 5:38 and conflict of interest,1: 183 planned amortization class (PAC) developing, 1:103–104 disclosure of, 1:188, 189 tranches, 5:499–501 Disclosure (GIPS Section I.4), limitations on, 1:90 planning step (portfolio management), 1:238–240 and market manipulation, 1:97–98 4:222–223 discretionary, 1:260 priority of transactions for, 1:185 platykurtic (term), 1:452 duration of, 5:555–557 personnel Playtech, 5:51–52 expected defaults in, 1:537–538 preventing overlap of, 1:90 Plaza Accord, 2:438 expected returns privy to recommendation, 1:112 pledges, negative, 5:310 calculation of, 1:497 reporting requirements for, 1:187–188 P&L statements. see profit and loss and variance of return, 1:502 Peru statements Fundamentals of Compliance (GIPS exchange rate regime, 2:435 PME. see public market equivalent Section I.0), 1:234 IFRS adoption, 3:58 point and figure charts,1: 686–688 GIPS Valuation Principles (GIPS inflation targeting,2: 285 The Point and Figure Method of Section II), 1:253 MSCI multi-market index, 5:96 Anticipating Stock Price Movements global minimum-variance, 4:290 underground economy, 2:124 (de Villiers and Taylor), 1:686 hedge, 6:46 per unit contribution margin, 4:131 point estimates, 1:594 Input Data (GIPS Section I.1), 1:235 peso, Mexican, 2:399; 5:10 point estimators, 1:591–593, 594n.12 as investment approach, 4:207–208 Peterson, James D., 4:94n.23 point of sale (POS) systems, 4:178 and diversification,4: 208–210 pet projects, 4:49 poison pills, 4:26 and downside risk, 4:213–215 Petroleo Brasileiro ADRs, 1:713–714 Poland and modern portfolio theory, Petroleo Brasileiro SA (Petrobras), exchange rate regime, 2:435 4:215–216 5:266–267 IFRS adoption, 3:58 and portfolio composition, 4:212–213 Peugeot, 5:269, 270 inflation-linked bonds,5: 326 and risk–return tradeoff,4: 210–212 Pfizer Inc. inflation targeting,2: 285 lending, 4:322 in pharmaceutical industry, 5:189 MSCI multi-market index, 5:96 leveraged, 4:322–326 ROE for, 5:173–175 sovereign bonds, 5:369 market, 4:352 strategic analysis, 5:219–221 policy costs, 4:184 measurement of returns, 1:367–374 pharmaceutical industry policy portfolios, risk objectives for, money-weighted rate of return, similar companies in, 5:189 4:370 1:368–369, 372–374 strategic analysis for, 5:219–221 policy rate, 2:282 time-weighted rate of return, Philip Morris, 5:209 Policy Targets Agreement, 2:288–289 1:369–374 Philippines political risk, 5:647 weighted mean, 1:415–416 Asian financial crisis,2: 341 Polly Peck International (PPI), 3:619 minimum-variance, 4:289–291 exchange rate regime, 2:435 pooled estimates, 1:640 model, 5:94–95 exports from, 2:340 pooled investments, 4:226–237; 5:18–19 MSPs, 1:251 IFRS adoption, 3:59 buyout funds, 4:237 optimal (see optimal portfolio) inflation targeting,2: 285 creators of, 5:32 passive, 4:318 MSCI multi-market index, 5:96 exchange traded funds, 4:233–235 policy, 4:370 Philips, 1:423 hedge funds, 4:235–236 Presentation and Reporting (GIPS photographic film industry,5: 223 markets for, 5:15 Section I.5), 1:241 physical assets, 4:472; 5:14 mutual funds, 4:226–233 probabilities for common stock, 1:548 physical capital about, 4:226–230 Real Estate (GIPS Section I.6), 1:243, aggregate supply, 2:160 types of, 4:230–233 245, 246 defined, 2:139 separately managed accounts, 4:235 risky and economic growth, 2:176–177 venture capital funds, 4:237 insurance for, 4:287 and labor productivity, 2:179 pooled real estate vehicles, 6:160 optimal risky portfolio, 4:313–314, and long-term aggregate supply, 2:159, population, 1:389, 582 317–318, 320 160 population mean, 1:404–405 suitability of investment for, 1:122–123 physical delivery. see delivery estimates of, 1:591–601 two-asset, 4:258–259 physical settlement, of contracts, 5:20 confidence intervals,1: 593–598 Verification (GIPS Section IV), PI. see profitability index point estimators, 1:591–593 1:259–261 PIC multiple sample size, 1:599–601 wrap fee/SMA, 1:229, 233, 250–252 defined, 1:266 test static for single, 1:633–636 portfolio beta, SML and, 4:339–340 Private Equity (GIPS Section I.7), population standard deviation, 1:432–434; portfolio company 1:247 4:257 defined, 6:152 Real Estate (GIPS Section I.6), 1:244 population variance, 1:431–432 valuation of, 6:156–157

Cumulative_Ind_L1 71 August 1, 2018 7:45 PM I-72 Index

portfolio construction, 4:384–398 risk objectives, 4:370–375 exchange rate quotes with, 2:416–418 about, 4:384–385 tax concerns, 4:379 GBP/EUR exchange rate, 2:401, 406 capital market expectations, 4:385 time horizon, 4:378–379 gold standard for, 2:432 and CAPM, 4:348–351 unique circumstances on, 4:380–381 international bonds outstanding in, implementing investment strategy, portfolio returns 5:351 4:393–397 defined, 4:253 as reserve currency, 5:19 organizing principles for, 4:397–398 expected, 1:502 USD/GBP currency pair, 2:414 and portfolio management, 4:223–225 measurement of, 1:367–374, 415–416 PowerLinx, Inc., 3:643 strategic asset allocation, 4:385–393 money-weighted rate of return, power of a test, 1:627 for European charity, 4:395–397 1:368–369, 372–374 PPE. see property, plant, and equipment objective of, 4:388–389 for portfolios of risky assets, 4:276, PPF. see production possibilities frontier for private investor, 4:392–393 315–316 PPI. see Polly Peck International; specifying asset classes for, time-weighted rate of return, producer price index 4:386–387 1:369–374 PPP. see purchasing power parity portfolio demand for money, 2:269 weighted mean, 1:415–416 PPPs. see public–private partnerships portfolio management, 4:207–241 portfolio risk, 4:276–287 PRA. see Prudential Regulation active diversification, 4:282–287 Authority information-motivated trading in, avenues for diversification,4: 285–287 practice, defined,1: 134 5:10 correlation and risk diversification, Praxair, 5:209 manager performance, 5:129 4:284 precautionary money balances, 2:269 manager selection, 5:116 historical correlation among asset precautionary stocks, of inventory, 4:182 security market indexes in, 5:94 classes, 4:285 precious metals, 6:167, 168 with fixed-income securities,5: 298 historical risk and correlation, 4:284 precision, point estimator, 1:594n.12 investing in portfolios vs. single for portfolios of risky assets preclearance procedures, 1:188 equities, 4:207–208 with many risky assets, 4:281–282 predictability, of returns, 5:135–136 diversification, 4:208–210 with one risk-free asset, 4:315–316 pre-dissemination behavior, guidelines downside risk, 4:213–215 with two risky assets, 4:276–281 for, 1:113 and modern portfolio theory, scenario analysis for, 4:469 preemptive rights, stockholders’, 5:157 4:215–216 portfolio selection prefabricated housing industry, and portfolio composition, 4:212–213 and capital allocation line, 4:273–276 5:215–216 risk–return tradeoff,4: 210–212 comprehensive example, 4:294–299 preference shares (preferred shares, investment clients, 4:216–222 for optimal risky portfolio, 4:313–314 preferred stock), 5:159–161, 171 individual investors, 4:216 and risk aversion, 4:273–276 callable, 5:160, 171, 254 institutional investors, 4:216–222 with utility theory, 4:273–276 common vs., 5:17–18 passive, 5:129 portfolio turnover, 1:432–434 convertible, 5:161 pooled investments, 4:226–237 Portugal cost of, 4:86–88 buyout funds, 4:237 EU membership, 2:360n.18 cumulative, 5:160, 171 exchange traded funds, 4:233–235 exchange rate regime, 2:434 diluted EPS for company with, hedge funds, 4:235–236 GDP vs. GNP, 2:335 3:134–136 mutual funds, 4:226–233 GIPS country sponsor, 1:231 fixed rate perpetual,4: 86–87 separately managed accounts, 4:235 government debt, 2:260 non-callable, non-convertible venture capital funds, 4:237 Greek fiscal crisis 2010,2: 363–364 perpetual, 5:254–255 practice problems, 4:239–240 MSCI multi-market index, 5:96 non-cumulative, 5:160 risk budgeting for, 4:421–422 public sector spending, 2:261 non-participating, 5:160 solutions to problems, 4:241 residential mortgage loans, 5:487 in owners’ equity, 3:192–193 steps in, 4:222–226 sovereign debt, 5:649–650 participating, 5:160 execution, 4:223–225 total returns, 1:406, 409 retractable term, 5:255–256 feedback, 4:225–226 POSIT, 5:30, 57 risk of, 5:171 planning, 4:222–223 positions, 5:38–44 valuation of, 5:254–256 portfolio managers, 1:59; 4:408 leveraged, 5:41–44 premium bonds portfolio performance evaluation, long, 5:39 returns on, 5:531 4:341–346 short, 5:39–41 tax provisions for, 5:317 example, 4:344–346 positive correlation, 4:277 premiums, 4:262; 5:403–406. see also Jensen’s alpha, 4:343–344, 346 positive screening, 4:37 specific types, e.g.: risk premiums M2, 4:342–343 POS systems. see point of sale systems prepaid expenses, 3:173–174 Sharpe ratio, 4:342 post-auditing, 4:48–49 Pre-Paid Legal Services Inc., 5:199 Treynor ratio, 4:342 posterior probability, 1:506 prepayment, 6:34 portfolio planning, 4:368–384 post-trade clearing and settlement, prepayment lockouts, 5:505 case studies, 4:373–376, 382–384 4:472–473 prepayment option, residential mortgage gathering client information, post-trade transparent markets, 5:58 loan, 5:488 4:381–384 potential GDP, 2:159 prepayment penalties, 5:488 investment policy statements, and demand-pull inflation,2: 233 prepayment penalty mortgages, 5:488 4:368–381 and long-run equilibrium GDP, 2:163 prepayment penalty points, 5:505 components, 4:369 measuring growth of, 2:179–180, prepayment rate, 5:492–493 investor constraints, 4:376–381 182–183 prepayment risk legal and regulatory factors, production function of, 2:174–175 and contraction/expansion risk, 5:492 4:379–380 pound, British in securitization transactions, liquidity, 4:376–378 currency code, 2:399 5:481–482 return objectives, 4:375–376 EUR/GBP exchange rate, 2:416, 417n.4 Preqin index, 6:175

Cumulative_Ind_L1 72 August 1, 2018 7:45 PM Index I-73

pre-refunded bonds, 5:505n.12 for future lump sum, 1:317–319 in oligopolies, 2:95–96 Prescott, Edward C., 2:215 for lump sum, 1:317–319 in perfect competition, 2:77–81 presentation(s). see also compliant Preservation of Confidentiality option, 6:26 presentations [Standard III(E)], 1:129–133 option-adjusted, 5:425 aggressive, 3:612, 615 application of the standard, and personal trading practices, of deferred tax, 3:535–536 1:131–133 1:97–98 and detection of financial reporting compliance procedures, 1:131 quoted, 5:413 issues, 3:633–638 guidance, 1:129–130 relative, 2:229 of income tax information, 3:528–533 compliance with laws, 1:130 repurchase, 5:387 of inventory information, 3:376 electronic information and security, settlement, 6:18 of long-lived assets, 3:453–466 1:130 spot, 6:5, 40–41, 171, 173 Daejan Holdings PLC, 3:465–466 professional conduct investigations stability of, 2:278 fixed asset turnover and average age by CFA Institute, 1:130 stock, 2:155; 4:67–68 of depreciable assets, 3:462–464 status of clients, 1:130 as Bernoulli random variable, Vodafone Group Plc, 3:455–460 text of, 1:45, 129 1:530–531 of long-term debt, 3:561–564 presidential cycle, 1:723 binomial model, 1:538–539 of non-GAAP financial measures, press releases, issuing, 1:89 and control deficiency disclosures, 3:614–618 pretax margin, 3:144, 307, 308 1:637–639 performance, 1:127–128 pre-tax nominal return, 4:254 lognormal distribution for, 1:553–554 Presentation and Reporting (GIPS pre-trade transparent markets, 5:58 and substitution/income effects, Section I.5), 1:240–242 pre-verification procedures, GIPS, 2:20–23 about, 1:232 1:259–260 transaction, 3:113, 115 recommendations PRFDX funds. see T. Rowe Price Equity two-sided, 2:417–418 general, 1:242 Income fund world, 2:336, 337, 347 for private equity, 1:250 PRI. see Principles of Responsible price-based indicators, 1:705–708 for real estate, 1:246 Investment Bollinger bands, 1:707–708 requirements price(s) moving averages, 1:705–707 general, 1:240–242 aggregate, 2:271–272 price collusion, 2:87–88, 93 for private equity, 1:248–249 and alternative trade policies, 2:358 price competition, in strategic analysis, for real estate, 1:244–245 ask, 5:44; 6:10n.3, 145 5:218–220 for real estate closed-end fund asset price controls, 2:365 composites, 1:245–246 artificial volatility in,1: 98–100 price currency, 2:399, 416 for wrap fee/SMA portfolios, and capital flows,2: 442 price discovery, 6:40–41 1:252 and head and shoulders patterns, price discrimination, in monopolies, sample presentations, 1:272–288 1:696–699 2:102–104 asset management company, normal distribution as model for, priced risk, 4:89 1:273–274 1:545 price-driven markets. see quote-driven investment firm balanced growth and oscillators, 1:708 markets composite, 1:272–273 trends in, 1:679–681 price-earnings ratio (P/E), 1:410–411 large-cap SMA composite, 1:286–288 and volume, 1:689–690 price elasticity of demand. see also Presentation of Financial Statements autarkic, 2:336, 347 elasticity(-ies) (IAS 1), 3:68–70, 94n.1 bid, 5:44, 574; 6:10n.3, 145 in oligopolies, 2:88 present value (PV) call, 5:330 in perfect competition, 2:70–72 defined, 1:306 clean, 5:413 and trade balance, 2:443–447 of financial statement elements,3: 66 convergence of oscillator and, 1:708 PRICE financial function,5: 415n.1 future and, 1:307, 336–337; 6:62 conversion, 5:333 price impact, in cost of trading, 4:266 of growth opportunities, 5:257n.3 equilibrium, 2:77–78, 270–271 price indexes, 2:225–231 present value models for equity and equilibrium GDP, 2:163–173 constructing, 2:225–227 valuation, 5:248–264 aggregate supply and demand, price return index, 5:78–81 defined, 5:246–247 2:170–173 sub-indexes, 2:229 examples, 5:253 inflationary gap,2: 167–168 usage of, 2:227–229 Gordon growth model, 5:256–261 long-run equilibrium, 2:163 price limits, futures, 6:19 multistage, 5:261–264 recessionary gap, 2:163–167 price multiples. see also specific price other models vs., 5:246–248, 279–280 stagflation, 2:169–170 multiples preferred stock valuation with, exercise, 5:18; 6:26, 87–88 defined, 5:263 5:254–256 flat, 5:413–417 example valuation based on, share value for three-year investment forward, 6:14, 26 5:270–271 horizon, 5:252 full, 1:377n.14; 5:413–417 and method of comparables, present value of series of cash flows, futures, 6:18, 40–41 5:267–270 1:320–328 harmonised index of, 2:228 in multiplier models for equity with equal cash flows,1: 320–325 housing, 2:152, 155 valuation, 5:264–267 for infinite series of equal cash flows, input, 2:158, 160 price priority, in order-driven markets, 1:325–326 law of one price, 5:269 5:55 at other times than t = 0, 1:326–327 and limit vs. market orders, 5:45–46 price relative, 1:553 with unequal cash flows,1: 328 market, 4:273; 5:245–246 price return, 5:78–81 present value of single cash flow, offer, 5:44, 574 price return index, 5:78–81 1:317–320 optimal price-specie-flow mechanism,2: 432 finding, 1:317–319 in monopolies, 2:101–102 price takers, 2:66, 71–72; 4:337 frequency of compounding, 1:319–320 in monopolistic competition, 2:85 price targets, 1:696–700

Cumulative_Ind_L1 73 August 1, 2018 7:45 PM I-74 Index

price-to-book ratio (P/B) required rate of return on assets, 6:63 private equity, 6:148–158 and accounting ROE, 5:175–176 risk aversion of investors, 6:63–64 defined, 1:268 defined, 3:319, 320; 5:265 uniform pricing rule, 5:56 diversification benefits,6: 155–156 and survivorship bias, 1:604 pricing day, 5:362 downside frequencies, 6:131 price-to-cash-flow ratio (P/CF),3: 319, pricing power, 5:207–210 due diligence, 6:158 320; 5:265 primary dealers, 5:30, 364 and GIPS compliance, 1:229 price-to-earnings ratio (P/E) primary funds, 1:247–249, 268 GIPS Valuation Principles (GIPS for Canon Inc., 5:271–272 primary fund vehicle, 1:284–286 Section II) for, 1:254, 255 comparing equity valuation models primary markets global assets under management, 6:125 with, 5:279–280 bond, 5:359–365 growth in, 6:127 defined, 3:319–320; 5:265 private placements on, 5:360, historical returns and volatility, 6:126 justified value of,5: 266–269 364–365 investment strategies, 6:150–154 and median vs. arithmetic mean, public offerings on,5: 360–364 exit strategies, 6:154 1:410–411 capital, 5:13–14 leveraged buyouts, 6:150–152 in method of comparables, 5:269–272 securities, 5:14–15, 50–53 minority and distressed, 6:153 price-to-sales ratio (P/S) defined, 5:14 venture capital, 6:152–153 defined, 3:319, 320; 5:265 private placements on, 5:52–53 portfolio company valuation, method of comparables with, public offerings on,5: 50–53 6:156–157 5:269–270 and secondary markets, 5:53 returns for, 6:125, 155–156 price value of a basis point (PVBP), primary sources of liquidity, 4:157 risk management with, 6:177 5:558 Prime Bank, 5:307 sample presentations, 1:279–286 price wars, 2:88, 96 prime brokers, 5:33, 49; 6:144 Sharpe and Sortino ratios, 6:131 PricewaterhouseCoopers, 3:28, 629 prime lending rate, 2:239; 5:374 structure and fees, 6:149–150 price weighting, 5:83–85, 91 prime loans, 5:486 Private Equity (GIPS Section I.7), pricing. see also capital asset pricing prime paper, 5:375 1:247–250 model (CAPM) Princeton University, 4:218 about, 1:233 arbitrage-free, 6:70 principal (principal amount; principal Calculation Methodology provisions, arbitrage pricing theory, 4:353 value), 1:306; 5:300 1:247, 250 in company analysis, 5:230 principal–agent relationship, 4:11 Composite Construction provisions, cross-sectional pricing anomalies, principal business activity, industry 1:248, 250 5:130, 133 classification based on,5: 189 Disclosure provisions, 1:248, 250 derivatives, 6:45–52, 59–117 principal repayment structures, Input Data provisions, 1:247, 250 about, 6:60 5:318–323 Presentation and Reporting provisions, and arbitrage, 6:47–52, 66–72 for bullet bonds, 5:318–320 1:248–250 definition of derivatives,6: 60–62 for corporate notes/bonds, 5:378–379 recommendations, 1:250 forward commitments, 6:73–85 for fully amortized bonds, 5:318–320 requirements, 1:247–249 options, 6:85–100, 104–107 for sinking fund arrangements, private equity funds practice problems, 6:109–113 5:321–323 as alternative investments, 6:124 pricing underlying assets, 6:62–66 principal value. see par value defined, 6:128–129 solutions to problems, 6:114–117 principle of no arbitrage, 6:70 returns in, 6:155–156 storage in, 6:46–47 Principles of Corporate Governance, 4:7, private equity securities, 5:15, 162–164 valuation vs. pricing, 6:72–73 22 private information, 5:128 derivatives pricing rule, 5:57 Principles of Responsible Investment private investments in public equity discriminatory pricing rule, 5:56 (PRI) initiative, 4:39 (PIPEs), 5:162–163 by dominant firms in oligopolies, prior coverage, 1:66 private investors, strategic asset 2:94–95 prior employer allocation for, 4:392–393 forward commitments, 6:73–85 documents and files of,1: 138 privately placed notes, 5:510 forward contracts, 6:73–80 in performance presentation, 1:127 private placements futures, 6:80–82, 171–173 prior fund, in performance presentation, on bond market, 5:360, 364–365 and market structure, 2:66–67 1:127 limits on, 1:187 matrix, 4:85; 5:417–420 prior information, 5:135–136 Regulation D on, 6:132n.13 in oligopolies, 2:88–94 priority of claims, 5:595, 599–600 on securities market, 5:52–53 options, 6:85–100, 104–107 Priority of Transactions [Standard private sector, size of, 5:647 American options, 6:104–107 VI(B)], 1:185–190 probability(-ies), 1:473–522 European options, 6:85–100 application of the standard, a priori, 1:476 risk, 4:326–328 1:188–190 about, 1:474 risk-neutral, 6:70 compliance procedures, 1:186–188 Bayes’ formula, 1:504–508 risky assets, 6:64 guidance, 1:185–186 for common stock portfolio, 1:548 spot assets, 6:66 accounts with beneficial ownership, conditional, 1:478–481, 485–486 swap contracts, 6:82–85 1:186 consistent, 1:478 time-series pricing anomalies, avoiding potential conflicts,1: 185 correlation, 1:501, 503–504 5:130–132 nonpublic information, 1:186 counting, 1:508–511 trade pricing rules, 5:56 personal trading and trading for combination formula, 1:510–511 two-part tariff,2: 103–104 clients, 1:185 multinomial formula, 1:510 of underlying assets, 6:62–66 text of, 1:46–47, 185 multiplication rule of, 1:509–510 benefits and costs of holding assets, prior probabilities, 1:505 permutation formula, 1:511 6:64–66 prior work, ownership of, 1:139 cumulative, 1:740–741 forming price expectations, 6:62–63 private contracts, 3:630 defined, 1:475–476; 4:435 pricing of risky assets, 6:64 private energy partnerships, 6:170 down transition, 1:538

Cumulative_Ind_L1 74 August 1, 2018 7:45 PM Index I-75

empirical, 1:476 process, 1:558–559 guidance, 1:81–82 events random observations in, 1:559–560 text of, 1:44, 81 defined, 1:475 practice problems, 1:566–572 Misrepresentation [Standard I(C)], independent events, 1:483–486 of sample mean, 1:588–591 1:71–81 expected value, 1:488–492 solutions to problems, 1:573–579 application of the standard, 1:76–81 defined, 1:488–489 Procedures, IPS, 4:369 compliance procedures, 1:74–75 of product of uncorrelated random Procter & Gamble, 5:210 guidance, 1:71–74 variables, 1:504 procurement process, 1:62 text of, 1:44, 71 properties of, 1:496–497 producer price index (PPI), 2:228 text of, 1:44 standard deviation, 1:489–490 producer surplus, 2:355, 358 professionally designated, certified, total probability rule for expected product, of uncorrelated random or licensed commercial property value, 1:490–492 variables, 1:504 valuers/appraisers tree diagrams, 1:491–492 product differentiation defined, 1:268 variance, 1:489–490 and market structure, 2:67 GIPS Valuation Principles (GIPS joint, 1:479 in monopolistic competition, 2:83–84 Section II), 1:254 joint probability function, 1:502–504 and price collusion, 2:93 Real Estate (GIPS Section I.6), 1:243, marginal, 1:478 production 244, 246 objective, 1:476 and alternative trade policies, 2:358 professional misconduct, 1:83–84 portfolio expected return in autarky, 2:347 profit(s) calculation of, 1:497 breakeven point of, 2:36–39 accounting and variance of return, 1:502 and costs, 2:23–25 defined, 2:28; 3:508 posterior, 1:506 globalization of, 2:340–341 taxable income vs., 3:508–513 practice problems, 1:515–518 scaling up vs. scaling down, 2:44 taxable profit vs.,3: 518–523 prior, 1:505 production costs, 3:347n.7 with calls, 6:27–28 of random variables, 1:504 production function, 2:174–175 cash flow vs.,3: 7–8 risk-neutral, 6:102–103 production possibilities frontier (PPF), economic rules 2:348–349 defined, 2:28, 77 addition rule for probability, productive capacity, 3:461 marginal revenue and maximization 1:481–482 productivity of, 2:29 multiplication rule for expected value and aggregate supply, 2:160 in monopolistically competitive of product of uncorrelated random in cost-push inflation,2: 232–233 markets, 2:85, 86 variables, 1:504 defined, 2:23–25 in strategic analysis, 5:204 multiplication rule for probability, diminishing marginal, 2:174–175 as form of payment, 2:119 1:479, 481 and economic growth, 2:175 gross, 3:98 multiplication rule of counting, indicators of, 2:222 and inflation,3: 355–356 1:509–510 of labor, 2:160, 180–184 and inventory valuation method, total probability rule, 1:486–488 and long-term aggregate supply, 2:160 3:350–352 solutions to problems, 1:519–522 and marginal returns, 2:23 and LIFO liquidation, 3:364, 366–367 subjective, 1:476 total factor, 2:174, 178 in periodic vs. perpetual inventory in terms of odds, 1:476–479 products systems, 3:352–354 transition, 1:538 new, 3:77–78 maximization unconditional, 1:478 of similar companies, 5:189–190 under imperfect competition, 2:40–41 up transition, 1:538 profession (term), 1:9–10 and marginal revenue/costs, 2:29–30 variance professional conduct. see Standards of points of production for, 2:36–37 conditional variances, 1:492–495 Professional Conduct and scale, 2:43–48 covariance, 1:497–502 professional conduct investigations, in monopoly, 2:99–100, 102 and portfolio expected return, 1:130 normal, 2:33 1:502 Professional Conduct Program (PCP), operating probability density function, 1:528 1:37–38, 51, 82, 130 defined, 3:18 probability distributions, 1:525–579 Professional Conduct Statement, 1:8–9 and depreciation method, 3:645–646 continuous random variables, professional designations, order of, 1:202 EBIT vs., 3:99 1:539–557 professionalism, 1:9–11, 82 forecasts of, 3:683–684 continuous uniform distribution, Professionalism [Standard of on income statement, 3:99 1:540–543 Professional Conduct I], 1:49–84 with puts, 6:28–29 lognormal distribution, 1:551–557 Independence and Objectivity taxable, 3:518–523 normal distribution, 1:543–551 [Standard I(B)], 1:58–70 profitability cumulative probabilities for standard application of the standard, 1:64–70 and capitalising vs. expensing of costs, normal distribution, 1:740–741 compliance procedures, 1:63–64 3:426, 428 defined, 1:526 guidance, 1:58–63 cost flow assumptions and,3: 639–640 discrete random variables, 1:527–539 text of, 1:44, 58 in credit analysis, 5:615–616 binomial distribution, 1:530–539 Knowledge of the Law [Standard I(A)], and degree of operating leverage, discrete uniform distribution, 1:49–57 4:133–134 1:528–530 application of the standard, 1:55–57 profitability index (PI),4: 58 distribution of bond price, 1:527–528 compliance procedures, 1:54–55 profitability ratios,3: 307–311; 5:231 Monte Carlo simulation, 1:557–563 guidance, 1:49–53 calculation, 3:307–308 historical simulation vs., 1:562–563 text of, 1:44, 49 defined, 3:291 number of trials for, 1:559 Misconduct [Standard I(D)], 1:81–84 evaluation, 3:309–311 potential gains from market timing, application of the standard, 1:82–84 and income statement ratios, 3:145 1:560–562 compliance procedures, 1:82 interpretation, 3:308–311

Cumulative_Ind_L1 75 August 1, 2018 7:45 PM I-76 Index

profit and loss (P&L) statements,3: 17. protective puts put/call ratio, 1:715–716 see also income statements defined, 6:95 put options (puts) profit margin fiduciary calls vs.,6: 96, 99 American, 5:332n.6; 6:105–107 gross, 3:307, 308 with forward contracts, 6:98–99 Bermuda-style, 5:332 calculating, 3:356 “Protocol for Broker Recruiting,” 1:135 change of control, 5:643 and conversion from LIFO to FIFO, Provopoulos, George, 2:385 defined, 5:24; 6:26, 85 3:362–363 proxy, for market portfolio, 4:352 embedded (see putable bonds) defined, 3:308 proxy contests, 4:26 European, 1:566; 5:332 and income statement ratios, 3:144 proxy statements, 3:53 and American put options, 6:105 on income statements, 3:98 proxy voting, 1:104, 106; 4:16, 28 binomial option pricing with, 6:103 inventory management with, 3:376, prudence. see Loyalty, Prudence, and exercise price of, 6:87–88 377 Care [Standard III(A)] at expiration, 6:86 and inventory write-downs, 3:375 Prudential Regulation Authority (PRA), minimum prices for, 6:91–93 in ratio analysis, 3:277 2:276n.6; 5:353n.3 payments on underlying and carrying and income statement ratios, 3:143 P/S. see price-to-sales ratio costs for, 6:91 net, 3:307, 308 PSA Peugeot Citroën, 5:189 and risk-free rate of interest, 6:89 calculation of, 3:278 PSA prepayment benchmark. see Public time to expiration for, 6:88, 89 and conversion from LIFO to FIFO, Securities Association prepayment and value of underlying, 6:87 3:363 benchmark volatility of underlying for, 6:90 defined, 3:308 pseudo-random numbers, 1:559n.45 and insurance, 6:7 and income statement ratios, 3:143 P/S ratio. see price to sales ratio payoffs from,6: 28–30 and inventory write-downs, 3:375 public auctions, 5:362–364 profits from,6: 28–29 in ratio analysis, 3:277 public companies, independence and protective, 6:95, 96, 98–99 operating, 3:307, 308 objectivity of, 1:61 PV. see present value defined, 3:308 Public Company Accounting Oversight p-value approach to hypothesis testing, and depreciation method, 3:645–646 Board (PCAOB), 3:27, 52 1:624, 631–632 and income statement ratios, 3:144 public dissemination, achieving, 1:88 PVBP. see price value of a basis point pretax, 3:144, 307, 308 public equity securities, 5:15, 162–164 Python (programming language), 4:464 pro forma reporting, 3:633 public information, 5:125–128 programming languages, 4:464–465 publicly offered notes,5: 509 Q project beta. see beta publicly traded infrastructure securities, Q&As. see Questions & Answers, GIPS project sequencing, 4:51–52 6:174 Qatar promissory note, 2:264 public market equivalent (PME), 1:248, bond market in, 5:351 promotion, company, 1:97 268 exchange rate targeting, 2:293 property, plant, and equipment (PPE), public offerings IFRS adoption, 3:59 3:416. see also long-lived assets on bond market, 5:360–364 MSCI multi-market index, 5:96 acquisition of, 3:417–420 initial Qlik Technologies, 1:411 analyst adjustments for, 3:703–704 defined, 5:50 Qtel, 4:12 on balance sheets, 3:179–180 in markets, 5:51–52 quadruple witching days, 1:653–654 on cash flow statements,3: 239–240 and pricing anomalies, 5:135 qualification summary,1: 75 depreciation of, 3:703–704 and venture capital, 5:162 qualified audit opinion,3: 28 impairment of, 3:448–450 on securities market, 5:50–53 qualified institutional investors,5: 362 investment property, 3:180–181 public–private partnerships (PPPs), Qualified Purchasers,6: 133n.14 sale of, 3:240 6:173 quality property development investments, public sector, 2:261; 5:647 of earnings, 3:608, 609, 618 6:167 Public Securities Association (PSA) of financial reporting (see financial proposals, in capital budgeting process, prepayment benchmark, 5:493 reporting quality) 4:48 pull on liquidity, 4:158–159 of investment policy, 4:173 proprietary assets, 1:240, 268 pull to par effect,5: 410–411 of reported results, 3:608 proprietary trading procedures, 1:91 pump and dump strategy, 1:100 quality bias, 2:226 prorated revenue recognition, 3:104, pump-priming strategy, 1:99 quantiles, 1:421–428 105 purchase agreements, 5:478–479 calculating, 1:423–425 prospective clients. see also purchasing–inventory–payables process, defined, 1:421 Communication with Clients and 4:186–187 in investment practice, 1:425–428 Prospective Clients [Standard V(B)] purchasing managers indexes, 2:242 types of, 1:421–425 benefits of GIPS compliance for,1: 223 purchasing power parity (PPP), 2:400, quantitative directional strategies, for Composite Construction (GIPS 402 hedge funds, 6:138 Section I.3), 1:237 pure discount bonds, 5:301 quantitative easing (QE), 2:320–321 defined, 1:268 pure discount instruments, 1:375 and business cycle theories, 2:219 Disclosure (GIPS Section I.4), 1:239 pure-play method, for beta, 4:95–98 and deflation,2: 296–297 Fundamentals of Compliance (GIPS PureTrading, 5:30 in Japan, 2:298 Section I.0), 1:234 purpose, investment policy, 4:172 quantitatively oriented models, 1:157, GIPS Advertising Guidelines (GIPS putable bonds, 5:332, 379 162–163 Section III), 1:256 effective convexity of,5: 567 quantitatively oriented research, Verification (GIPS Section IV),1: 258 interest rate risk with, 5:554 1:156–157 Wrap Fee/SMA Portfolios (GIPS putable common shares, 5:159, 171 quantitatively oriented techniques, 1:157 Section I.8), 1:250–252 putable preference shares, 5:171 quantity equation of exchange, 2:268 prospectus, 5:478n.3, 479, 626 put–call–forward parity, 6:98–99 quantity theory of money, 2:144, Protection One, Inc., 5:199, 200 put–call parity, 6:94–98, 100 268–269

Cumulative_Ind_L1 76 August 1, 2018 7:45 PM Index I-77

quarterly interest bonds (QUIBS), rate of return. see also internal rate of defined, 1:269; 6:129 5:300 return (IRR) downside frequencies, 6:131 quarterly interest debt securities average accounting, 4:57–58 forms of investment, 6:159–161 (QUIDS), 5:300 and functions of financial system, and GIPS compliance, 1:229 quartiles, 1:421 5:12–13 GIPS Valuation Principles (GIPS quasi-fixed costs,2: 33 holding-period, 5:571 Section II) for, 1:253–255 quasi-government bonds, 5:372–373 money-weighted rate of return growth in, 6:128 quasi-government entities, 5:299 for portfolios, 1:368–369, 372–374 historical returns and volatility, 6:126 Questcor Pharmaceuticals, 1:411 time- vs., 1:372–374 institutionally owned, 6:125, 159 Quest Diagnostics, 5:209 required investment categories, 6:161–163 Questions & Answers (Q&As), GIPS, and cost of equity, 5:177–178 performance and diversification 1:228, 233, 234, 259 in dividend discount model based benefits, 6:163–165 QUIBS. see quarterly interest bonds approach, 4:91 risk management with, 6:177 quick assets, 4:160 and financing costs for capital risks with, 6:166–167 quick ratio, 3:299, 300; 4:160 expenditures, 4:50 sample presentations QUIDS. see quarterly interest debt and market discount rate for bonds, with closed-end funds, 1:277–279 securities 5:402 with open-end funds, 1:275–277 quintiles, 1:421 for present value models, 5:254 Sharpe and Sortino ratios, 6:131 quota rents, 2:357 time-weighted rate of return valuation, 6:165–166 quotas, 2:357 Calculation Methodology (GIPS Real Estate (GIPS Section I.6), defined, 2:354 Section I.2), 1:235 1:242–246 and tariffs,2: 358–359 defined, 1:270 about, 1:233 in textile industry, 2:343 linked, 1:244 Calculation Methodology provisions, quotations, attributing, 1:75 money- vs., 1:372–374 1:243–246 quoted interest rate, 1:310 for portfolios, 1:369–374 for closed-end fund composites, quoted margin, 5:426 Real Estate (GIPS Section I.6), 1:244, 1:245–246 quoted price, 5:413 245 Composite Construction provisions, quote-driven markets (dealer markets) on underlying, 6:63 1:245 defined, 5:54, 55 rating agencies. see credit rating agencies Disclosure provisions, 1:244–246 execution mechanisms for, 5:55 ratio analysis, 3:275–288; 5:615–617 Input Data provisions, 1:243, 246 and fixed-income indexes,5: 98 for Acer Inc., 3:275–277 Presentation and Reporting provisions, order-driven and brokered markets vs., classes of ratios, 3:278–279 1:244–246 5:57 common-size, 3:282–288 recommendations, 1:246 of balance sheet, 3:282–283, 285–287 requirements, 1:243–246 R of income statement, 3:283–285 real estate investment trust (REIT) R (programming language), 4:464 vertical, 3:141n.50, 197, 282–285 indexes, 5:101–102; 6:163, 164 rand, South African, 2:399 cross-sectional, 3:284–285, 292 real estate investment trusts (REITs) randomness, 1:583 for equity investments, 3:697 and beta exposure, 6:129 random number generator, 1:559 for goodwill, 3:705–706 equity, 6:162 random numbers, 1:559–560 interpreting financial ratios,3: 279 function of, 6:159 random observations, in Monte Carlo for Lenovo Group Limited, 3:275–277 growth in, 6:128 simulations, 1:559–560 and relationships of financial indirect investment with, 5:26 random sampling statements, 3:287–288 mortgage, 6:162 simple, 1:582–584 and sources of ratios, 3:281–282 returns on, 6:164–165 stratified, 1:584–585 for Toshiba Corporation, 3:275–277 risk management with, 6:177 random variables, 1:474–475 trend, 3:285–287 shares of, 6:160 Bernoulli, 1:530–531 value, purpose, and limitations, tax advantages for, 6:126 binomial, 1:532–534 3:280–281 valuation of, 6:166 continuous (see continuous random rationality, of markets vs. individuals, 5:137 real estate limited partnerships, 6:160 variables) rationing, capital, 4:52 real exchange rates, 2:400–404 defined, 1:527 ratio scales, 1:390 real GDP, 2:124–127 discrete (see discrete random variables) raw materials, 2:158, 160. see also and economic growth, 2:173 independence for, 1:504 natural resources identifying recession with, 2:201–202 multiplication rule for expected value raw materials inventory, 3:346, 377 and international trade, 2:342 of product of, 1:504 Rayovac, 2:64 in Japan, 2:172–173 outcomes of, 1:474–475 RBC Bank, 5:209 and shifts in aggregate supply/demand, standardization of, 1:546–547 RBC Canadian Index Fund, 1:413–414, 417 2:170–173 uncorrelated, 1:504 RBC Capital Markets, 5:30 real income, 2:18–19 random walk hypothesis, 5:125n.15 RBCs. see real business cycle models real interest rate, 2:140 range RCF. see retained cash flow realizable value, 3:66 definition, 1:429 R&D. see research and development realization multiple (DPI) interquartile, 1:429n.27 real, Brazilian, 2:399 defined, 1:265, 269 and mean absolute deviation, real assets, 5:14, 26–28 Private Equity (GIPS Section I.7), 1:430–431 real business cycle models (RBCs), 1:249 ranked data, nonparametric tests of, 2:218–220 Real Estate (GIPS Section I.6), 1:246 1:654–655 real estate, 6:158–167 real money accounts, in FX market, rapid amortization provisions, 5:512 commercial, 6:125, 158–159, 162 2:410 rate of change (ROC) oscillator, correlation with other asset classes, real money supply, 2:144–146 1:708–710 4:386 real rate duration, 5:574

Cumulative_Ind_L1 77 August 1, 2018 7:45 PM I-78 Index

real returns guidance, 1:174–175 for futures, 6:21 of asset classes in other countries, local requirements, 1:175 for markets, 5:60–63 4:262–263 new media records, 1:175 for monopolies, 2:105–106 of asset classes in United States, records as firm property,1: 175 for OTC derivatives market, 6:12–13 4:261–262 text of, 1:46, 174 for pension funds, 5:62 defined, 4:254–255 records for stakeholder management, 4:20 on equity securities, 5:152–154 maintenance of, 1:90, 262 Regulation S ADRs, 5:168 real risk-free interest rate, 1:305; 4:259 as property of firm,1: 175, 176 Regulation T (Federal Reserve), 5:41 reasonable basis. see also Diligence and retention of, 1:176 regulatory authorities (regulators), Reasonable Basis [Standard V(A)] recourse loans, 5:488 3:50–55. see also US Securities and defined, 1:155 recoverable amount, 3:449, 623 Exchange Commission (SEC) developing, 1:159 recovery for capital markets in Europe, 3:55 reasonableness testing, for company capital spending in, 2:204 discipline for financial reporting analysis, 5:232 unemployment rate in, 2:221 quality from, 3:627–629 rebalancing recovery rates International Organization of of indexes, 5:86, 91 in credit analysis, 5:597–600 Securities Commissions, 3:51 in portfolio management, 4:225 on defaulted bonds, 1:642–644 and remuneration policies, 4:18 rebalancing policy, 4:395 of non-agency RMBSs, 5:503 S-1 registration statements for, 3:54 rebate programs, 3:656 rectangle patterns, 1:704 shareholder conflicts with,4: 13 rebuilding cost, 6:166 redemptions, hedge fund, 6:133, 144–145 as stakeholders, 4:10 recapitalization, private equity, 6:154 redemption yield, 5:304. see also regulatory compliance, 4:473 receipts yield-to-maturity regulatory influences customers’, 4:177–180 reference rates, 5:352–353, 425–426 and fixed-income securities,5: 313–316 government, 2:301–304 references, employee, 1:82 of government, 5:224–226 receivables Reference to CFA Institute, Designation and industry life-cycle, 5:217 discounted, 4:190 and Program [Standard VII(B)], and IPSs, 4:379–380 dividends, 3:514, 521 1:198–202 in strategic analysis, 5:220 as drag on liquidity, 4:158 application of the standard, 1:201–202 regulatory projects, capital budgeting number of days of, 4:160, 181 compliance procedures, 1:200 for, 4:49 payments of, 1:635–636 guidance, 1:198–200 regulatory risk, 4:29, 427; 6:175 trade, 3:169–171 CFA designation, 1:199 reinvested dividends, 5:169–170 receivables turnover, 3:292, 295–296 CFA Institute membership, reinvestment risk, 5:322 recession, 2:164n.16 1:198–199 REIT indexes. see real estate investment defined, 2:199 referring to candidacy in CFA trust indexes identifying, 2:201–202 program, 1:199–200 REITs. see real estate investment trusts investor preferences, 2:200–201 text of, 1:47, 198 rejection point recessionary gap, 2:163–167, 203 referral arrangements for tests on population variance, recognition. see also revenue recognition disclosure of, 1:190–192 1:649–650 Conceptual Framework on, 3:65 informing firms of,1: 191 for tests on relative values of and derecognition, 3:451–453, interdepartmental, 1:191 population variances, 1:651–654 557–559 Referral fees [Standard VI(C)], for test statistic, 1:628–630 expense, 3:16, 96–97, 116–125 1:190–192 for z-test alternative, 1:637 of finance leases,3: 567–569, 578–580 application of the standard, 1:190–192 rejection region, test statistic, 1:629 of financial report elements,3: 65 compliance procedures, 1:190 related parties, gifts and entertainment tax, 3:518n.3 guidance, 1:190 from, 1:66–67 taxable and accounting profit at, text of, 1:47, 190 related-party transactions 3:522 refinancing rate,2: 282 and controlling–minority shareholder recognition lag, 2:316 refinancing risk,6: 158 relationships, 4:12–13 recommendation objectivity, 1:68–69 Reg D Offerings,6: 132n.13 financial reporting quality issues recommendations. see also Investment Regional Investment Performance related to, 3:655, 658 Analysis, Recommendations, and Subcommittees, 1:230 policy development, 4:18 Actions [Standard of Professional regional trading agreements (RTAs), and poor governance, 4:29 Conduct V] 2:360–364 relationships defined, 1:269 Regis Corporation, 5:199 and conflicts of interest,1: 180, 184 fair dealing in, 1:110–111 registered bonds, 5:314 custodial, 1:60 from financial statement analysis, registration requirements, of market fund manager, 1:60, 70 3:33–34 regulators, 3:628 independent contractor, 1:136–137 in investment policy statements, regression analysis, 2:106; 3:290; investment banking, 1:60–61 1:176 4:332–333 and issuer relationship pressure, as material nonpublic information, regular lines of credit, 4:189, 190 1:65–66 1:93–94 Regulation D, 6:132n.13 relative dispersion, 1:441 number of people privy to, 1:112 Regulation FD (SEC), 3:54n.14; 5:122 relative frequency reasonable basis for, 1:155 Regulation of the European Parliament cumulative, 1:394–398 reconstitution, 5:92–93 and of the Council on OTC and frequency distributions, 1:394–398 record keeping, 1:151; 4:457 Derivatives, Central Counterparties, relative price, 2:229 Record Retention [Standard V(C)], and Trade Repositories, 6:12–13 relative risk objectives, 4:370 1:174–176 regulations relative strength analysis application of the standard, 1:176 and ethics, 1:17–19, 41 of charts, 1:690–691 compliance procedures, 1:175 on financial reporting,5: 61 in intermarket analysis, 1:727–728

Cumulative_Ind_L1 78 August 1, 2018 7:45 PM Index I-79

relative strength index (RSI), 1:710–712 repurchase agreements (repos) residential mortgage-backed securities relative value strategies, with hedge defined, 2:282 (RMBS), 5:490–503 funds, 6:135–137 as fixed-income instruments,5: 17 collateralized mortgage obligations, reliability factors other short-term instruments vs., 4:168 5:497–503 basis of computing, 1:598–599 structure of, 5:386–389 floating-rate tranches,5: 501 for confidence intervals,1: 594–595, repurchase date, 5:387 planned amortization class tranches, 598–599 repurchase price, 5:387 5:499–501 religious tenets, laws and regulations reputational risk, 4:29 sequential-pay structures, 5:497–499 based on, 1:56–57 requested favors, 1:183 support tranches, 5:499–501 remaining useful life, 3:461–464 request for proposal (RFP), 1:140 mortgage pass-through securities, remeasurements, pension plan, 3:584 required margin, 5:426 5:491–496 remuneration. see compensation required rate of return cash flow construction,5: 493–494 renewable resources, 2:178 and cost of equity, 5:177–178 characteristics, 5:491–492 renminbi, yuan. see Chinese yuan in dividend discount model based collateralized mortgage obligations rent(s) approach, 4:91 vs., 5:497 as form of payment, 2:119 and financing costs for capital defined, 5:491 in GDP, 2:123 expenditures, 4:50 prepayment rate measures, quota, 2:357 and market discount rate for bonds, 5:492–493 rent received in advance 5:402 prepayment risk, 5:492 and taxable/deductible temporary minimum, 5:177 weighted average life, 5:495 differences, 3:521, 522 for present value models, 5:254 non-agency residential mortgage- and tax bases of liabilities, 3:516, 517 required yield, 5:402 backed securities, 5:503 reorganization, 4:146–147; 5:600 required yield spread, 5:418 residential mortgage loans, 5:485–490 repayment proceeds, bond, 5:306–307 requirements (term), 1:269 amortization schedule, 5:487–488 repeat sales indexes (real estate), research interest rates, 5:486–487 6:163–164 diligence, 1:158 lender’s rights in foreclosures, replacement projects, capital budgeting group, 1:157, 160 5:488–489 for, 4:49 independence of, 1:65–66, 68 maturity, 5:486 replication, 5:35; 6:68–69 issuer-paid, 1:62–63, 76 prepayment options and penalties, repo margin, 5:388 and plagiarism, 1:73–74 5:488 repo rate, 2:282; 5:387 quantiles in, 1:425–428 residential property investments, 6:158, reporting. see also financial reporting quantitatively oriented, 1:156–157 161 incident-reporting procedures, 1:137 reasonable basis for, 1:159 residual tranche, 5:504 of material nonpublic information, 1:90 and record retention, 1:176 residual value performance, 1:72–73, 456–457 sampling biases in, 1:606–607 and amortisation/depreciation of potential unethical actions, 1:57 secondary, 1:155–156 expense, 3:121–124 requirements for investment supervision of, 1:150–151, 153–154 defined, 1:269 personnel, 1:187–188 third-party, 1:155–156, 160 Private Equity (GIPS Section I.7), 1:249 and stakeholder management, 4:17 research and development (R&D) Real Estate (GIPS Section I.6), 1:246 of violations, 1:55 domestic productivity and foreign, resistance, 1:693 reporting NAV, 6:146 2:342 resources “Report on Securitization Incentives” goodwill from, 3:184 capital spending, 2:203–205 (Bank for International intangible assets in, 3:182, 421 consumer behavior and use of, Settlements), 5:476 IRR rule in evaluation of, 1:363–364 2:206–208 reports. see also financial reports NPV rule in evaluation of, 1:362 cyclical use of, 2:202–208 analyzed with machine learning, 4:466 and technology as source of economic inventory levels, 2:205–206 annual, 3:53, 613–614 growth, 2:178 natural, 2:159–161, 178 corporate governance, 4:20 research costs, 3:514, 515, 521, 623 non-renewable, 2:178 earnings, 3:659 research reports, material nonpublic renewable, 2:178 facts vs. opinions in, 1:168 information in, 1:88 Responsibilities as a CFA Institute flash, 1:113 reserve, LIFO, 3:357–363 Member or CFA Candidate material nonpublic information in, converting LIFO to FIFO inventory [Standard of Professional Conduct 1:88 with, 3:358–363 VII], 1:193–202 performance examination, 1:262, 268 defined, 3:357 Conduct as Participants in CFA in portfolio management, 4:226 and LIFO liquidations, 3:363–364 Institute Programs [Standard presentation of, 1:168 reserve accounts, 5:309 VII(A)], 1:193–197 research, 1:88 reserve banking systems, 2:153–154, application of the standard, on short-term investment portfolio, 264–266 1:195–197 4:174 Reserve Bank of Australia, 2:278 eleventh addition revision, 1:36–37 verification, 1:258, 259, 262, 271 Reserve Bank of India, 2:228 guidance, 1:193–195 repos. see repurchase agreements Reserve Bank of New Zealand, 2:285, text of, 1:47, 193 representation letter, 1:262 287, 288 Reference to CFA Institute, representative accounts, 1:221 Reserve Bank of New Zealand Act, Designation and Program [Standard representativeness bias, 5:138 2:285, 288 VII(B)], 1:198–202 representative sectors, for commercial reserve funds, 5:309, 385–386 application of the standard, industry classifications,5: 193–194 reserve requirements, 2:365 1:201–202 representative security market indexes, of central banks, 2:266, 282–283 compliance procedures, 1:200 5:103–104 and monetary policy, 2:282–283 guidance, 1:198–200 Repsol, 1:423 and money creation, 2:265 text of, 1:47, 198

Cumulative_Ind_L1 79 August 1, 2018 7:45 PM I-80 Index

Responsibilities of Supervisors [Standard accounting return on equity, leveraged, 4:255 IV(C)], 1:146–154 5:172–177 and liquidity, 1:426–428 application of the standard, 1:150–154 active, 5:116 marginal, 2:23–28 compliance procedures, 1:148–150 in advertisements, 1:289–291 and definition of productivity, adequate, 1:148–149 annual, 1:290–291 2:23–25 and code of ethics, 1:148 annualized, 1:289–290; 4:251–253 law of diminishing marginal returns, establishing appropriate incentive arithmetic, 4:246 2:23 structures, 1:150 and bank discount yield, 1:376 and total/average product of labor, implementation of compliance and beta, 4:331–332, 339–340 2:25–28 education and training, 1:149 capital, 1:244, 263 mean, 4:246 eleventh edition revision, 1:36 on capital market line, 4:321–322 excess, 1:443–444 guidance, 1:146–148 CAPM’s prediction of, 4:352 geometric, 1:417–420; 4:246–247 detection as part of supervision, for commodities vs. commodity historical, 4:259–260 1:147–148 indexes, 5:101 money-weighted, 4:248–249 system for supervision, 1:147 continuously compounded, 1:553–554 of mutual funds, 1:634–635, 649–650 text of, 1:46, 146 covariance of, 4:257 net, 4:253–254 responsibility(-ies) credit risk vs., 5:628–637 net-of-fees accepting, 1:152 for discount securities, 1:377 Calculation Methodology (GIPS of employers, 1:134 dollar-weighted, 1:368n.9 Section I.2), 1:236 execution-only, 1:109 expected, 1:497, 502 defined, 1:267 responsibility statements, 3:628 and beta, 4:333–335 Disclosure (GIPS Section I.4), 1:238 responsible investing (RI), 4:36–37 CAPM estimation of, 4:340–341 GIPS Advertising Guidelines (GIPS restaurants and historical mean return, Section III), 1:257 asset-based equity valuation for, 5:278 4:259–260 Presentation and Reporting (GIPS barriers to entry for, 5:206 and SML, 4:338–339 Section I.5), 1:241 restricted lists, creating, 1:64 and strategic asset allocation, 4:390 Private Equity (GIPS Section I.7), restricted payments covenant, 5:644 Fama and French three-factor model, 1:247, 248 restricted periods, 1:187 5:133 Real Estate (GIPS Section I.6), 1:244, restricted subsidiaries, 5:644 on fixed-income securities,5: 530–537 246 restrictions gross, 4:253–254 on real estate, 6:142 on asset disposals, 5:310 gross-of-fees nominal on debt, 5:310 Calculation Methodology (GIPS of asset classes in other countries, on distributions to shareholders, 5:310 Section I.2), 1:236 4:262–263 on international investment, 5:164 defined, 1:266 of asset classes in United States, investment policy, 4:172 Disclosure (GIPS Section I.4), 1:238 4:260–261 on investments, 5:310 GIPS Advertising Guidelines (GIPS pre-tax/after-tax, 4:254 on mergers and acquisitions, 5:310 Section III), 1:257 normal distribution as model for, 1:545 on prior claims, 5:310 Presentation and Reporting (GIPS portfolio trade, 2:354–367 Section I.5), 1:241, 242 defined, 4:253 restructuring events, 3:624, 660 Private Equity (GIPS Section I.7), expected portfolio returns, 1:502 results 1:248 measurement of returns, 1:367–374, overemphasis of, 1:81 Real Estate (GIPS Section I.6), 1:244, 415–416 quality of, 3:608 246 money-weighted rate of return, simulated, 1:127–128 historical, 4:263 1:368–369, 372–374 retail accounts, in FX market, 2:415 estimating cost of equity with, for portfolios of risky assets, 4:276, retail currency transactions, 5:20 4:89–92 315–316 retail deposits, 5:385 historical mean return and expected time-weighted rate of return, retail investors, 5:358 return, 4:259–260 1:369–374 retail method for inventory valuation, nominal and real returns of asset weighted mean, 1:415–416 3:171 classes in other countries, predictability of, 5:135–136 Retail Price Index (RPI), 5:325, 326, 370 4:262–263 price, 5:78–81 retail sales, consumer spending and, nominal returns of major US asset real, 4:254–255 2:207 classes, 4:260–261 of asset classes in other countries, retained cash flow (RCF),3: 691 real returns of major US asset classes, 4:262–263 retained earnings, 3:193 4:261–262 of asset classes in United States, retaliation, price collusion and, 2:93 risk–return tradeoff,4: 263–264 4:261–262 retention rate, 3:319, 321 holding period, 4:245 defined, 4:254–255 retired CFA Institute membership defined, 1:367, 392 on equity securities, 5:152–154 status, 1:201 finding ending value of investment risk and, 4:279–281 (see also risk– retracements, 1:692 with, 1:554 return tradeoff) retractable term preferred shares, formula, 1:392 risk-free, 4:319–321 5:255–256 and time-weighted rate of return, for risky assets, 4:276 retraction, 5:256n.2 1:370 to scale, 2:45, 46 retrospective application, of accounting income, 1:244, 266 security market indexes as proxies for, policies, 3:128 independently and identically 5:94 return(s), 4:244–259. see also specific distributed, 1:554 single-period, 5:79–81 types of investments industry classifications based on total abnormal, 5:124 correlations in, 5:191 Calculation Methodology (GIPS absolute, 6:129–130 law of diminishing, 2:79 Section I.2), 1:235

Cumulative_Ind_L1 80 August 1, 2018 7:45 PM Index I-81

defined, 1:270 in monopolies, 2:98–102 revolving credit accounts, 4:176 for equity securities, 5:169–170 in monopolistic competition, 2:85–87 revolving credit agreements, 4:189–191 GIPS Advertising Guidelines (GIPS in oligopolies, 2:90, 91, 94, 96 revolving period, 5:508 Section III), 1:257 in perfect competition, 2:70, 78–79 RFP. see request for proposal for leveraged stock purchase, 5:42–43 and price elasticity, 2:73–74 RGS classification. see Russell Global for multiple periods, 5:81–82 outsized growth of, 3:656 Sectors classification Presentation and Reporting (GIPS total rho, 4:436 Section I.5), 1:241 in oligopoly, 2:90 Rhone-Poulenc, 2:105 price vs., 5:78–79 under perfect and imperfect RI. see responsible investing Real Estate (GIPS Section I.6), 1:244 competition, 2:35–36 Ricardian equivalence, 2:314 on real estate, 6:158 and price elasticity, 2:73–74 Ricardian model, 2:343, 352–353 for single period, 5:80–81 in shutdown analysis, 2:41–42 Ricardo, David, 2:314, 352 uncorrelated, 4:277 unearned rights variance of, 4:257 analysis of, 3:176–178 in contracts, 3:113 for portfolio of assets, 4:257, 281–282 as current liability, 3:176 employee, 4:19–20 for portfolio of risky assets, 4:315 on income statements, 3:100 human, 4:38, 40 for single asset, 4:256 revenue bonds, 5:651–652 lenders’, 5:488–489 and standard deviation, 4:257 Revenue from Contracts with Customers preemptive, 5:157 return-generating models for beta, (ASC 606), 3:112n.25, 114 sell-out, 4:16 4:328–329, 351. see also capital Revenue from Contracts with Customers shareholder, 4:34 asset pricing model (CAPM) (ASU 2014-09), 3:114 voting, 4:31–32; 5:156, 157 decomposition of total risk for, 4:330 Revenue from Contracts with Customers rights offerings,5: 52 market model, 4:330–331 (IFRS 15), 3:112n.25, 114 Riksbank, 2:287 single-index models, 4:330 revenue per employee, 3:322 Rio Tinto, 5:209, 276 three- and four-factor, 4:329 revenue recognition risk(s). see also specific types return interval, beta, 4:94 completed contract method, 3:104–105, acceptance of, 4:441 return objectives, on IPSs, 4:375–376 107 with alternative investments, 6:125, return on assets (ROA), 3:280, 308–309 and financial reporting issues, 130–131, 178–179 and conversion from LIFO to FIFO, 3:640–641, 652–653, 655–656 with arbitrage transactions, 6:70 3:363 on income statements, 3:99–116 Bloomberg’s statistic for, 5:558 operating, 3:308 accounting standards issued May on capital market line, 4:321–322 segment, 3:328–329 2014, 3:112–116 contraction, 5:492 return on capital, 3:308, 309, 325 for barter transactions, 3:109 defined, 4:409 return on common equity, 3:308 and financial statements,3: 111–112 downgrade, 5:593 return on equity (ROE), 3:309; 5:172–177 general principles, 3:100–103 downside, 4:213–215; 6:130–131, and accounting method, 5:173 and gross vs. net reporting of 178–179 and accounting standards, 3:678–680 revenues, 3:109–110 and economic activity, 4:407 and book vs. intrinsic value, 5:176–177 for installment sales, 3:108–109 of equity securities, 5:170–171 in company analysis, 5:232 for long-term contracts, 3:104–107 identification of,4: 424–433 decomposition of, 3:313–318 in special cases, 3:103–110 financial risks,4: 424–426, 432–433 defined, 3:308 installment method, 3:108–109 and interactions between risks, formulas, 5:172–173 in oil and gas industry, 3:622 4:430–432 and justified forward P/E,5: 268–269 percentage-of-completion method, non-financial risks,4: 424, 426–430, for Pfizer, Novartis AG, and 3:104–106 432–433 GlaxoSmithKline, 5:173–175 prorated, 3:104, 105 in risk management framework, and ratio analysis, 3:280 revenue sufficiency, of tax policy,2: 310 4:411 return on invested capital (ROIC), 5:204 reversal, impairment, 3:451 with infrastructure investments, 6:175 return on investment, 3:308 reversal patterns, 1:694–701 interactions between, 4:430–432 return on sales. see net profit margin continuation vs., 1:694 of investment analysis, 1:167–168 return on total capital, 3:308, 309 double tops and bottoms, 1:699–701 investors’ willingness/ability to take Reuters, 5:386 head and shoulders, 1:695–699 risk, 4:371–373 revaluation model for long-lived assets, about, 1:695–696 of major asset classes, 4:263 3:435, 444–448 determining price targets from, 1:698 market price of, 4:273 revenue(s) inverse, 1:697–699 measures/measurement of, 4:411–412, and accounts receivable, 3:656 setting price targets with, 1:696–699 435–439, 446–447; 6:130–131 average, 2:35 triple tops and bottoms, 1:700–701 Monte Carlo simulation for assessing, coefficient of variation for,3: 322 reversal size, on point and figure charts, 3:690 and credit sales, 3:640–641 1:687 of mutual funds, 1:634–635, 649–650 deferred/unearned reverse floating-rate notes,5: 324 notification of,1: 173–174 analysis of, 3:176–178 reverse mortgage, 4:244n.1 prevention and avoidance of, as current liability, 3:176 reverse repurchase agreements (reverse 4:439–440 on income statements, 3:100 repos), 5:388 pricing of, 4:326–328 gross vs. net reporting of, 3:109–110 reverse stock split, 5:249 with real estate investments, on income statements, 3:16, 95 reviewable ARM, 5:487 6:166–167 and interest expense, 5:648 reviews of relying on credit ratings, 5:605–608 inventory, 3:117–118 account, 1:105, 114 and repo rate, 5:387 marginal of compliance procedures, 1:54 return and, 4:279–281 (see also risk– and marginal cost/profit for independence/objectivity, 1:64 return tradeoff) maximization, 2:29–30 by market regulators, 3:628 transfer of, 6:8, 40

Cumulative_Ind_L1 81 August 1, 2018 7:45 PM I-82 Index

risk(s) (Continued) risk management, 4:407–454 risk-neutral probabilities, 6:102–103 of two-asset portfolio, 4:258–259 with alternative investments, 6:176–180 risk objectives, on IPSs, 4:370–375 unsystematic, 4:436n.27 due diligence, 6:178–180 risk position, 4:409n.1 value at risk, 1:551, 557; 4:370n.1; process, 6:177 risk premium(s) 6:178–179 risk–return measures, 6:178–179 asset, 4:216 conditional, 4:437 and corporate governance, 4:35 bond yield plus, 4:93 and kurtosis, 4:265 in decision process, 4:407–408 default, 1:305, 494–495 risk budgeting with, 4:422 defined, 4:410 defined, 1:625; 4:263 as risk metric, 4:436–438 with derivatives, 6:8, 9, 40 equity, 4:89–92 “wrong-way,” 4:431 and drivers of risk, 4:434–435 expected, 4:259 risk-adjusted performance, 5:94 enterprise historical equity risk premium risk allocation, 6:40 defined, 4:411 approach, 4:89–92 risk analysis, 4:468–469 process for, 4:413–415 for inflation,2: 273 risk arbitrage, 6:50n.24 risk governance in, 4:417–419 for real returns, 4:254 risk-arbitrage trading, 1:91 risk tolerance in, 4:420 and risk aversion of investors, 6:63 risk attitude, clients’, 4:371 with forward contracts, 6:17 risk profile risk averse (term), 4:268 identification of risks,4: 424–433 investment suitability for, 1:122, 124 risk aversion, 4:267–276 financial risks,4: 424–426, 432–433 understanding, 1:119 and arbitrage-free pricing, 6:69 and interactions between risks, risk–return tradeoff,4: 263–264 in CAPM assumptions, 4:336 4:430–432 and adding assets to portfolios, 4:287 concepts, 4:267–268 non-financial risks,4: 424, 426–430, and investing in portfolios vs. equities, and indifference curves,4: 269–271 432–433 4:210–212 loss aversion vs., 5:137 by individuals, 5:9–10 measures of, 6:178–179 and optimal portfolio, 4:299–300 long-term, 4:35 for strategic asset allocation, 4:387 and portfolio selection, 4:273–276 metrics for, 4:435–439, 446–447 for traditional and alternative and pricing of underlying, 6:63–64 normal distribution in, 1:551 investments, 6:130–132 and utility theory, 4:268–276 in portfolio construction, 4:224 risk seeking (term), 4:267–268 computation of utility, 4:272 by portfolio managers, 4:408 risk-seeking investors, 6:63 portfolio selection with utility theory, practice problems, 4:450–452 risk shifting, 4:443–445 4:273–276 in real time, with fintech,4: 468–469 risk tolerance, 4:419–421 risk aversion coefficient,4: 269 risk governance, 4:417–424 defined, 4:268 risk budgeting, 4:393, 394, 421–423 for enterprises, 4:417–419 in enterprise risk management, 4:417 risk committee, 4:24 establishing risk tolerance level, and equity ownership, 5:154–155 risk culture, 4:416 4:419–421 on investment policy statements, risk drivers, 4:409n.1, 434–435 example, 4:423–424 4:371–373 risk exposures, 4:409–410; 5:39 with risk budgeting, 4:421–423 in portfolio management, 4:222 risk-free assets, 4:291–294 risk management process, 4:409–417 and shareholder–manager capital allocation line and optimal risky benefits from,4: 416 relationships, 4:12 portfolio, 4:291–292 for enterprises, 4:413–415 shareholder vs. creditor interests, and capital market line, 4:319–321 framework for, 4:411–417 4:13 combining risky assets with, good vs. bad, 4:410–411 risk transfer, 4:441–443 4:315–318 for individuals, 4:415 risky assets and homogeneity of expectations risk exposure in, 4:409–410 combining risk-free assets with, assumption, 4:317–318 risk modification methods,4: 439–447 4:315–318 two-fund separation theorem, acceptance of risk, 4:441 covariance and correlation of risks, 4:292–293 example, 4:446–447 4:277–279 utility theory and selection of, prevention and avoidance of risk, efficient frontier of,4: 291 4:273–276 4:439–440 importance of correlation of risks in risk-free bonds, arbitrage with, selecting, 4:445–446 portfolio, 4:282 6:47–49 shifting of risk, 4:443–445 portfolio return for, 4:276 risk-free interest rate transfer of risk, 4:441–443 portfolio risk with, 4:276–282 and equity risk premium, 4:93n.19 solutions to problems, 4:453–454 pricing, 6:64 and expected return, 4:259 systems, 6:147–148 relationship of risk and return, nominal, 1:305 Risk Management Association, 3:282 4:279–281 and option pricing/valuation, risk management framework, 4:411–417 utility theory and selection of, 6:89 risk managers, 5:6 4:273–276 real, 1:305; 4:259 risk mitigation, 4:412 risky portfolios and sovereign debt, 5:645–646 risk modification,4: 439–447 insurance for, 4:287 term structure of, 5:419 acceptance of risk, 4:441 optimal risky portfolio risk-free return, capital market line and, example, 4:446–447 and capital market line, 4:320 4:319–321 prevention and avoidance of risk, and homogeneity of expectations, risk governance, 4:417–424 4:439–440 4:317–318 defined, 4:411 selecting, 4:445–446 selection for, 4:313–314 for enterprises, 4:417–419 shifting of risk, 4:443–445 Rite Aid Corporation, 4:95 establishing risk tolerance level, transfer of risk, 4:441–443 Ritter, Jay, 4:105 4:419–421 risk monitoring, 4:412 rivalries, 5:205, 612 example, 4:423–424 risk neutral (term), 4:268 RMBS. see residential mortgage-backed with risk budgeting, 4:421–423 risk-neutral investors, 6:63 securities risk infrastructure, 4:412 risk-neutral pricing, 6:70 ROA. see return on assets

Cumulative_Ind_L1 82 August 1, 2018 7:45 PM Index I-83

“A Roadmap for Convergence between MSCI multi-market index, 5:96 US GAAP on, 3:577 IFRSs and US GAAP” (IASB/FASB), pension fund investment restrictions, salvage value, 3:122 3:56 4:379 SAMA Foreign Holdings, 4:221 Robeco Boston Partners Small Cap Russian rubles, 2:399 same store sales ratio, 3:321–322 Value Fund II, 1:433 RVPI. see unrealized multiple sample excess kurtosis, 1:453–456 Robert Wood Johnson Foundation, RWE, 1:423 sample mean, 1:405–407, 588n.3 4:219 distribution of, 1:588–591 Robinson, Joan, 2:65 S as point estimator, 1:591, 592 robo-advisory services, 4:455, 457, S-1 registration statements, 3:54 standard error of, 1:588–589 466–468 SAA. see strategic asset allocation samples robust (term), 1:633 SAC Capital, 1:6 defined, 1:389, 582 Roche Group, 3:128 SAFE Investment Company, 4:221 dependent, 1:644–648 Roche Holding AG, 2:105; 5:189 safety-first risk,6: 179 independent, 1:639–644 Rockwell Automation, 1:700–701 safety-first rules,1: 549–551 reasons for taking, 1:582 ROC oscillator. see rate of change safety projects, capital budgeting for, in statistics, 1:389 oscillator 4:49 sample selection bias, 1:604–605, Rodman and Renshaw, 1:691 safety stock, of inventory, 4:183 630–631 ROE. see return on equity Safeway, Inc., 3:185–186 sample size rogue traders, 4:428 Saint-Gobain, 1:423 and estimates of population mean, ROIC. see return on invested capital Saks Incorporated, 1:412 1:599–601 Rolex, 2:98 sale(s) and sampling distribution, 1:592–593 rollover, of futures, 5:101 of assets, 5:639 sample skewness, 1:449–450 rollover risk, 5:375 available-for-sale securities, 3:146, sample standard deviation, 1:435–437; roll yield (convenience yield), 6:64–65, 187–189 4:257 173 comparable sales approach to real sample statistic, 1:389, 582–584 Romania, 2:285; 5:96 estate valuation, 6:165 sample variance, 1:434–435 Ross, Stephen, 4:353 comparable store sales ratio, 3:322 calculating, 1:435–437 row crops, 6:163 and consumer spending, 2:207 as point estimator, 1:592 Roxburgh, Charles, 5:348n.1 cost of sampling, 1:581–620 Roy, A. D., 1:549n.24 adjusting, with LIFO reserve, about, 1:582 Royal Bank of Scotland PLC, 5:307, 383 3:357–358 biases, 1:601–607 Royal Dutch Shell PLC and inflation,3: 355–356 data-mining bias, 1:601–604 as commodity-exposed company, 6:169 and inventory valuation method, in investment research, 1:606–607 concentration ratio, 2:107 3:346, 350–352 look-ahead bias, 1:605, 606 decomposition of ROE, 3:317–318 and LIFO reserve, 3:357–358 sample selection bias, 1:604–605, long-term debt and lease disclosure, in periodic vs. perpetual inventory 630–631 3:572–577 systems, 3:352–354 survivorship, 1:604, 606 Royal Numico N. V., 3:328 in perpetual vs. periodic inventory survivorship bias, 1:630–631 Roy’s safety-first rule,1: 549–551 systems, 3:352–354 time-period bias, 1:605, 607, 630, 631 RPI. see Retail Price Index credit, 3:640–641 and central limit theorem, 1:588–591 RSI. see relative strength index days of sales outstanding, 3:292, distribution of sample mean, RTAs. see regional trading agreements 295–296, 656 1:588–591 rubles, Russian, 2:399 final, 2:205 estimates of population mean, Rule 10b5-1 (SEC), 5:122n.10 and finished goods inventory, 1:591–601 Rule 10b5-2 (SEC), 5:122n.10 3:377–378 confidence intervals,1: 593–598 Rule 144 (SEC), 3:54 on income statements, 3:95n.4 point estimators, 1:591–593 Rule 144A ADRs, 5:168 installment, 3:108–109 sample size, 1:599–601 Rule of 72, 1:332n.9 inventory–sales ratio, 2:205, 239 practice problems, 1:610–614 Rules of Procedure. see Bylaws and long and short, 5:50, 123 simple random, 1:582–584 Rules of Procedure for Professional of long-lived assets, 3:240, 451–452 solutions to problems, 1:615–620 Conduct manufacturing, 2:239 stratified random,1: 584–585 “rules of thumb,” 6:157n.30 one-time, 3:658 of time-series and cross-sectional data, rumors, addressing, 1:138–139 price-to-sales ratio, 3:319, 320; 5:265, 1:585–587 running yield, 5:304 269–270 sampling biases, 1:601–607 runs test, 1:655 repeat sales indexes, 6:163–164 data-mining bias, 1:601–604 rupees, Indian, 2:399 return on (see net profit margin) in investment research, 1:606–607 Russell 2000 Index, 1:444; 5:92 same store sales ratio, 3:321–322 look-ahead bias, 1:605, 606 Russell 3000 Index trade, 2:239; 6:154 sample selection bias, 1:604–605, as broad market index, 5:95 sales and purchases of non-produced, 630–631 reconstitution of, 5:92 non-financial assets sub-account, survivorship, 1:604, 606 Russell Global Sectors (RGS) BOP, 2:370 survivorship bias, 1:630–631 classification, 5:189, 190, 192 sales per square meter (sales per square time-period bias, 1:605, 607, 630, 631 Russell Investments, 5:192 foot) ratio, 3:322 sampling distribution, 1:584, 592 Russia sales pressure, 1:66 sampling error, 1:583–584 and Asian financial crisis,2: 341 sales risk, 4:95, 128–130 sampling plans, 1:583 exchange rate regime, 2:434 sales-type leases Sampo, 4:377–378 foreign bonds, 5:313 defined, 3:484, 578 Sam’s Club, 1:404 GIPS country sponsor, 1:231 financial statement impact of,3: 485, Samsung Electronics Co. Ltd., 5:209, 306 import quotas, 2:357 580–583 Samurai bonds, 5:313

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sanctions, 1:38, 43 sufficient, 1:159 Securities and Exchange Commission Sandoz, 5:209 and VaR, 1:551; 6:179 (Brazil), 3:47 San Marino, 2:434 scenario loss, 4:422 Securities and Futures Commission, 5:41 Sanofi, 1:424 schedules Securities Exchange Act (1934), 1:681; Sanofi-aventis S.A.,5: 189 accounts receivable aging, 4:180–181 3:52 Santander UK plc, 5:306 amortization, 5:487–488 Securities Industry and Financial SAP Group call, 5:330 Markets Association (SIFMA), accounts receivable, 3:169, 170 demand, 2:71–73 5:493 balance sheet components, 3:163–164 fee, 1:238, 265 Securities Offerings Registration common-size analysis, 3:199 investment opportunity, 4:82 Statement, 3:52 current assets, 3:167–168 marginal cost of capital, 4:102–105 securitization, 5:474–485 current liabilities, 3:175 short-run cost, 2:80 for asset-backed securities, 5:299 deferred revenue, 3:176–178 supplementary, 3:24–25 defined, 5:473 deferred tax assets, 3:174 Schlumberger, 5:219–221 economic benefits of,5: 474–476 deferred tax liabilities, 3:192 Schneider Electric, 1:424 and financial markets,5: 474–476 equity, 3:193–194 Scholz, Peter, 4:467 of mortgages, 6:160–163 financial assets,3: 189 Schumpeter, Joseph A., 2:83, 211–212 parties’ roles in, 5:478–480 goodwill, 3:186 Schwab, Charles M., 2:96 special purpose entities, 5:482–485 inventories, 3:171 SCL. see security characteristic line of structured financial instruments, marketable securities, 3:169 scope paragraph, of audit report, 3:27 5:349 market capitalization, 1:424 screening, of equity investments, structure of, 5:481–482 non-current assets, 3:178–179 3:694–697 transaction example, 5:476–478 non-current liabilities, 3:190 SDR. see special drawing right securitization markets, sustainable, Sarbanes–Oxley Act (2002) search (data processing method), 4:463 5:476 auditing standards, 3:27 Sears, Roebuck and Co., 1:412; 3:633 securitized assets, 5:474 in history of corporate governance, seasoned offering,5: 50 securitizers, 5:31–32 4:7 seasoned securities, 5:50 security (of electronic information), internal control systems requirements, SEC. see US Securities and Exchange 1:130 3:29 Commission security analysis, in portfolio and SEC authority, 3:52 secondary funds, 1:247, 269 management, 4:223 share prices and control deficiency secondary markets Security Analysts Association of Japan, disclosures, 1:637–639 bond, 5:359, 365–367 1:231 SASB. see Sustainability Accounting security, 5:53–58 security characteristic line (SCL), Standards Board defined, 5:15 4:346–347 SATC curve. see short-run average total execution mechanisms, 5:54–57 security lending agreements, 5:40 cost curve market information systems, 5:58 security market indexes, 5:77–114 Satyam Computer Services, 1:6 and primary markets, 5:50, 53 for alternative investments, 5:101–104 Saudi Arabia trading sessions on, 5:54 construction of, 5:82–91 exchange rate regime, 2:434 secondary offerings,1: 722 defined, 5:78 exchange rate targeting, 2:292 secondary precedence rules, 5:55 equity indexes, 5:95–97 IFRS adoption, 3:59 secondary research, 1:155–156 fixed-income indexes,5: 98–100, 357 MSCI multi-market index, 5:96 secondary sales, of private equity, index values over multiple time Saudi Arabian Monetary Agency, 3:59 6:154 periods, 5:81–82 Savage, Sam, 1:557 secondary sources of liquidity, management, 5:91–93 saving, 5:7–8, 12 4:157–158 origins of, 5:78 household, 2:134, 137 second-degree price discrimination, practice problems, 5:106–111 marginal propensity to save, 2:139 2:103 representative, 5:103–104 and trade balance, 2:442–443 second lien debt, 5:596 single-period returns for, 5:79–81 wealth effect on,2: 152 second-order conditions, for profit solutions to problems, 5:112–114 saving–investment differential, maximization, 2:30 uses of, 5:93–95 2:141–143 second-order risk, 4:436n.28 security market line (SML), 4:337–340 saving rate, household, 2:134, 152, 207 sector ETFs, 4:234 and expected return, 4:338–339 Say, J. B., 2:211 sector indexes, 5:97 portfolio beta, 4:339–340 say on pay, 4:18–19 sectors, economic. see economic sectors and security selection, 4:347–348 Say’s law, 2:211 secured bonds, 5:307, 483 segment debt ratio, 3:328 scale secured debt, 5:595, 596 segment margin, 3:328–329 chart, 1:688–689 securities. see also specific types of segment ratios, 3:328–329 as credit analysis factor, 3:691 securities segment ROA, 3:328–329 diseconomies of, 2:44–47 defined, 5:16–17 segment turnover, 3:328–329 economies of, 2:44–47 description of, 1:169–170 seigniorage, 2:437 and profit maximization for firms, in markets, 5:16–19 Selected American Shares (SLASX) fund 2:43–48 for security market indexes, 5:82 geometric and arithmetic mean project, 4:62–63 selection of, 4:347–348, 394 returns, 1:418–420 scaling down, 2:44 short positions in, 5:39–41 range and mean absolute deviation, scaling up, 2:44 valuation of, 4:82–84 1:430–431 Scania AB, 3:18 Securities Act (1933), 3:52; 4:235–236; sample variance and sample standard scenario analysis (scenario testing) 6:132n.13 deviation, 1:435–437 forecasts from, 3:330 Securities and Exchange Board of India, Sharpe ratio, 1:445, 446 for risk management, 4:437, 469 3:51n.10 selective disclosure, 1:92, 114, 116

Cumulative_Ind_L1 84 August 1, 2018 7:45 PM Index I-85

self-dealing, 1:135 SET. see Stock Exchange of Thailand in US GAAP, 3:132 self-insurance, 4:441 settlement at Viacom Corporation, 5:156–157 self-investment limits, 4:379–380 cash, 6:20, 26 defined, 5:18 self-regulation of GIPS standards, 1:230 clearing instructions for, 5:49–50 diluted, 3:18 self-regulatory organizations (SROs), of contracts, 5:20 dividend per share, 3:319; 5:279–280 3:51; 5:62 of corporate notes and bonds, 5:380 dual-class share structure for, 4:12–13, sellers daily, 6:18, 19 31–32 derivatives, 6:7 defined, 6:11 dual listing of, 5:164–165 number/size of, 2:93 by financial intermediaries,5: 36–37 global registered, 5:168 in securitization process, 5:478 physical, 5:20 multiple-class structure for, 4:12–13 selling short, 1:478n.2 post-trade, 4:472–473 no par, 3:192 sell-out rights, 4:16 in secondary bond markets, 5:366 ordinary, 3:132 sell-side firms,4: 225 T + 1, 5:366 preference (preferred), 5:159–161 sell-side participants, FX market, 2:410, settlement date, 5:413 callable, 5:160, 171, 254 412–413 settlement date accounting, 1:269 common vs., 5:17–18 semiannual bond basis yield, 5:421 settlement price, 6:18 convertible, 5:161 semiconductor industry, 5:200–202 settlement risk, 4:426 cost of, 4:86–88 semideviation, 1:437, 438 settlement value, 3:66 cumulative, 5:160, 171 semilogarithmic scale, 1:456–457 SFAS. see Statement of Financial diluted EPS for company with, semi-strong-form efficient markets, Accounting Standards 3:134–136 5:125–128 shakeout stage (industry life-cycle), fixed rate perpetual,4: 86–87 semi-structured data, 4:458 5:215 non-callable, non-convertible semivariance, 1:437–438 Shanghai Stock Exchange, 4:319; 5:151, perpetual, 5:254–255 seniority ranking, 5:307, 595–597 152 non-cumulative, 5:160 senior tranche, 6:34 Shanghai Stock Exchange Composite non-participating, 5:160 Sensex Index, 5:82 Index (SSE), 5:95 in owners’ equity, 3:192–193 sensitivity analysis, 3:330; 5:268–269 shaping risk, 5:549 participating, 5:160 sensors, as Big Data sources, 4:459, 460 shareholder(s) retractable term, 5:255–256 sentiment indicators, 1:715–718 activist, 6:136 risk of, 5:171 calculated statistical indexes, board member relationships with, valuation of, 5:254–256 1:715–718 4:8–9, 12–13 small-cap, 5:121, 133 opinion polls, 1:715 bondholders vs., 5:610–611 treasury, 3:193 separately managed accounts (SMAs), conflicts with governments or value of, for three-year investment 4:235 regulators, 4:13 horizon, 5:252 sequential comparisons, 1:484n.6 controlling, 4:9, 12–13 Shari’a, 4:380 sequential-pay tranches, 5:497–499 creditor interests vs., 4:13 Sharpe, William, 1:428–429, 443; 4:216, Serbia, 2:285; 3:58; 5:96 customer conflicts with,4: 13 335 serial correlation, 5:125n.16 legal protections for, 4:27 Sharpe ratios, 1:443–446 serial maturity structures, 5:378 manager/director relationships, calculating, 1:586–587 series of cash flows 4:11–12 confidence interval for population future value, 1:314–316 minority (non-controlling), 4:9, 12–13, mean, 1:595–596, 598 with equal cash flows,1: 315–316 16 and downside risks, 6:130–132 with unequal cash flows,1: 316 voting rights of, 5:156, 157 evaluating new assets with, 4:287 present value, 1:320–328 shareholder activism, 4:25–26, 34 formula for, 1:443–445 with equal cash flows,1: 320–325 shareholder engagement, 4:25 and portfolio performance, 4:342 infinite series of equal cash flows, shareholder rights, 4:34 as risk–return measure, 6:178 1:325–326 shareholder rights plan (poison pill), shelf registration, 5:52, 362 at other times than t = 0, 1:326–327 4:26 Shell. see Royal Dutch Shell PLC with unequal cash flows,1: 328 shareholders’ equity, 3:162, 427; 5:174. shifting interest mechanism, 5:503 service(s) see also equity Shiller, Robert J., 1:679 additional, 1:116 shareholder theory, 4:7 shipping, financial reporting quality and, additional, for select clients, 1:116 share repurchase (buyback), 5:249 3:638 bank sweep, 4:168 shares. see also earnings per share (EPS) shoe leather costs, 2:280 change in CPI for, 2:240 American depositary, 5:167 short (term), 6:7 consumer spending on, 2:207 blue-chip, 5:121n.7 short bias strategies, for hedge funds, credit, 5:32 bonus issue of, 5:249 6:138 custodial, 5:36–37 cash flow per share,3: 319 shortfall risk, 1:549–551; 6:179 GDP and value of, 2:123–124 common, 5:156–159 short hedge fund strategies, 4:236 government, 2:123 callable, 5:158–159, 171 shorting, 1:478n.2 level of, 1:114 for commodities investing, 6:169 short interest, 1:717–718 of similar companies, 5:189–190 as component of equity, 3:192 short positions, 5:39–41; 6:41, 47 Service Corporation International, 5:199 and corporate governance, 4:31–32 short rebate rates, 5:40 service fees, 1:68 defined, 5:156 short-run aggregate supply, 2:157–158 service providers, selecting, 1:163–164 and fixed-income securities,5: 298 business taxes and subsidies, 2:158 servicers, in securitization process, at Ford Motor Company, 5:157–158 defined, 2:148–149 5:478 and long-term debt, 3:241 exchange rate, 2:158 services sub-account, BOP, 2:369 and preference shares, 5:159–160 expectations about future prices, 2:158 servicing fee, mortgage pass-through preferred vs., 5:17–18 input prices, 2:158 security, 5:491 putable, 5:159, 171 nominal wages, 2:157

Cumulative_Ind_L1 85 August 1, 2018 7:45 PM I-86 Index

short-run aggregate supply (SRAS) SI. see sustainable investing single cash flow curve, 2:148–149, 157–158 Sibor. see Singapore interbank offered future value, 1:306–314 short-run average total cost (SATC) rate with continuous compounding, curve, 2:44, 45 SIC system. see Standard Industrial 1:312–313 short-run cost curves Classification system frequency of compounding, average total cost curve, 2:44, 45 Siegel, Jeremy, 4:90n.14 1:310–312 profit maximization for firms on, Siemens AG, 1:424; 5:258–259 with interim cash reinvested at same 2:43–44 SIFMA. see Securities Industry and rate, 1:307–308 time frame for, 2:43 Financial Markets Association for lump sum, 1:309–310 total cost curve, 2:43–44 signal line, MACD oscillator, 1:714 stated and effective rates for, short-run cost schedule, in perfect significant cash flows 1:313–314 competition, 2:80 Composite Construction (GIPS without interim cash, 1:308 short-run demand, elasticity of, 2:12 Section I.3), 1:237 present value, 1:317–320 short-run equilibrium, in perfect defined, 1:269 finding, 1:317–319 competition, 2:81 Disclosure (GIPS Section I.4), 1:240 frequency of compounding, short-run marginal cost (SMC), 2:30, SI-IRR. see since inception internal rates 1:319–320 36–37 of return for future lump sum, 1:317–319 short-run total cost (STC) curve, similar companies, 5:189–191 for lump sum, 1:317–319 2:43–44 simple capital structures, 3:132 single-factor models of beta, limitations short selling simple interest, 1:306 of, 4:352 clearing instructions for, 5:50 simple random sample, 1:583 single-index models for beta, 4:330. see defined, 4:336n.4 simple random sampling, 1:582–584 also capital asset pricing model and limits to arbitrage, 6:70 simple yield, 5:423 (CAPM) restrictions on, 5:123 simulated results, 1:127–128 calculation and interpretation of beta using puts vs., 6:93 simulations, 3:330 with, 4:331–332 short-term borrowing, 4:167 back, 1:562–563 decomposition of total risk for, 4:330 short-term cash flows,4: 165–166 historical, 1:562–563 defined, 4:329 cash forecasting systems, 4:166 Monte Carlo, 1:557–563 single mean hypothesis tests, 1:632–639 identifying typical cash flows, of capital expenditures, 1:589–590 and effect of disclosures on share 4:165–166 historical simulation vs., 1:562–563 prices, 1:637–639 minimum cash balances, 4:165 number of trials for, 1:559 and payments of receivables, short-term financing,4: 189–194 potential gains from market timing, 1:635–636 asset-based loans, 4:192 1:560–562 and risk/returns of mutual funds, borrowing approaches, 4:191–192 process, 1:558–559 1:634–635 costs of borrowing for, 4:193–194 random observations in, 1:559–560 single monthly mortality (SMM) rate, sources of, 4:189–191 for risk assessment, 3:690 5:492–494 short-term funding for banks, 5:384–390 simulation trials, 1:558 single-period models of beta, limitations repurchase and reverse repurchase simultaneous dissemination, 1:113 of, 4:352 agreements, 5:386–389 since inception (term), 1:269 single-period returns, for security retail deposits, 5:385 since inception distributions, 1:249 market indexes, 5:79–81 wholesale funds, 5:385–386 since inception internal rates of return single price auctions, 5:54 short-term funds management, (SI-IRR) single-step format, for income 4:167–174 defined, 1:269 statements, 3:98 evaluating, 4:174 gross-of-fees, 1:245, 249 single variance hypothesis tests, investment instruments, 4:168–171 net-of-fees, 1:245, 249 1:648–650 strategies for, 4:171–174 Private Equity (GIPS Section I.7), sinking fund arrangements, 5:321–323, short-term investment portfolio reports, 1:247, 249 378–379 4:174 Real Estate (GIPS Section I.6), 1:245 situational influences,1: 12–13, 21–22 short-term investments, 4:168–171 since inception paid-in capital, 1:249 size effect,5: 133 examples, 4:168–169 Singapore skewness, 1:446–452 investment risks, 4:170–171 Asian financial crisis,2: 341 of binomial distribution of discrete managing cash positions with, 4:167 cumulative voting rules, 4:16 random variables, 1:533 yields of, 4:169–170 discipline for financial reporting defined, 1:449 short-term trading index (TRIN), quality, 3:628 as investment characteristic, 1:718–720 effects of global recession,2: 165, 166 4:264–265 should (term), 1:269 exchange rate regime, 2:435 of mutual funds, 1:450–452 shutdown analysis, 2:28–43 external trade sector, 2:209 of normal distribution, 1:544 breakeven analysis, 2:38–41 GIPS country sponsor, 1:231 sample, 1:449–450 economic vs. accounting cost, 2:28 IFRS adoption, 3:59 skewed distributions, 1:446–449 interaction of costs and output, mean and standard deviation of stock of S&P 500, 1:450 2:31–35 returns, 1:442, 443 Skilling, Jeffery K.,1: 13 marginal revenue, marginal cost, and in MSCI EAFE, 1:406 SLASX fund. see Selected American profit maximization,2: 29–30 MSCI multi-market index, 5:96 Shares fund profit maximization, breakeven, and sovereign ratings, 5:368 Slovak Republic, 2:360n.18, 434 shutdown points, 2:36–37 Singapore dollar, 2:399 Slovenia, 2:360n.18, 434; 5:96 revenue under perfect vs. imperfect Singapore interbank offered rate (Sibor), Small, Medium, and Micro Enterprises competition, 2:35–36 5:301, 353 (SMME), 3:522 shutdown decision, 2:39–40 Singapore Stock Exchange, 5:29, 167 small-capitalization stocks (small-cap shutdown point, 2:36–37, 40 Singha Co., 2:88 shares), 4:94; 5:121, 133

Cumulative_Ind_L1 86 August 1, 2018 7:45 PM Index I-87

small country (term), 2:354 South Africa sovereign wealth funds (SWFs), 2:412; small-denomination negotiable CDs, commodities and economy of, 1:728 4:221 5:386 equity risk premiums, 4:90 sovereign yield spread, 4:100 SMA portfolios. see Wrap Fee/SMA exchange rate regime, 2:435 SOX. see Sarbanes–Oxley Act (2002) Portfolios (GIPS Section I.8) executive remuneration plans, 4:18 S&P. see Standard & Poor’s Corporation “smart contracts,” 4:470 exports, 2:335 S&P 500 Index SMAs. see separately managed accounts GIPS sponsor, 1:231 Arms index, 1:718–719 SMC. see short-run marginal cost IFRS adoption, 3:59 as benchmark, 4:375 Smith, Adam, 2:352 inflation-linked bonds,5: 326 CBOE Volatility Index, 1:716 Smith, Clifford W.,4: 175n.5 inflation targeting,2: 285 Chebyshev’s inequality for, 1:440–441 Smith, Donald J., 5:541n.3, 560n.6 in MSCI multi-market index, 5:96 common-size analysis of, 3:142–143, Smith & Nephew, 5:209, 213 returns 201–202 Smithsonian Agreements, 2:433 on bonds and bills, 5:152–153 co-movement patterns, 4:213–215 SML. see security market line on equities, 5:152–153 consensus current P/E, 1:410, 411 SMME. see Small, Medium, and Micro real equity returns, 1:399 correlations of stocks, 4:284, 332 Enterprises sovereign bonds, 5:370 cumulative relative frequency and SMM rate. see single monthly mortality turnover, 3:95n.4 relative frequency of, 1:402–403 rate South African rand, 2:399 and data mining, 1:603 smoothing techniques, for beta, 4:94 South America, 3:58, 627–628; 5:475. distribution of annual returns, 1:462 social influences see also specific countries and diversification with stocks,4: 348–349 in industry analysis, 5:203, 226–227 regions earnings, 2:398 and industry life-cycle, 5:217 Southeast Asia, 2:366–367. see also equity market returns, 1:437 in strategic analysis, 5:220 specific countries expected value from, 1:416 social infrastructure assets, 6:174 Southern Cone Common Market frequency distribution for holding socially responsible investing (SRI), 4:37, (MERCOSUR), 2:360 period returns, 1:392–398 380–381 South Korea frequency polygon, 1:401–402 Socially Responsible Investment (SRI) Asian financial crisis,2: 341 histogram, 1:400–401, 404 Composite, 1:292–293 business investment, 2:177 implied volatility and, 6:41 social media coefficient of variation,1: 442 as indicator, 1:582 disclosure of confidential information disinflation, 2:225 intermarket analysis, 1:726–728 on, 1:132–133 domestic and international debt as leading indicator, 2:238, 240 and duties to employer, 1:136 securities, 5:315 margin debt vs., 1:717 limited disclosures on, 1:117 effects of global recession,2: 166 as market index, 4:318 and material nonpublic information, exchange rate regime, 2:435, 439 as market proxy, 4:319–321 1:87 foreign bonds, 5:313 mean returns on, 1:640–642 misrepresentation on, 1:73 as GIPS country sponsor, 1:231 modal interval, 1:412 retention of information on, 1:175 government spending, 2:129 number of securities in, 5:82 and stakeholder relationships, 4:27 IFRS adoption, 3:59 portfolio expected return and variance social policies, taxes and, 2:311 inflation-linked bonds,5: 326 of return, 1:496, 497, 500, 501 Société Française des Analystes inflation targeting,2: 285, 287 private equity returns vs., 6:155 Financiers, 1:230 international investment, 5:164 as proxy for market portfolio, 5:94 Société Générale, 1:423 labor productivity, 2:180 range, 1:429 society, benefit of ethics to,1: 40 MSCI multi-market index, 5:96 relative strength analysis, 1:690, 691 soft commissions, 1:104 national debt, 2:307 reported returns, 4:245 “soft” costs, 6:166 natural resources, 2:178 return and risk of two-asset portfolio, soft dollars, 1:104 residential mortgage loans, 5:486, 487 4:258–259 soft hurdle rate, 6:139 risk tolerance and equity ownership, returns for Enron vs., 4:208–209 software, GIPS-compliant, 1:222 5:154–155 securities selection for, 5:82 software development costs, 3:422, securities backed by quasi-government skewness and kurtosis, 1:450 431–434 entities, 5:490 and SPDR S&P 500, 1:444, 646–647 solicitation, of former clients, 1:137–142 underground economy, 2:124 tail risk with, 4:427 Solow, Robert, 2:175 South Korean won, 2:399 volatility of, 6:89 solvency sovereign bonds, 5:367–371 weighted averages on, 1:416 defined, 3:8, 196, 303, 586 credit quality, 5:368–369 Spain of non-current liabilities, 3:586–589 legal issuers, 5:305–306 bonds solvency ratios, 3:303–307 names of, 5:367–368 bonds outstanding, 5:354, 360 calculation, 3:304–305 sources of repayment, 5:306 foreign, 5:313 in company analysis, 5:231 types, 5:369–370 returns on bonds, bills, and equities, defined, 3:204, 291, 304–305, 587 sovereign debt, 5:645–650 5:153 evaluation, 3:306–307, 588–589 flexibility and performance profile, sovereign, 5:368, 369 interpretation, 3:305–307 5:647–648 business investment, 2:177 leverage/coverage ratios, 3:587–589 political and economic profile, cumulative voting rules, 4:16 as risk metrics, 4:438 5:647 disinflation, 2:225 solvency risk, 4:429, 431 in Portugal, 5:649–650 domestic and international debt Sony Corporation, 3:555–557, 659 sovereign debt defaults, 5:645–646 securities, 5:315 Sony Electronics, 5:209, 315, 316 sovereign governments, 5:299, 475 equity risk premiums, 4:90 Sortino ratios, 6:130–132, 179 sovereignty, regional trade agreements EU membership, 2:360n.18 Sotheby’s, 5:199 and, 2:363 exchange rate regime, 2:434 source country, FDI, 2:339 sovereign wealth funds, 5:358 GIPS sponsor, 1:231

Cumulative_Ind_L1 87 August 1, 2018 7:45 PM I-88 Index

Spain (Continued) and fiscal policy,2: 153 Sri Lanka, 1:231; 5:96 gold standard for, 2:432n.11 and taxes, 2:312–313 SROs. see self-regulatory organizations government spending, 2:130 investment, 2:139–140, 146–147 SSE. see Shanghai Stock Exchange Greek fiscal crisis 2010,2: 363–364 public sector, 2:261 Composite Index inflation targeting,2: 285 SPEs. see special purpose entities stable industries, 5:190, 191 labor productivity, 2:180 S&P Global REIT Index, 6:165 stacked column graphs, 3:289 MSCI multi-market index, 5:96 S&P GSCI (Goldman Sachs Commodity Stackelberg model, 2:94 residential mortgage loans, 5:486, 487 Index), 5:101; 6:170 stagflation returns spillover effect, of education,2: 176 and aggregate supply, 2:169–170 on bonds, bills, and equities, 5:153 S&P infrastructure index, 6:175 defined, 2:224 real equity returns, 1:399 spin-offs, 3:452–453 and inflation expectations,2: 234 total returns, 1:406, 409 split coupon bonds, 5:325 staggered boards, 4:21–22, 26 underground economy, 2:124 S&P/MSCI Global Industrial stakeholder management, 4:5–36, 14–20 wealth effect,2: 152 Classification System. see Global about, 4:14 Spartan 500 Index fund, 4:341–342 Industry Classification Standard analyst considerations, 4:31–36 S&P/ASX 200 Index, 1:442 (GICS) board of directors representation, SPC. see Standards of Practice Council sponsored depository receipts, 5:166 4:32 SPCs. see special purpose companies sponsors, GIPS, 1:230–231 composition of investors, 4:33–34 S&P Developed Ex-US BMI Energy spot assets, pricing, 6:66 economic ownership and voting Sector Index, 5:103 spot commodities markets, 5:25, 26 control, 4:31–32 SPDRs. see Standard & Poor’s spot contracts, 5:20 long-term risk management, 4:35 Depositary Receipts spot currency transactions, 5:20 remuneration and company Spearman rank correlation coefficient, spot curve, 5:434–435 performance, 4:32–33 1:655–658 spot exchange rates, 2:408–410, shareholders’ rights, 4:34 special dividend (extra dividend), 426–428; 5:20 defined, 4:14 5:248–249 spot markets, 5:10, 15; 6:5 mechanisms, 4:15–20 special drawing right (SDR), 2:385n.29 spot prices, 6:5 audit function, 4:17 specialization, international trade and, for commodities, 6:171, 173 board of directors, 4:17 2:341 and futures price, 6:40–41 contractual agreements with Specialized Consumer Services sub- spot rates, 5:411–413 creditors, 4:19 industry, 5:199 spot transactions, in FX market, 2:405 contractual agreements with special purpose companies (SPCs), spread(s) customers/suppliers, 4:20 5:306, 477 benchmark, 5:442 employee laws/contracts, 4:19–20 special purpose entities (SPEs) and benchmark yield, 5:574–575 general meetings, 4:15–16 and bankruptcy, 5:483–485 bid–ask, 4:266; 5:44, 365–366 laws and regulations, 4:20 defined, 5:31, 306, 477 bid–offer, 5:365–366 related-party transaction policies, obligations of, 5:306 credit, 5:419, 482–483, 607 4:18 as party to securitization, 5:478 excess, 5:309, 509 remuneration policies, 4:18 role of, 5:482–485 G-, 5:442, 445 reporting and transparency, 4:17 as securitizers, 5:31–32 interpolated, 5:443 say on pay, 4:18–19 special purpose vehicles (SPVs) option-adjusted, 5:445, 631 risks and benefits,4: 28–31 as financial intermediaries,5: 31–32 TED, 6:24 benefits of effective governance, legal obligation of, 5:306 yield, 5:441–445 4:29–31 in securitization transaction, 5:477 and benchmark rates, 5:441–443 risks of poor governance, 4:28–29 special situations strategies, for hedge and benchmark yield curve, stakeholders, 4:8–14 funds, 6:136 5:443–445 defined, 1:6 specific identification method of and credit risk/return, 5:630–637 impact of ethical practices on, 1:6–9 inventory valuation, 3:118, 172, required, 5:418 relationships, 4:11–14, 25–28 349–352 sovereign, 4:100 controlling shareholder–minority Spectrem Group, 6:127 zero-volatility, 5:443, 445 shareholder relationships, 4:12–13 speculation, 2:405; 6:21, 42–43 spread over the benchmark, 5:418 manager–board relationships, 4:13 speculative demand for money, 2:269 spread risk, 5:593 market factors, 4:25–26 speculative money balances, 2:269 spreadsheet modeling, 5:232 non-market factors, 4:27–28 speculators springs, 1:702 principal–agent relationship, 4:11 in commodities market, 6:167 Sprint, 5:217 shareholder–manager/director in energy markets, 6:43n.20 S&P/TSX Capped Income Trust Index, relationships, 4:11–12 in exchange-traded derivatives market, 5:225 shareholder vs. creditor interests, 6:10–11 S&P/TSX Composite Total Return 4:13 forward contracts for, 6:17 Index, 1:413–414 various conflicts,4: 13 gambling by, 6:43 SPVs. see special purpose vehicles stakeholder groups, 4:8–11 spending SQL (database), 4:465 board of directors, 4:9–10 business, 2:153, 200 SQLite (database), 4:465 creditors, 4:9 capital, 2:203–205, 312 SRAS curve. see short-run aggregate customers, 4:10 consumer, 2:153, 200, 206–208 supply curve employees, 4:9 consumption, 2:138–139 SRATC. see short-run average total cost governments, 4:10 government, 2:129–130 curve managers, 4:9 and aggregate demand, 2:137–138, SRI. see socially responsible investing regulators, 4:10 155 SRI Composite. see Socially Responsible shareholders, 4:8–9 current, 2:311 Investment Composite suppliers, 4:10

Cumulative_Ind_L1 88 August 1, 2018 7:45 PM Index I-89

stakeholder theory, 4:7 Standards and Financial Marketing notification of,1: 142 stand-alone mortgage loans, 6:160–161 Integrity Division, 3:78 practice problems, 1:203–212 standard costs, 3:171 standards of conduct (term), 1:8 and principle-based standards, 1:10 standard deviation. see also variance Standards of Practice Council (SPC), and Professional Conduct Program, and coefficient of variation,1: 441–442 1:38–39, 43 1:37–38 and correlation, 4:277 Standards of Practice Handbook, 1:3, professionalism [Standard I], 1:49–84 defined, 1:270, 431 33–37, 39, 42 independence and objectivity of expected total return, 5:170 on communicating recommendations, [Standard I(B)], 1:44, 58–70 expected value of, 1:489–490 3:34 knowledge of the law [Standard I(A)], of investment classes, 6:126 eleventh edition, 1:35–37, 39 1:44, 49–57 of normal distribution, 1:543, 545–546 revisions to, 1:34 misconduct [Standard I(D)], 1:44, population, 1:432–434 Standards of Professional Conduct, 81–84 for portfolio of two assets, 4:277 1:8, 33–47, 49–220. see also Asset misrepresentation [Standard I(C)], risk budgeting with, 4:422 Manager Code of Professional 1:44, 71–81 of risk-free asset, 4:320 Conduct (AMC) text of, 1:44 as risk metric, 4:435–436 adoption of, 1:38 responsibilities as a CFA Institute sample, 1:435–437 and applicable law, 1:50–53 member or CFA candidate of standard normal distribution, 1:544 conflicts of interest [Standard VI], [Standard VII], 1:193–202 and variance of returns, 4:257 1:177–192 conduct as participants in CFA and volatility, 6:89 disclosure of conflicts [Standard Institute programs [Standard standard error VI(A)], 1:46, 177–184 VII(A)], 1:36–37, 47, 193–197 in confidence interval construction, priority of transactions [Standard reference to CFA Institute, 1:594 VI(B)], 1:46–47, 185–190 designation and Program [Standard of the sample mean, 1:588–589, 599 referral fees [Standard VI(C)], 1:47, VII(B)], 1:47, 198–202 of test statistic, 1:626 190–192 text of, 1:47 Standard Industrial Classification (SIC) text of, 1:46–47 solutions to problems, 1:213–220 system, 5:197 duties to clients [Standard III], and Standards of Practice Council, standardization 1:101–133 1:38–39 of exchange-traded derivatives, 6:11 fair dealing [Standard III(B)], 1:45, in Standards of Practice Handbook, of futures contracts, 6:17–18 110–118; 5:51 1:3, 33–37 of random variables, 1:546–547 loyalty, prudence, and care [Standard text of, 1:44–47 standardized yield measures, 5:420 III(A)], 1:45, 101–109 and values of CFA Institute, 1:43 standard normal distribution, 1:544, performance presentation [Standard standing limit orders, 5:45–46 740–741 III(D)], 1:45, 125–129 Stanford Financial Group, 1:6 standard normal variables, probability preservation of confidentiality Stanford University, 4:218 of, 1:547 [Standard III(E)], 1:45, 129–133 Stanley Gibbons, 6:175 Standard & Poor’s Corporation (S&P), suitability [Standard III(C)], 1:45, Stanley Security Solutions, 5:199, 200 4:438 118–125 The Stanley Works,5: 199, 200 commercial paper ratings, 5:375 text of, 1:45 stated annual interest rate, 1:310 company classifications,5: 192, duties to employers [Standard IV], stated rates, for single cash flow, 201–202 1:133–154 1:313–314 coverage ratios for capitalized interest, additional compensation “Statement in Support of Convergence 3:430 arrangements [Standard IV(B)], and Global Accounting Standards” credit ratings 1:46, 144–145 (SEC), 3:57 in Greek financial crisis,2: 363 loyalty [Standard IV(A)], 1:45–46, Statement of Cash Flows (ASC 230), investment-grade, 5:99, 299n.2, 350 133–143 3:471n.32 ordinal scales for, 1:390 responsibilities of supervisors Statement of Cash Flows (IAS 7), process for generating, 3:325 [Standard IV(C)], 1:36, 46, 146–154 3:471n.32, 651 transition rates of, 5:606–607 text of, 1:45–46 Statement of Duties and Responsibilities, types of, 1:391n.3 evolution of, 1:34 IPS, 4:369 for United Rentals, Inc., 5:604–605 integrity of capital markets [Standard Statement of Financial Accounting default rates by credit category, II], 1:84–101 Standards (SFAS) 5:605–606, 635–636 market manipulation [Standard Accounting for Income Taxes (SFAS funds from operations, 5:615 II(B)], 1:45, 96–101 109), 3:508 industrial comparative ratio analysis, material nonpublic information Accounting for the Costs of Computer 5:617 [Standard II(A)], 1:44–45, 84–95 Software to be Sold, Leased, or long-term ratings matrix, 5:602–603 text of, 1:44–45 Otherwise Marketed (SFAS 86), municipal debt ratings, 5:651 investment analysis, recommendations, 3:431 notching guidelines, 5:604–605 and actions [Standard V], Employers’ Accounting for Defined role in credit markets, 5:601, 602 1:154–176 Benefit Pension and Other sovereign credit analysis, 5:646–648 communication with clients and Postretirement Plans (SFAS 158), sovereign ratings, 5:368 prospective clients [Standard V(B)], 3:679 Standard & Poor’s Depositary Receipts 1:36, 46, 165–174 Statement of Purpose, IPS, 4:369 (SPDRs), 5:68, 74 diligence and reasonable basis statements of account information, 1:105 SPDR Gold Shares ETF, 6:169 [Standard V(A)], 1:46, 154–165; statements of cash flows. see cash flow SPDR S&P 500, 1:444, 647–648 5:49 statements SPDR© S&P Energy Sector Exchange- record retention [Standard V(C)], statements of changes in equity Traded Fund, 5:103 1:46, 174–176 of Apple Inc., 3:195–196 Standards Advice Review Group, 3:55 text of, 1:46 and balance sheet, 3:195–196

Cumulative_Ind_L1 89 August 1, 2018 7:45 PM I-90 Index

statements of changes in equity sample, 1:389, 582–584 lognormal distribution for, 1:553–554 (Continued) sampling distribution of, 1:584 and net present value, 4:67–68 defined, 3:12 solutions to problems, 1:468–471 stock screens, 1:484–485 in financial statement analysis,3: 20, 21 symmetry, 1:446–452 stock splits, 5:83, 85, 157, 249 statements of comprehensive income, using geometric and arithmetic means, stop-buy orders, 5:48, 49 3:12, 16–20 1:456–457 stop-loss orders, 5:48–49 statements of financial condition,3: 162. Statistics Canada, 2:121, 132, 133 stop orders, 5:48–49 see also balance sheets Statistics New Zealand, 5:196 storage statements of financial position,3: 12, status, client, 1:130 in derivatives pricing, 6:46–47 162. see also balance sheets statutory voting, 5:156 and holding of assets, 6:65 statements of operations, 3:17, 528–529. Staunton, Mike, 4:89–90 theory of, 6:173 see also income statements STC curve. see short-run total cost curve storage (data processing method), 4:463 State Street, 5:209 Steiner, Fabian, 4:105 Straight from the Gut (Welsh), 3:659 Statistical Classification of Economic step-up coupon bonds, 5:324 straight-line depreciation method Activities in the European Sterling exchange rate, 2:416 and balance sheet, 3:644–647 Community (NACE), 5:196 Sterling–yen exchange rate, 2:417 bond premium/discount amortisation, statistical discrepancies, in GDP, 2:132 STMicroelectronics, 5:210 3:551 statistical factor models, 4:329 stochastic oscillator, 1:712–714 calculation, 3:436 statistical inference, 1:389, 591, 622 stock(s). see also equity securities defined, 3:435 statistical significance,1: 628 (equities); shares depreciation/amortisation, 3:121–122 statistical similarities, of similar arbitrage with, 6:47–49, 67, 68 double-declining and units-of- companies, 5:191 capital, 2:176–177 production methods vs., 3:436–440 statistics, 1:387–471. see also test common, 3:132, 192, 241 straight voting, 4:12 statistic convertible common, 5:157 Straits Times Index, 1:442 about, 1:388 correlation of T-bills/bonds with, 4:285 stranded assets, 4:39 defined, 1:389, 582 defined, 4:259 strategic analysis, 4:412 dispersion, 1:428–446 downside frequencies, 6:131 strategic asset allocation (SAA), absolute, 1:428 employee stock options, 4:208–210, 4:385–393 Chebyshev’s inequality, 1:439–441 286, 381 for European charity, 4:395–397 coefficient of variation,1: 441–443 fixed rate perpetual preferred,4: 86–87 objective of, 4:388–389 mean absolute deviation, 1:429–431 growth, 5:97 for private investor, 4:392–393 population variance and standard historical returns, 6:126 specifying asset classes for, 4:385–387 deviation, 1:431–434 historical risk and correlation, 4:285 strategic default, 5:488 range, 1:429–431 nominal returns, 4:259–262 strategic groups, analysis of, 5:202–203 sample variance and standard ownership of, 1:179–181 strategic industry analysis, 5:204–222 deviation, 1:434–437 performance of, 6:134–135 barriers to entry in, 5:206–208 semivariance and semideviation, preferred, 3:134–136, 192–193; example, 5:219–222 1:437–438 4:86–88; 5:254–256 five forces framework,5: 205–206 Sharpe ratio, 1:443–446 real returns, 4:261–262 industry capacity in, 5:211–212 frequency distributions, 1:391–399 returns on commodities vs., 6:170 industry concentration in, 5:208–211 construction of, 1:392–394, 398–399 returns on hedge funds vs., 6:139 industry life-cycle model in, 5:213–218 cumulative, 1:401–403 risk and return, 4:259–260 example, 5:217–218 defined, 1:391 Sharpe and Sortino ratios, 6:131 limitations of, 5:217 and holding period formula, 1:392 skewness of stock returns, 4:264–265 stages of industry life cycle, and relative frequency, 1:394–398 small-capitalization, 4:94; 5:121, 133 5:213–216 graphic presentations of data, subdivisions and combinations of, using, 5:216–217 1:399–403 5:157 market share stability in, 5:212–213 frequency polygons and cumulative treasury stock method for diluted EPS, price competition in, 5:218–219 frequency distributions, 1:401–403 3:137–139 stratified random sampling,1: 584–585 histograms, 1:400–401 value, 5:97, 133 Stratton Small-Cap Value Fund, 1:433 kurtosis, 1:452–456 volatility of, 6:126 stratum, 1:584 measurement scales, 1:390–391 stock analysts, 5:6 Strauss-Kahn, Dominique, 2:384 identifying, 1:391 stock dividend (bonus issue of shares), street conversion, 5:422 types of scales, 1:390 5:249 stress testing, 1:551; 4:437, 468; 6:179 measures of central tendency, Stock Exchange of Thailand (SET),1: 476 stretching payables, 4:187 1:404–422 stock funds, 4:229 strike price. see exercise price arithmetic mean, 1:404–408 stock mutual funds, 4:232 strip curve, 5:434 geometric mean, 1:416–420 stock options, 6:36n.15 strong-form efficient markets,5: 128 harmonic mean, 1:420–421 stock options, diluted earnings per share structural budget deficit,2: 315 median, 1:409–411 for, 3:139 structural subordination, 5:604 mode, 1:411–413 stock-out costs, 4:184 structured data, 4:458 weighted mean, 1:413–416 stock-out losses, 4:182 structured finance CDOs,5: 513 nature of, 1:389 stock price(s) structured finance sector,5: 349 populations and samples, 1:389–390 and aggregate demand, 2:155 structured financial instruments, practice problems, 1:461–467 as Bernoulli random variable, 5:381–384 quantiles, 1:421–428 1:530–531 capital protected instruments, 5:382 calculating, 1:423–425 binomial model, 1:538–539 leveraged instruments, 5:383 in investment practice, 1:425–428 and control deficiency disclosures, participation instruments, 5:382–383 types of, 1:421–425 1:637–639 yield enhancement instruments, 5:382

Cumulative_Ind_L1 90 August 1, 2018 7:45 PM Index I-91

structured interest-only tranches, guidance, 1:118–121 in oligopolies, 2:94–95 5:497n.11 addressing unsolicited trading in perfect competition, 2:76–77 structured products, 5:381–382 requests, 1:120–121 and spread on corporate bonds, 5:631 structuring process, 5:497 developing investment policies, 1:119 supply chains, global, 2:341 Strum Ruger & Co., Inc., 3:364–366 managing to indexes or mandates, supply curves Stryker, 5:213 1:121 aggregate, 2:148–150, 157–162, Student’s t-distribution. see need for diversification,1: 120 171–172 t-distribution understanding client’s risk profile, in monopolistic competition, 2:85 style indexes, 5:97 1:119 supply shock to inflation rate,2: 295 sub-advisors updating investment policies, 1:120 support, 1:693 defined, 1:270 text of, 1:45, 118 support tranches, 5:499–501 Disclosure (GIPS Section I.4), 1:239, suitability test policies, 1:122 supranational bonds, 5:372–373 240 summaries, attributing, 1:75 supranational organizations, 5:299 Fundamentals of Compliance (GIPS Summer Olympics (1980), 4:443n.36 supranationals, 5:601n.10 Section I.0), 1:234 sum of value added method, for GDP, surety bonds, 4:443; 5:309 selecting, 1:157, 164 2:121–122, 132 surpluses Subaru, 2:86 Sunbeam, 3:288, 619, 626, 658 budget, 2:302 subdivisions, of stock, 5:157 sunk costs, 2:28; 4:51 consumer sub-indexes, price, 2:229 superannuation funds, 5:546 and alternative trade policies, 2:355, subjective probability, 1:476 supervised learning, 4:461–462 358 submanagers, 1:124, 160–161 supervision in monopoly, 2:102–104 subminuette, Elliott wave, 1:724 detection as part of, 1:147–148 in perfect competition, 2:74–76 subordinated debt, 5:596–597 inadequate, 1:152–153 and tariffs,2: 355 subordination, 5:308–309, 481, 503 of research activities, 1:150–151, in current account, 2:375, 377–379 subprime loans, 5:486 153–154 of money, 2:233–234 Subrahmanyam, Marti G., 1:642–643 system for, 1:147 producer, 2:355, 358 Sub-Saharan Africa of trading activities, 1:151 trade, 2:336 growth spillovers, 2:362 supervisors. see Responsibilities of survey approach, for cost of equity, 4:92 trade-to-GDP ratio, 2:338 Supervisors [Standard IV(C)] Survey of Current Businesses (US subscription accounting, 3:129–130 supervisory board, 4:10 Department of Commerce), 2:121 subsidiaries supplemental information, 1:270 survivorship bias captive finance,4: 175 supplementary information, for financial for alternative investments, 6:125n.3 high-yield credit analysis for, statement analysis, 3:11–12 and back-testing, 3:696 5:642–643 supplementary prospectus, 5:478n.3 and GIPS standards, 1:222 of income statements, 3:17 supplementary schedules, 3:24–25 and hypothesis testing, 1:630–631 of Nestlé, 5:159 suppliers in investment research, 1:606 restricted vs. unrestricted, 5:644 cash to, 3:236–237 and performance of hedge funds, temporary differences on financial contractual agreements with, 4:20 5:102; 6:143 statements for, 3:523 customer conflicts with,4: 13 and sample selection bias, 1:604 subsidies power of, 5:205, 612 sustainability export, 2:354, 357–359 as stakeholders, 4:10 of capital markets, 1:40–41 in monopolies, 2:104 supply. see also demand and supply of earnings, 3:610–612 and short-run aggregate supply, 2:158, analysis Sustainability Accounting Standards 160 aggregate Board (SASB), 4:39 substitutes and AS curve, 2:148–150 sustainable growth, 2:173, 179–184 and cross-price elasticity of demand, defined, 2:136 and fixed-income investments, 2:15, 16 and global recession, 2:165–167 2:183–184 in industry structure, 5:612 and imports/exports, 2:336–337 and labor productivity, 2:180–181 in perfect competition, 2:71, 73 investment strategies for shifts in, measures of, 2:181 in strategic analysis, 5:205 2:169–170 rate of growth in potential GDP, substitution, import, 2:352n.10 long-run, 2:148–150, 159–161 2:182–183 substitution bias, 2:226 in perfectly competitive market, 2:81 sustainable growth rate, 3:319, 321; substitution effects in real business models, 2:216–217 4:92–93 on elasticity of demand, 2:12 shifts in, 2:150–151, 157–162 sustainable investing (SI), 4:36–37 on Giffen and Veblen goods,2: 21 shifts in demand and, 2:170–173 sustainable securitization markets, and law of demand, 2:18–19 short-run, 2:148–149, 157–158 5:476 on normal and inferior goods, 2:19–23 and stagflation,2: 169–170 Sviluppo Mercato Fondi Pensione, in perfectly competitive markets, 2:69 of commodities, 6:171 1:231 with price decrease, 2:20–23 in company analysis, 5:230 swap funding, 2:407–408 substitution risk, 5:612 elasticity of, 2:8 swap points, 2:424 suitability, 1:124–125 excess, 2:337 swap rates, 2:424–428 for entire portfolio, 1:122–123 for fixed- vs. floating-rate debt,5: 352 swaps (swap contracts), 6:21–25 for investor risk profile,1: 122, 124 money, 2:154 asset, 5:443 Suitability [Standard III(C)], 1:118–125 changes in, 2:270–272 basis, 6:24 application of the standard, 1:122–125 and interest rates, 2:273 commodity, 6:169 compliance procedures, 1:121–122 M2, 2:240, 241 in contract markets, 5:23–24 investment policy statements, 1:121 real, 2:144–146 credit default regular updates, 1:122 in monopolies, 2:99–100 contracts for, 5:25 suitability test policies, 1:122 in monopolistic competition, 2:85 credit as underlying for, 6:37

Cumulative_Ind_L1 91 August 1, 2018 7:45 PM I-92 Index

swaps (swap contracts) (Continued) returns Tankan Survey, 2:240, 242 as credit derivatives, 6:31–33 on bonds, bills, and equities, 5:153 Tanzania, 3:59 defined, 4:438n.32 real equity returns, 1:399 Target, 4:162–163, 184 as insurance contracts, 5:34 total returns, 1:407, 410 target balance, 4:167 currency, 5:24; 6:23n.12, 37 risk tolerance and equity ownership, target capital structure, 4:80 defined, 6:21–22, 61 5:155 target companies, for leveraged buyouts, equity, 6:36 sovereign bonds, 5:368, 369 6:151–152 FX, 2:407–408 symmetrical triangle pattern, 1:703 target independence, 2:286 index, 6:36 symmetry, 1:446–452, 533 target market, for security market interest rate, 5:23–24; 6:22–23 Synchrony Bank, 5:512 indexes, 5:82 long and short side of, 5:39 syndicated loans, 5:364, 374 target semideviation, 1:438 overnight indexed, 6:24 syndicated offerings,5: 361 target semivariance, 1:438 plain vanilla, 6:22–23, 37 syndicates, 4:442–443 target zone currency regimes, 2:434, 437 pricing and valuation of, 6:82–85 Syngenta, 3:75 tariffs, 2:354–359 total return, 6:30 synthetic CDOs, 5:513 analysis of, 2:356–357 swarming, 2:83 synthetic leases, 3:467, 565 defined, 2:354 Swaziland, 3:59 Syria, 2:434 GATT, 2:382, 383 Sweden systematic account reviews, 1:114 and quotas/VERs, 2:358–359 banking supervision, 2:277 systematic risk, 4:326–328 two-part tariff pricing,2: 103–104 disinflation, 2:225 for alternative investments, 6:129 Tata Motors, 5:270 equity risk premiums, 4:90 and calculation of beta, 4:331–332 taxable income, 3:508–513 exchange rate regime, 2:435 drivers of, 4:435 taxable profit, accounting profit vs., GIPS sponsor, 1:231 in Jensen’s alpha, 4:343 3:518–523 government spending, 2:130 proxies, 5:94 taxable temporary differences, in inflation-linked bonds,5: 326, for single-index model of beta, 4:331 taxable/accounting profit, 327 and strategic asset allocation, 4:384 3:519–522 inflation targeting,2: 285, 287 in Treynor ratio, 4:342 tax-advantaged securities, 4:169 labor productivity, 2:180 systematic sampling, 1:583 tax asset valuation accounts, 3:654 MSCI multi-market index, 5:96 systemic risk, 5:334; 6:32, 43–44 tax bases, 3:513–518 returns of assets, 3:513–515 on bonds and bills, 5:152–153 T and changes in tax rates, 3:517–518 on equities, 5:152–153 T. Rowe Price Corporate Income Fund, defined, 3:509 real equity returns, 1:399 4:231–232 of liabilities, 3:515–517 total returns, 1:406, 410 T. Rowe Price Equity Income (PRFDX) taxes risk tolerance and equity ownership, fund and aggregate demand, 2:140, 153, 155 5:154–155 geometric and arithmetic mean attributes of tax policy, 2:309–310 sovereign bonds, 5:369, 370 returns, 1:418–420 capital gains, 4:254 underground economy, 2:124 kurtosis, 1:454–456 in CAPM assumptions, 4:336 Swedish Financial Supervisory range and mean absolute deviation, and cost of capital, 4:79–80 Authority, 2:277 1:430–431 current, 3:524–527 Swedish krona, 2:399; 5:351 sample variance and sample standard deferred, 3:524–527, 533–536 Swedish Society of Financial Analysts, deviation, 1:435–437 direct, 2:309, 312 1:231 Sharpe ratio, 1:445, 446 on dividend income, 4:254 SWFs. see sovereign wealth funds skewness of, 1:450–452 and fiscal policy,2: 301–302, 310 Swiss Bankers Association, 1:231 T. Rowe Price Small Cap Value Fund, and fixed-income securities,5: 316–318 Swiss Exchange, 3:50, 58 1:433 and government spending, 2:312–313 Swiss franc T + 1 settlement, 5:366 income, 3:507–544 currency code, 2:399 T206 Honus Wagner baseball card, and accounting profit vs. taxable exchange rate quotes with, 2:416 6:176n.39 income, 3:508–513 international bonds outstanding in, tactical asset allocation, 4:393–394 cash for, 3:239 5:351 “tag clouds,” 4:464 disclosure of tax information, as reserve currency, 5:19 Tai, Jackson, 5:161 3:528–533 Swiss franc exchange rate, 2:416 tail events, 6:179 IFRS vs. US GAAP, 3:508, 533–536 Swiss GAAP, 3:50, 58 tail risk, 4:427–428 practice problems, 3:538–542 Swiss National Bank, 2:411 Taiwan presentation, 3:528–533 Switzerland Asian financial crisis,2: 341 solutions to problems, 3:543–544 banking supervision, 2:277 comparative advantage, 2:350–351 and taxable vs. accounting profit, equity risk premiums, 4:90 effects of global recession,2: 166 3:518–523 exchange rate regime, 2:435 globalization of production, 2:340 tax bases for, 3:513–518 flotation costs,4: 105 MSCI multi-market index, 5:96 unused tax losses and credits, foreign bonds, 5:314 Taiwan Semiconductor Manufacturing 3:523–524 GIPS sponsor, 1:231 Company Ltd., 5:200, 201 and income trusts in Canada, 5:225 growth spillover, 2:362 takeover defenses indirect, 2:309, 311 IFRS adoption, 3:58 cross-shareholdings, 4:33–34 and inventory method changes, 3:368 MSCI multi-market index, 5:96 poison pills, 4:26 and IPSs, 4:379 pension fund investment restrictions, takeover market, 4:26 in lease versus buy decision, 3:467 4:379 takeovers, 4:12 and LIFO method, 3:357 regulatory authorities, 3:50 taking a market, 5:46 net tax rate, 2:312 residential mortgage loans, 5:487 tangible assets, 6:129, 175–176 on REITs, 6:126

Cumulative_Ind_L1 92 August 1, 2018 7:45 PM Index I-93

reporting of depreciation methods, technical model requirements, in tests of difference between 3:441 understanding, 1:164–165 population means, 1:640–644 and short-run aggregate supply, 2:158, technology in tests of mean differences,1: 645–648 160 and aggregate supply, 2:160 in tests of single population mean, and social policies, 2:311 and comparative advantage, 2:352 1:633–636 and yield-to-maturity, 5:433 and economic growth, 2:175–178 Teva Pharmaceutical Industries, 5:209 tax-exempt bonds, 5:355 in industry analysis, 5:203, 222–223 Texas, 5:651 tax expense, 3:368, 509 on industry life-cycle, 5:217 Texas A&M University System, 4:218 tax loss carry forward, 3:509 and labor productivity, 2:179 Texas Instruments, 5:210 tax-loss selling hypothesis, 5:131 and long-term aggregate supply, text analytics, 4:465 tax rates, changes in, 3:517–518 2:160 textile industry, 2:343–344 tax recognition, 3:518n.3 in strategic analysis, 5:221 TFC. see total fixed cost tax reform, 2:310 and substitution risk, 5:612 TFP. see total factor productivity tax risk, 4:427 Technology sector, 5:193 ThaiBev, 2:88 Taylor, Owen, 1:686 Teck Resources Ltd., 3:10–11 Thailand T-bills. see US Treasury bills TED spread, 6:24 Asian financial crisis,2: 341 T-bonds. see US Treasury bonds telecommunications industry, structure beer industry, 2:87, 88 TCs. see total costs of, 5:217 currency regime, 2:435 TD Ameritrade Holding Corporation, Telecommunications sector, 5:193 exchange rate targeting, 2:292 3:705–706 Telefónica Group, 3:226–228 globalization of production, 2:340 TD Bank. see Toronto-Dominion Bank Telefónica S.A., 1:424; 5:192, 272–273 IFRS adoption, 3:59 t-distribution Teléfonos de México, S.A.B. DE C.V., inflation targeting,2: 285 and confidence interval for population 3:678–680 MSCI multi-market index, 5:96 mean, 1:597–598 Tele Norte Leste Participações S.A., non-domestic equity securities, 5:164 defined, 1:632–633 3:678–680 Thaler, Richard,5: 132 and estimation of normal sampling telephone utilities, 2:100, 105 Thatcher, Margaret,2: 274 distribution, 1:595 television broadcasting, 2:65 thematic investing, 4:37 normal distribution vs., 1:596–597 Temasek Holdings, 4:221 theory of storage, 6:173 table, 1:742 temporary differences, in accounting/ theory of the consumer, 2:5 Tech Data Corporation, 3:228–230 taxable profit,3: 508, 519–522 theory of the firm,2: 5 technical analysis, 1:677–738 deductible differences,3: 519–522 third-degree price discrimination, 2:103 defined, 1:678 examples, 3:520–522 third-party custodians, 1:60 Elliott Wave Theory,1: 723–726 at initial recognition, 3:522 third-party research, 1:155–156, 160 fundamental vs., 1:680–682 taxable differences,3: 519–522 Thomson Reuters,3: 281 implications of efficient market temporary new accounts, 1:237, 270 threat of entry, 5:205, 612 hypothesis for, 5:129 temporary workers, use of, 2:222 three-dimensional (3D) graphics, 4:463 intermarket, 1:726–728 10-K, Form. see Form 10-K three-factor models for beta, 4:329 practice problems, 1:731–735 tender offers,4: 26 three-stage dividend discount model, principles and assumptions, 1:678–680 tenor, 5:300, 438 5:262 solutions to problems, 1:736–738 TEPCO. see Tokyo Electric Power Tibor. see Tokyo interbank offered rate tools for, 1:682–723 Company tight fiscal policy,2: 319 chart patterns, 1:694–705 terminal stock value (terminal value), tight monetary policy, 2:319 charts, 1:682–691 5:251, 261 TIIS. see Treasury inflation-indexed market cycles, 1:722–723 Terminated Composites. see US Core securities technical indicators, 1:705–722 Equity Composite Timber Hill, 5:30 trends, 1:691–694 termination policies, 1:137 timberland, investing in, 6:158–159, 163 and weak-form efficient market term maturity structures, 5:378 time hypothesis, 5:125 term of repurchase agreement, 5:387 on point and figure charts,1: 686 technical indicators, 1:705–722 term repo, 5:387 present value of cash flows at times flow-of-funds, 1:718–722 terms of trade, 2:335–336 other than t = 0, 1:326–327 Arms index, 1:718–720 term structure time frame margin debt, 1:720 of credit spreads, 5:419 of decision and dissemination, and market indicators, 1:721 of interest rates, 5:433–441, 568; 6:79 1:112–113 mutual fund cash position, 1:720–721 of risk free rates, 5:419 for market efficiency,5: 117 new equity issuance, 1:721–722 of yield volatility, 5:568–569 and performance calculation, secondary offerings,1: 722 terrorism, as operational risk, 4:429 1:126–127 momentum oscillators, 1:708–715 Tertilt, Michael, 4:467 time horizon about, 1:708–710 Tesco, 5:362 for cash forecasting, 4:166 MACD oscillator, 1:714–715 Tesoro Público, 5:368 for forward contracts, 6:74 relative strength index, 1:710–712 test statistic for portfolio management, 4:222 ROC oscillator, 1:708–710 acceptance region for, 1:628–629 and portfolio planning, 4:378–379 stochastic oscillator, 1:712–714 calculating, 1:630–631 and risk tolerance, 4:371 price-based, 1:705–708 defined, 1:625–626 time intervals, chart, 1:690 Bollinger bands, 1:707–708 rejection point for, 1:628–630 time period(s) moving average, 1:705–707 rejection (critical) region for, 1:629 and GIPS standards, 1:222 sentiment, 1:715–718 in tests concerning difference between security index values over multiple, calculated statistical indexes, variances, 1:651 5:81–82 1:715–718 in tests concerning value of population time-period bias, 1:605, 607, 630, 631 opinion polls, 1:715 variance, 1:649 time-series data, 1:405–406, 585–587

Cumulative_Ind_L1 93 August 1, 2018 7:45 PM I-94 Index

time-series pricing anomalies, Tokyo Stock Price Index (TOPIX) GIPS Advertising Guidelines (GIPS 5:130–132 as benchmark, 4:371 Section III), 1:257 time to expiration, option pricing and, estimating risk premium with, 4:89 for leveraged stock purchase, 5:42–43 6:88–89 features of, 5:103 for multiple periods, 5:81–82 time-to-maturity, 5:551 number of securities in, 5:82 Presentation and Reporting (GIPS time tranching, 5:482 as proxy for market portfolio, 5:94 Section I.5), 1:241 time value decay, 6:90 weighting of stocks on, 1:416 price vs., 5:78–79 time value of money (TMV), 1:303–357; tolerance for leverage, 3:691 Real Estate (GIPS Section I.6), 1:244 5:402–413 top-down analysis, 3:694 on real estate, 6:158 cash flow additivity principle,1: 338 top-down approach to equity valuation, for single period, 5:80–81 defined, 1:304 5:244 total return index, 5:78–82 and discounted cash flows,1: 359 top-down portfolio analysis, 4:223, for multiple periods, 5:81–82 future value 397 for single period, 5:80–81 equivalence of present and, top down strategies, 6:136, 137 value of, 5:79–81 1:336–337 top heavy capital structure, 5:642 total return swaps, 6:30 of series of cash flows,1: 315–316 TOPIX. see Tokyo Stock Price Index total revenue (TR) of single cash flow,1: 306–314 TORM A/S, 3:560–561 in oligopoly, 2:90 and interest rates, 1:304–305 Toronto-Dominion Bank (TD Bank), under perfect and imperfect market discount rate, 5:402–406, 1:690, 718; 5:209 competition, 2:35–36 407–411 Toshiba Corporation, 3:275–277 and price elasticity, 2:73–74 practice problems, 1:340–344 Total (company), 1:424 in shutdown analysis, 2:41–42 present value total asset turnover, 3:293, 297 total risk equivalence of future and, 1:336–337 total comprehensive income, 3:145 decomposition of, 4:330 of series of cash flows,1: 320–328 total costs (TCs) in Sharpe ratio, 4:342 of single cash flow,1: 317–320 average Total S. A., 5:250 and required rate of return, 6:63 with economies of scale, 2:45–46 total value solutions to problems, 1:345–357 interactions of other costs and output and consumer surplus, 2:75 solving problems for variables, with, 2:31–35 defined, 1:270 1:328–338 in perfect competition vs. monopoly, Private Equity (GIPS Section I.7), 1:249 interest rates and growth rates, 2:36–37 Real Estate (GIPS Section I.6), 1:245 1:329–331 fixed, 2:31–35, 41–42 total variable cost (TVC) number of periods, 1:331–332 and other costs/output, 2:31–35 interactions of other costs and output size of annuity payments, 1:332–336 of production, 2:24 with, 2:31–35 spot rates, 5:411–413 variable, 2:31–35, 41–42 in shutdown analysis, 2:41–42 yield to maturity, 5:406–407 total debt to total debt plus equity ratio, “toxic waste,” 5:32 time value of options, 6:90 3:326 Toyota Motor Corporation Time Warner, 1:700 total expenditure(s) financial reporting,3: 611–612 time-weighted rate of return and aggregate income, 2:137–144 growth rate, 1:330–331 Calculation Methodology (GIPS and consumer surplus, 2:75–76 international trade, 2:86 Section I.2), 1:235 and own-price elasticity of demand, method of comparables, 5:270 defined, 1:270 2:13–14 ROC oscillator, 1:709–710 linked, 1:244 total factor productivity (TFP), 2:174, similar companies to, 5:189 money- vs., 1:372–374 178 two-factor analysis, 5:209 for portfolios, 1:369–374 total firm assets TR. see total revenue Real Estate (GIPS Section I.6), 1:244, defined, 1:270 tracking error, 1:536; 4:370n.2 245 Disclosure (GIPS Section I.4), 1:238 tracking objective, 1:536 TIPS. see Treasury inflation-protected Fundamentals of Compliance (GIPS tracking risk, 1:536; 4:370n.2 securities Section I.0), 1:234 track record titles, real estate, 6:158 Presentation and Reporting (GIPS as company fundamental, 5:613 TMV. see time value of money Section I.5), 1:241 of hedge funds, 6:147 T-notes. see US Treasury notes Verification (GIPS Section IV),1: 259, tradable assets, 4:319 to-arrive contracts, 6:39–40 260 trade. see also international trade tobacco industry, 2:87–88; 5:225, 226 total fixed cost (TFC) and alternative trade policies, 2:358 tokenization, 4:472 interactions of other costs and output free, 2:338, 341–342 Tokyo, Japan, 5:650 with, 2:31–35 gains from, 2:347–350 Tokyo Agreement, 3:57 in shutdown analysis, 2:41–42 inter-temporal, 2:375, 376 Tokyo Electric Power Company total invested capital, 3:681n.4 intra-industry, 2:341 (TEPCO), 5:608 total leverage, 4:140–143 terms of, 2:335–336 Tokyo Electron, 5:209 total liabilities-to-equity ratio, 3:363 trade agreements Tokyo interbank offered rate (Tibor), total market capitalization, 5:87 common markets, 2:360 5:353; 6:78n.11 total market value, ROE and, 5:175 economic unions, 2:360 Tokyo Stock Exchange, 1:405; 6:9 total probability rule, 1:486–488, 505 export subsidies, 2:357–359 as exchange, 5:29 total product of labor, 2:25–28 trading blocs, 2:360–364 information availability, 5:122 total return(s). see also holding period trade allocation procedures, 1:113, 114 intermarket analysis, 1:726 return (HPR) trade balance ROC oscillator, 1:709 Calculation Methodology (GIPS absorption approach, 2:447–448 and TOPIX, 5:103 Section I.2), 1:235 balance of trade deficit,2: 130, 336 Tokyo Stock Exchange Group, 5:151, defined, 1:270 in business cycles, 2:209–210 152 for equity securities, 5:169–170 and capital account, 2:442

Cumulative_Ind_L1 94 August 1, 2018 7:45 PM Index I-95

elasticities approach, 2:443–447 traditional data, 4:457 Treasury bills, 1:305n.3, 377n.16; 4:259. and GDP, 2:130–131 traditional investment markets, 5:15 see also US Treasury bills (T-bills) and saving/expenditures, 2:442–443 traditional investments, 6:124 Treasury debt, 1:305 trade creation, 2:361–362 integration of alternative investments Treasury inflation-indexed securities trade credit, 4:185, 186 with, 6:132 (TIIS), 5:326 trade date accounting, 1:235, 270 Sharpe ratios for, 6:131 Treasury inflation-protected securities trade discounts, 4:187–188 trailing twelve months (TTM) ratio, (TIPS), 2:228; 5:326, 328, 329 trade diversion, 2:362 3:281 treasury shares, 3:193 trade granting process, 4:176–177 training treasury stock method, 3:137–139 trade organizations, 2:379–386 compliance, 1:149 tree diagrams (binomial trees), 1:491–492, function and objectives, 2:384–386 in machine learning, 4:461 538 International Monetary Fund, training datasets, 4:461 trend analysis, 3:285–287 2:380–382 tranches trends World Bank Group, 2:382–383 for asset-backed securities, 6:34 recognizing, 1:691–694 World Trade Organization, 2:383–384 for collateralized debt obligations, in technical analysis, 1:680–681 trade payables. see accounts payable 5:513 Treynor, Jack, 4:216, 335 trade pricing rules, 5:56 for collateralized mortgage obligations, Treynor ratio, 4:342 trade protection, 2:336 5:497–501 trials, number of (for Monte Carlo trade receivables, 3:169–171 defined, 5:32 simulation), 1:559 trade restrictions, 2:354–367 equity, 5:504 triangle patterns, 1:702–704 capital restrictions, 2:364–367 floating-rate, 5:501 triangular arbitrage, 2:421 quotas, 2:357–359 loss severity and credit risk for, trimmed mean, 1:408n.14 tariffs, 2:354–359 5:593n.1 TRIN. see short-term trading index traders, rogue, 4:428 for mortgages, 6:160–161 Trinidad & Tobago, 5:96 trade sales, 2:239; 6:154 planned amortization class, 5:499–501 triple bottoms, 1:700–701 trade sector, 2:130–131, 211–212 residual, 5:504 triple tops, 1:700–701 trade surplus, 2:336 sequential-pay, 5:497–499 trough phase (business cycle), 2:198, 199 trade-to-GDP ratio, 2:337–340 structured interest-only, 5:497n.11 true yield, 5:422 trading support (companion), 5:499–501 true yield-to-maturity, 5:422–423 algorithmic, 4:469 tranching, 5:308–309, 481–482 trust deeds, 5:305, 626 alternative systems, 5:29–30 transaction allocation, 1:115–116 trustee agents, 5:479 automated, 4:456 transaction-based manipulation, 1:97 trustees continuous trading markets, 5:54 transaction costs bond indenture, 5:305 on contract/secondary security with active portfolios, 4:348n.6 in securitization process, 5:479 markets, 5:54 assumptions of CAPM about, 4:336 trust law, 5:484 contrarian trading strategies, for borrowing, 5:9 trust preferred securities, 5:596n.4 1:707–708 with derivatives, 6:41, 70 trust receipt agreements, 4:192 cost of, 4:266, 287 and financial risks,4: 425–426 trusts, in securitization process, 5:478 excessive, 1:108, 117 and market efficiency,5: 123 Tsingtao Brewery, 3:677 held for, 3:187 transaction expenses TSX Group, 5:152 high-frequency, 4:469 defined, 1:271 t-test, 1:632–636 information-motivated, 5:10–12, 26 Private Equity (GIPS Section I.7), nonparametric test vs., 1:654, 655 insider, 5:61, 122 1:247, 248 risk/return characteristics of mutual multilateral facilities, 5:29–30 Real Estate (GIPS Section I.6), 1:243, fund, 1:634–635 personal 244 and slowdown in payments of and conflict of interest,1: 183 transaction price, 3:113, 115 receivables, 1:635–636 disclosure of, 1:189 transactions and Spearman rank correlation, limitations on, 1:90 BOP, 2:367 1:656–658 and market manipulation, 1:97–98 new, 3:77–78 and test static for difference between priority of transactions for, 1:185 transactions-based indexes (real estate), population means, 1:640–644 proprietary trading procedures, 1:91 6:163–164 and test static for single population risk-arbitrage, 1:91 transactions money balances, 2:269 mean, 1:633–636 spot market, 5:10 transactions motive, 4:182 for test statistic for tests of mean supervising trading activities, 1:151 transfer (data processing method), difference, 1:645–648 unsolicited requests for, 1:120–121 4:463 z-test vs., 1:636, 639, 654, 655 trading blocs, 2:360–364 transfer, risk, 4:441–443 TTM ratio. see trailing twelve months trading expenses transfer payments, 2:129, 308–309 ratio Calculation Methodology (GIPS transition probability, 1:538 Tunisia, 5:96 Section I.2), 1:236 Transocean, 1:703 Turkey defined, 1:270 transparency business investment, 2:177 Disclosure (GIPS Section I.4), 1:238 corporate, 4:17 cumulative voting rules, 4:16 trading limits, 5:123 of exchange-traded derivatives market, exchange rate regime, 2:435 trading NAV, 6:146 6:11 IFRS adoption, 3:59 trading securities, 3:146, 219 of futures market, 6:21 inflation-linked bonds,5: 326 trading volume, 1:98 of inflation targeting,2: 289–291 inflation targeting,2: 285 on charts, 1:689–690 of markets, 5:58 labor productivity, 2:180 and head and shoulders pattern, 1:696 transportation assets, 6:174 MSCI multi-market index, 5:96 trends in, 1:679 travel expenses, 1:64–65, 67–68 sovereign bonds, 5:369 traditional bonds, ABSs vs., 5:299 travel funding, 1:63 turn-of-the-month effect,5: 132

Cumulative_Ind_L1 95 August 1, 2018 7:45 PM I-96 Index

turn-of-the-year effect,5: 131 uncollectible accounts, 3:641–642 United Agri-Products (UPI), 3:641–642 turnover uncommitted lines of credit, 4:189, 190 United Arab Emirates, 5:96 accounts receivable, 4:160 unconditional probability, 1:478 United Kingdom annual share, 1:426 unconditional variance, 1:492n.9 banking supervision, 2:279 asset, 3:293, 297, 462–464, 656 Unconstrained Activist UK Equity bankruptcy, 5:600 fixed asset turnover ratio Composite, 1:292 benchmark rate, 5:442 and average age of depreciable assets, uncorrelated random variables, 1:504 bonds 3:462–464 uncorrelated returns, 4:277 bonds outstanding, 5:354, 360 calculating, 3:293 underemployed, 2:220 consol, 1:325 interpreting, 3:297, 460 underground economy, 2:123–124 foreign, 5:313, 314 in FX market, 2:413–414 underinvestment, in inventory, 4:183 inflation-linked, 5:326, 327, 370 on income statements, 3:95n.4 underlying (underlying assets), 6:5 non-sovereign government, 5:371 inventory, 4:160, 184–185 defined, 6:7 perpetual, 5:300 inventory turnover ratio, 3:294–295 and derivatives valuation, 6:46–47 sovereign, 5:305–306, 367–370 and activity ratio, 3:293–294 hedging of, 6:67–68 budget deficit,2: 377 activity ratio definition,3: 292 payments on, 6:90–91 business investment, 2:177 calculation, 3:356 performance of, 6:6 capitalization level and contributions and conversion from LIFO to FIFO, pricing, 6:62–66 to global GDP, 5:151 3:362 in pricing of European options, 6:87, commercial paper, 5:374 and DOH, 3:294–295 89–91 common law system, 4:27 inventory management with, for puts, 6:95 comparative advantage, 2:346–349, 353 3:376–377 risk budgeting based on, 4:422 “comply or explain” codes, 4:34 inventory ratios, 3:657 storage of, 6:46–47 corporate governance systems, 4:14 and inventory write-downs, 3:374 types of, 6:36–39 coupon payment structures, 5:323 payables, 3:292, 296 value of, 6:87 covenant-strengthening investor portfolio, 1:432–434 and value of contract, 5:20 groups, 5:627 receivables, 3:292, 295–296 volatility of, 6:89–90 currency regime, 2:432, 433, 435 segment, 3:328–329 underlying risk exposures, of options, cyclically adjusted budget deficit, total asset, 3:297 5:39 2:315 working capital, 3:292, 297 undervalued (term), 5:245 disclosure requirements, 3:628 Turquoise, 5:30 underwater mortgages, 5:488 disinflation, 2:225 TVC. see total variable cost underwriters, 5:360, 479 domestic and international debt TVPI. see investment multiple underwritten offerings,5: 50, 51, securities, 5:315 2 and 20 fee structure, 6:139, 140 360–362 EAR, 1:313n.6 two-asset portfolio, risk of, 4:258–259 unearned revenue equity risk premiums, 4:90 two-fund separation theorem, 4:292–293 analysis of, 3:176–178 excess demand/supply of cars, 2:337 two-part tariff pricing,2: 103–104 as current liability, 3:176 exchange rate targeting, 2:291, 292 two-sided (two-tailed) hypothesis test, on income statements, 3:100 expected inflation,2: 280 1:624 unemployed, 2:220 fiscal policy,2: 312 two-sided prices, 2:417–418 unemployment flotation costs,4: 105 two-stage dividend discount model, analyzing, 2:222–223 frequency of capital budgeting, 4:67 5:261–264 and business cycles, 2:219–223 GIPS sponsor, 1:231 2001 Venture Capital Composite, 1:294 and international trade, 2:342 government 2006 Buyout Strategy Fund of Funds natural rate of, 2:150, 232 cash flows,2: 303–304 Composite, 1:294–295 non-accelerating inflation rate of,2: 232 liabilities/debt, 2:260, 306 two-tier board structure, 4:10 and overall payroll employment, 2:222 revenues/expenditures, 2:301, 302 two-week repo rate, 2:282 and real business cycle models, 2:216 hedge fund registration, 6:145 Tyco International, Ltd., 3:660; 5:199, and regional trade agreements, housing prices and saving rate, 2:152 200 2:362–363 inflation targeting,2: 285–287 Type I error, 1:627 in stagflation,2: 169–170 international investments in BASF, Type II error, 1:627 unemployment insurance, 2:238 5:165 typical cash flows, identifying, unemployment rate, 2:221–222 investment spending, 2:140 4:165–166 unequal cash flows IPS requirement, 4:368 future value of series with, 1:316 labor productivity, 2:180 U present value of series with, 1:328 monetary policy, 2:274, 291 UBS, 2:410, 412; 5:209 unethical actions, reporting, 1:57 money measures, 2:268 Uganda, 3:59 unexpected inflation,2: 279–281 MSCI multi-market index, 5:96 Ukraine Unibail-Rodamco, 1:423 national debt, 2:305, 307 exchange rate regime, 2:435 UniCredit, 1:423 net borrowing/lending, 2:303 GIPS country sponsor, 1:231 uniform distribution one-tier boards, 4:10 hyperinflation, 2:224 continuous, 1:540–543 overconfidence and mispricing in MSCI multi-market index, 5:96 discrete, 1:528–530 markets, 5:137 Ukrainian Association of Investment uniform pricing rule, 5:56 public sector spending, 2:261 Business, 1:231 unilateral transfers sub-account, BOP, residential mortgage loans, 5:486–488 ULC. see unit labor cost 2:369 returns unbiased estimators, 1:592 Unilever, 1:424; 5:210 on bonds, bills, and equities, 5:153 uncertainty Unilever Group, 3:223–226 real equity returns, 1:399 about future cash flows,1: 457 unintentional errors, correction of, 1:76 total, 1:407 inflation, 2:280–281 Union Electric Company, 5:255–256 total returns, 1:409

Cumulative_Ind_L1 96 August 1, 2018 7:45 PM Index I-97

risk tolerance and equity ownership, covenant-strengthening investor PSA prepayment benchmark, 5:493 5:155 groups, 5:627 public sector spending, 2:261 robo-advisory services in, 4:466 CPI, 2:227, 228 quantitative easing, 2:296, 297 say on pay, 4:18 currency regime, 2:432, 435 residential mortgage loans, 5:486–489 sinking fund arrangements, 5:322 current account deficit,2: 375, 378, 379 returns social influences on tobacco industry, cyclically adjusted budget deficit,2: 315 by asset class, 5:644–645 5:226 debt and equity outstanding, 5:348 on bonds and bills, 5:152–153 Treasury bills, 1:305n.3 deflation/disinflation, 2:224, 225 on equities, 5:152–153 wealth effect,2: 152 depreciation methods in, 3:428 nominal returns of major asset UK Debt Management Office,5: 306, development of NAICS system, 5:197 classes, 4:260–261 315 domestic and international debt real equity returns, 1:399 UK Financial Reporting Council (FRC), securities, 5:315 on real estate, 6:164–165 3:26 economic indicators, 2:238–240, real returns of major asset classes, UK Investment Performance Committee, 242–243 4:261–262 1:231 equity risk premium, 4:89–90 on reinvested dividends, 5:170 UK Liquidity Plus Composite, 1:292 ETFs, 4:233 risk diversification by insurance United Nations, 4:39; 5:196 expected inflation,2: 280 companies, 4:442 United Nations Conference on Trade on external trade sector, 2:209–210 risk of asset classes, 4:263 Employment, 2:380 fiscal policy in 2009-2010,2: 312 risk tolerance and equity ownership, UN Global Compact, 4:37 floating-rate notes,5: 323 5:154–155 United Nations Monetary and Financial flotation costs,4: 105 robo-advisory services in, 4:466 Conference, 2:380 foreign direct investment, 2:339, 340 say on pay, 4:18 United Rentals, Inc., 5:604–605, four-factor model use, 4:354 securities backed by quasi-government 642–643 GIPS sponsor, 1:231 entities, 5:490 United States globalization of production, 2:340 securities ranked lower than ACH system, 4:178 global recession, 2:165–167 subordinated debt, 5:596 ADRs, 5:167–168 government securitization market, 5:474 alternative investors, 6:133n.14 government-sponsored enterprises, sinking fund arrangements, 5:322 antitrust violations, 2:105 5:490 stagflation, 2:169, 234 APY, 1:313n.6 liabilities/debt, 2:262, 306 tax and financial regulations,3: 467 auctions, 5:362–364 revenues/expenditures, 2:301, 302 taxes and cost of capital, 4:79 auditing standards, 3:27 spending, 2:129 television broadcasting, 2:65 balance of payments, 2:370–371 gross domestic product, 2:120–121 textile industry, 2:343–344 bankruptcy, 5:600 forecasts, 2:183–184 tobacco industry, 2:87–88 banks and banking potential, 2:182 transition rates of credit ratings, 5:606 portfolio management, 4:220, 221 hedge fund registration, 6:144, 145 trust law in, 5:484 regulation, 3:47 imports in, 2:335 underground economy, 2:124 sources of credit, 4:189 industrial comparative ratio analysis, unemployment rate, 2:221 supervision of, 2:277 5:617 VERs in, 2:357 benchmark rate, 5:442 and inflation targeting,2: 290 wealth effect,2: 152 bond mutual funds, 4:231n.15 international investments, 5:165 US Aggregate Bond Index, 5:357 bonds investment spending, 2:140 US Air Force, 5:226 bonds outstanding, 5:354, 360 and ITO charter, 2:380 US Bankruptcy Code, 4:146 and corporate notes, 5:377 labor productivity, 2:180 US Bureau of Labor Statistics (BLS), foreign, 5:313, 314 labor supply, 2:176 2:221, 343 inflation-linked, 5:326, 327, 370 LIFO method and taxes, 3:357 US Census Bureau, 5:197 municipal, 4:379; 5:355 liquidity representations on balance US commercial paper (USCP) market, non-sovereign government, 5:371 sheets, 3:15 5:376–377 sovereign, 5:367–370 manipulation of financial reporting, US Consumer Price Index (CPI) tax considerations with, 5:316 3:608 commodities returns vs., 6:170 yields and credit risk/return, money market funds, 4:230–231 and inflation-indexed bonds,5: 325, 5:629–630 money measures, 2:267 326, 328, 329 business investment, 2:177 money-weighted return, 1:368n.9 US Core Equity Composite (Terminated capital budgeting, 4:67 MSCI multi-market index, 5:96 Composites), 1:295 capital goods expenditures, 2:128 mutual funds, 4:230–231 US Department of Commerce, capitalization level and contributions NAFTA, 2:362, 362–363 2:120–121 to global GDP, 5:150–151 national debt, 2:307 US Department of Housing and Urban capital-to-labor ratio, 2:175 national income, 2:133n.7 Development, 5:490 cash underwritten offers,4: 105 natural monopolies, 2:104 US dollar, 2:399 CEO duality, 4:21 net borrowing/lending, 2:303 CAD/USD currency pair, 2:414 commercial mortgage-backed non-sovereign government debt, 5:650 CNY/USD exchange rate, 2:401–402 securities, 5:504 OCI statement format, 3:19 cross-rate calculations with, 2:419–420 commercial paper in, 5:374 one-tier boards, 4:10 as currency anchor, 2:434–435, 437, common law system, 4:27 overconfidence and mispricing in 438 company activities of government markets, 5:137 exchange rate quotes with, 2:416–419 industries, 5:197 pension fund investment restrictions, as exchange rate target, 2:292 consumption expenditures, 2:139 4:379 foreign exchange gains, 5:169 correlation of equities, 4:386–387 presidential cycle, 1:723 foreign exchange reserves, 2:411–412 coupon payment structures, 5:323 proxy for market portfolio, 5:94 forward calculations with, 2:423–424

Cumulative_Ind_L1 97 August 1, 2018 7:45 PM I-98 Index

US dollar (Continued) for inventory valuation, 3:346–350, revenue recognition standards, gold standard for, 2:432 368–370, 377 3:101–102 international bonds outstanding in, for investment property, 3:467 robo-advisory services regulated by, 5:351 for leases, 3:468, 476, 480, 484, 566, 4:466 JPY/USD currency pair, 2:414 570, 577, 578, 582–583 Rule 10b5-1 and 10b5-2, 5:122n.10 as reserve currency, 5:19 for LIFO reserve, 3:357 Rule 144, 3:54 spot market trading of, 5:10 for long-lived assets, 3:454 Rule 144A, 5:168 USD/AUD currency pair, 2:414 manipulation of financial reporting on sponsored DRs, 5:166 USD/EUR currency pair, 2:414 under, 3:608 and stakeholder relationships, 4:28 USD/EUR exchange rate, 2:407 for pension plans, 3:584–585 United States Steel Corporation (US USD/GBP currency pair, 2:414 policy disclosure requirements, 3:79 Steel), 2:96 US Federal Reserve for revaluation, 3:435, 444, 447–448 US Territories, ACH system, 4:178 banking supervision by, 2:277 for revenue recognition, 3:101–102, US Treasury, 2:167; 5:362–364 “Beige Book,” 2:242 112, 113, 622 US Treasury bills (T-bills) CPI-U use by, 2:228 and ROE, 3:678–680; 5:173n.28 bank discount yield, 1:375–376 and dollarized currency regimes, SEC on reconciliations with, 3:447n.17 as benchmark, 4:171 2:435–436 for segment reporting, 3:327 characteristics of, 5:368 funds and fund rate of, 5:385 and Syngenta, 3:75 correlation of stocks/bonds with, 4:285 independence of, 2:286 and taxable profit v. accounting profit, discount rate, 5:429 inflation targeting by,2: 290 3:518–520 expected value, 1:494–495 initial margin requirement of, 5:41 on tax-related issues, 3:515, 523 historical risk and correlation, 4:285 insurance for money markets from, US Investment Performance Committee, maturity of, 5:351 4:231 1:231 money market yield, 1:377 intervention in FX market, 2:438 US Securities and Exchange Commission nominal returns, 4:260–261 measures of money, 2:267 (SEC), 5:29 nominal risk-free interest and liquidity monetary policy, 2:153–154, 169, 184 Accounting and Auditing Enforcement premium, 1:305 objectives of, 2:278 Release, 3:641–643 as proxy of risk-free return, 4:319–321 quantitative easing by, 2:296, 297 adoption of IFRS, 3:357 pure discount instrument, 1:375 in recession (2007-2009), 2:167 and convergence of global reporting quoting for, 1:375 Regulation T, 5:41 standards, 3:57, 58 real returns, 4:261–262 stress testing required by, 4:438 on “cookie jar” reserve accounting, returns on, 1:377 US Federal Trade Commission (FTC), 3:625 returns on equities and bonds vs., 5:127 discipline for financial reporting by, 5:152–153 US GAAP 3:627, 628 risk–return tradeoff,4: 261, 263 for barter transactions, 3:109 disclosure regulations, 5:122 Sharpe ratio, 1:444–446 for bonds, 3:550, 551, 554, 555 financial reporting standards of, short-term investment, 4:168 for borrowed funds, 3:419 3:51–55 in short-term portfolio report, 4:174 for capitalisation of interest costs, Form 3, 3:54–55 and TED spread, 6:24 3:428n.11, 430 Form 4, 3:54–55 transaction costs with, 5:123 for cash flows,3: 22, 220, 223, 228–232 Form 5, 3:54–55 yield, 4:169–170 and completed contract method, Form 6-K, 3:53 US Treasury bonds (T-bonds) 3:104–105 Form 8-K, 3:54 characteristics of, 5:368 for comprehensive income, 3:145, 148 Form 10-K, 3:53, 364–365 convexity adjustment for, 5:560–561 for debt issuance costs, 3:557 Form 10-Q, 3:53 correlation with other asset classes, on decision-useful information, Form 11-K, 3:55 4:386 3:610n.2 Form 20-F, 3:53 in cost of equity, 4:88, 90 for deferred tax assets/liabilities, 3:510, Form 40-F, 3:53 relative strength of, 1:727 511, 525 Form 144, 3:54 US Treasury notes (T-notes), 5:368, for depreciation, 3:441 Form DEF-14A, 3:53 547–548 on disclosure of operating segment, and GAAP, 3:50, 72, 74–75 US v. DuPont, 2:73n.4 5:200 and Groupon, 3:635 unit elastic (unitary elastic), 2:71 fair value definition,3: 417n.2 hedge fund registration, 6:144, 145 unit elastic demand (unitary elastic and FASB, 3:50 and IASB, 3:48 demand), 2:10 for financial statement ratios, on management reporting, 3:26 unit labor cost (ULC), 2:232, 239 3:677–678 MD&A requirements, 3:26, 557n.5 unit normal distribution, 1:544 and global reporting standards, 3:57, on non-GAAP measures in financial units (term), 5:18 70–72, 74–75 reports, 3:615, 635 units-of-production depreciation for gross vs. net reporting, 3:110 on non-recurring restructuring events, method, 3:435–440, 644–647 and IFRS 3:624 univariate distribution, 1:544 conservatism in, 3:622–624 and PACCAR, 3:612–613 universal owners, 4:38–39 on financial reporting standards, prospectuses filed with,5: 478n.3 university endowment funds, 4:218; 3:74–77 on reconciliations with US GAAP, 6:127 frameworks of, 3:70–72 3:447n.17 University of Michigan, 4:218 on income taxes, 3:508, 533–536 registration with, 5:168 University of Texas System, 4:218 for impairments, 3:448–451, 454 Regulation FD, 3:54n.14; 5:122 University of Virginia, 4:224 income statement standards, 3:94 as regulatory body, 3:47 unlimited funds, 4:52 income taxes, 3:508 reporting of internal control unqualified audit opinion,3: 27–28 for intangible assets, 3:420n.4, 421, 422 deficiencies to,1: 638 unrealized capital gains and losses, for interest, 3:238, 419, 471n.32, 554 reporting requirements, 3:629; 4:235 5:569

Cumulative_Ind_L1 98 August 1, 2018 7:45 PM Index I-99

unrealized multiple (RVPI) periodic vs. perpetual inventory of growth opportunities, 5:257n.3 defined, 1:269, 271 systems, 3:352–354 intrinsic Private Equity (GIPS Section I.7), retail method, 3:171 book vs., 5:176–177 1:249 specific identification,3: 118, 349–352 deviations from, 1:680 Real Estate (GIPS Section I.6), 1:246 weighted average cost, 3:349–352 from dividend discount model, 5:251 unrestricted subsidiaries, 5:644 weighted average cost method, 3:119 in equity valuation, 5:244 unsecured debt, 5:595, 596 market-based, 3:682–687 of European options, 6:86 unsolicited trading requests, 1:120–121 of non-traded investments, 6:146 market vs., 5:119–120 unsponsored depository receipts, 5:166 principles in capital budgeting, 4:48 inventory, 3:369–370 unstructured data, 4:458 of private equity, 6:156–157 justified values of price multiples, unsupervised learning, 4:462 of real estate, 6:162, 165–166 5:266–269 unsystematic risk, 4:436n.27 valuation allowance, 3:509, 525, 642 liquidation, 6:157 unused tax credits, 3:523–524 valuation ratios, 3:319–321 loan-to-value ratio, 5:486, 504; 6:162 unused tax losses, 3:523–524 calculation, 3:319–320 marginal value curve, 2:75 unusual items, on income statements, defined, 3:291, 319–320 market 3:127–128 dividend-related quantities, 3:321 and asset-based valuation, 5:276, 277 updates, 1:122, 159–160 interpretation of EPS, 3:320–321 and book value, 5:172 UPI. see United Agri-Products value. see also present value; time value of debt, 5:274–275 UPM-Kymmene Corporation, 3:462–464 of money (TMV) defined, 1:267 upper Tier 2 securities, 5:596n.4 basis point, 5:558 of derivatives, 6:38–39 UPS, 5:209 book, 5:172–173, 176–177, 247 GIPS Valuation Principles (GIPS up transition probability, 1:538 carrying, 5:247, 533 Section II), 1:252 uptrends, 1:692 company, 4:78 Input Data (GIPS Section I.1), Uranium Energy Corporation, 5:92–93 and consumer surplus, 2:74–76 1:235n.2 Uruguay, 2:360, 437–438; 3:58 conversion, 5:333 intrinsic vs., 5:119–120 USCP market. see US commercial paper critical, 1:628–630 Real Estate (GIPS Section I.6), market enterprise, 5:247, 274–276, 645 1:243n.6 useful life, 3:121–124 estimated, 5:245–246 total, 5:175 Utilities sector, 5:193 exercise, 6:86 market value to book value ratio, utility, 4:269, 389–390 expected, 1:488–492 3:705–706 computation of, 4:272 of bonds and T-bills, 1:494–495 measure of, 2:264 and risk seeking, 4:267 conditional, 1:490 net asset utility assets, 6:174 defined, 1:487–489 closed-end investment fund, 5:134 utility maximization, 4:336 of product of uncorrelated random and drawdown, 6:144 utility theory variables, 1:504 mutual fund, 4:226–227 portfolio selection with, 4:273–276 properties of, 1:496–497 of REITs, 6:166 and risk aversion, 4:268–276 standard deviation, 1:489–490 trading vs. reporting, 6:146 Uzbekistan, 3:59 total probability rule for, 1:490–492 net book, 3:123 tree diagrams, 1:491–492 net realisable, 3:171–172, 368 V and weighted mean, 1:416 no-arbitrage, 5:411 Vale, 5:209 face, 1:375, 495; 3:546–549 par, 3:192; 5:300, 403–406 Valero, 5:209 fair parity, 5:333 validation datasets, 4:461 in asset-based valuation, 6:157 present, 3:66 validity instructions, 5:44, 48–49 of bonds payable, 3:554–557 price to book value ratio, 3:319, 320 valuation. see also GIPS Valuation Conceptual Framework on, 3:66 realizable, 3:66 Principles (GIPS Section II) defined, 3:162n.1, 169, 417n.2 relative, 6:135–137 of alternative investments, 6:125 financial assets at,3: 187–188 residual binomial, 6:100–104 of financial liabilities,3: 554–555 and amortisation/depreciation of derivatives, 6:45–52, 73–85 Fundamentals of Compliance (GIPS expense, 3:121–124 and arbitrage, 6:47–52 Section I.0), 1:234 defined, 1:269 forward commitments, 6:73–85 GIPS Valuation Principles (GIPS Private Equity (GIPS Section I.7), options, 6:100–104 Section II), 1:252–253 1:249 pricing vs. valuation, 6:72–73 Input Data (GIPS Section I.1), 1:235 Real Estate (GIPS Section I.6), 1:246 and storage, 6:46–47 and long-term asset acquisition, salvage, 3:122 of equities (see equity valuation) 3:417 settlement, 3:66 of fixed-income securities (see fixed- Private Equity (GIPS Section I.7), store of, 2:263–264 income valuation) 1:247 terminal, 5:251, 261 of hedge funds, 6:145–146 Real Estate (GIPS Section I.6), 1:243 time value of options, 6:90 inventory, 3:348–368 fairly valued, 5:245 total changes in, 3:367–368 fundamental, 5:119, 244 and consumer surplus, 2:75 comparison of, 3:354–356 future defined, 1:270 cost of sales, gross profit, and ending defined, 1:306 market, 5:175 inventory, 3:350–352 future value of series of cash flows, Private Equity (GIPS Section I.7), first-in, first-out,3: 118–119, 172, 1:314–316 1:249 349–352 future value of single cash flow, Real Estate (GIPS Section I.6), last-in, first-out,3: 119, 172, 349–352, 1:306–314 1:245 357–367 present and, 1:307, 336–337 undervalued (term), 5:245 LIFO liquidation, 3:363–367 of goods and services in GDP, Value-Added Strategy Closed-End Real LIFO reserve, 3:357–363 2:123–124 Estate Composite, 1:295

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Value-Added Strategy Non-Closed-End sample, 1:434–435 by others, participation or association Real Estate Composite, 1:295 semivariance, 1:437–438 with, 1:51 value at risk (VaR), 4:370n.1; 6:178–179 for single-index model of beta, 4:330 reporting, 1:55 conditional, 4:437 variation, coefficient of,1: 441–443; sanctions, 1:43 defined, 1:551 3:322 supervisor’s response to, 1:149 and kurtosis, 4:265 variation margin payments, for futures virtuous circle, 2:350 Monte Carlo simulation for estimating, contracts, 5:22 Visa, 5:206, 209 1:557 variety Viskanta, Tadas, 4:101n.32 risk budgeting with, 4:422 of collected data, 4:457–458 Vivendi, 1:423 as risk metric, 4:436–438 and monopolistic competition, 2:86, 87 VIX. see CBOE Volatility index value-based investing, 4:37 VC. see venture capital Vodafone Group Plc, 3:455–460 value effect,5: 133 Veblen, Thorstein,2: 21 volatility value investors, 3:696 Veblen goods, 2:21 and arbitrage, 6:50 Value Line, 5:262–264 vega, 4:436 artificial asset price,1: 98–100 value of final output method,2: 121–122, velocity CBOE Volatility Index (VIX), 1:716 132 of collected data, 4:457, 458 of derivative expiration days, values, CFA Institute, 1:43 of money, 2:144, 234 1:653–654 values-based investing, 4:37 vendors, number, size, location of, 4:186 in equity markets, 5:153–154 value stocks, 5:97, 133 Venezuela, 2:434; 3:58 of exchange rates, 2:430, 433 value strategies, for hedge funds, 6:137 venture capital (VC), 6:152–153 and global financial crisis of late 2000s, value tilt, of indexes, 5:91 defined, 5:15, 162; 6:129, 148 1:652–653 value weighting. see market- downside frequencies, 6:131, 132 implied, 6:41 capitalization weighting expansion, 6:153 of investment classes, 6:126 van Gelderen, Jacob, 1:722 mezzanine, 6:153 in option pricing models, 1:555–556 Vanguard Group, 4:232 returns, 6:126, 155–156 and portfolio management, 4:210–212 Vanguard Total World Stock Index ETF, Sharpe and Sortino ratios, 6:131 of underlying, 6:89–90 1:647–648 volatility, 6:126 yield, 5:568–569 vanilla swaps, 6:22–23, 37 Vereinigung Österreichischer volatility strategies, for hedge funds, VaR. see value at risk Investmentgesellschaften, 1:230 6:137 variable consideration, 3:114–115 verification, 1:271; 3:621 Volkswagen AG variable costs, 3:303, 347n.7 Verification (GIPS Section IV),1: 223–224, as bond issuer, 5:306 average 258–262 emissions scandal, 4:37, 38 defined, 2:30 and compliance, 1:229 in foreign exchange markets, 5:10 in perfect competition vs. monopoly, and performance examinations, 1:262 market capitalization, 1:423 2:36–37 required procedures, 1:259–262 similar companies to, 5:189 and shutdown decision, 2:39–40 pre-verification procedures, and variety in automobile market, defined, 2:30 1:259–260 2:86 and degree of operating leverage, verification procedures,1: 260–262 Volkswagen Group 4:133–135 scope and purpose, 1:258–259 auditor’s reports, 3:28–29 and leverage, 4:126–128 verification report balance sheets, 3:13–15 total, 2:31–35, 41–42 defined, 1:271 cash flow statements,3: 22–23 variable-rate mortgages, 5:487 Verification (GIPS Section IV),1: 258, disclosures, 3:80–81 variable-rate notes, 5:323 259, 262 financial notes,3: 25 variance Verizon Communications Inc., income statements, 3:17–18 of binomial random variables, 1:537 3:678–680 MD&A, 3:26 conditional, 1:492–495 VERs. see voluntary export restraints statement of changes in equity, 3:20, 21 covariance, 1:497–502 vertical common-size balance sheet, statement of comprehensive income, defined, 1:431, 489 3:282–283 3:19–20 hypothesis testing with, 1:648–654 vertical common-size income statement, volume tests about equality of two variances, 3:283–285 of collected data, 4:457, 458 1:650–654 vertical common-size ratio analysis, trading, 1:98 tests with known variance, 1:594, 3:141n.50, 197, 282–285 on charts, 1:689–690 636–639 vertical demand schedule, 2:72 and head and shoulders pattern, tests with single variance, 1:648–650 vertical equity, 2:310 1:696 tests with unknown variance, Viacom Corporation, 5:156–157 trends in, 1:679 1:633–636, 639–648 Vidal-Garcia, Javier, 1:480–481 voluntarily unemployed (term), 2:221 of lognormal distribution, 1:553, Vietnam, 2:434; 3:59; 5:96 voluntary exchange, 2:341 556–557 VINCI, 1:423 voluntary export restraints (VERs), of normal distribution, 1:543 vintage year 2:354, 357–359 population, 1:431–432 defined, 1:271 volunteers, compromising of CFA and portfolio expected return, 1:502 Private Equity (GIPS Section I.7), Institute integrity, 1:197 in probability, 1:474 1:248–250 Volvic, 3:329 reliability factors with known vs. Real Estate (GIPS Section I.6), 1:245, Volvo Group, 5:189 unknown, 1:598–599 246 consolidated balance sheet, 3:371–372 of returns, 1:497–502 violations of ethical standards consolidated income statement, 3:371 for portfolio of assets, 4:257, 281–282 detection of, 1:147–148 inventories of Caterpillar Inc. and, for portfolio of risky assets, 4:315 dissociating from, 1:55–56 3:378–381 for single asset, 4:256 lists of, 1:82 inventory write-downs, 3:370–375 and standard deviation, 4:257 notification of known,1: 55 MD&A, 3:381–382

Cumulative_Ind_L1 100 August 1, 2018 7:45 PM Index I-101

notes to consolidated financial webpages, maintaining, 1:75 accounts receivable management, statements, 3:372–373 Webvan.com, 4:147 4:175–181 von Hayek, F., 2:212 weekend effect,5: 132 customers’ receipts, 4:177–180 von Hippel, Paul T., 1:447n.41 weighing evaluating, 4:180–181 von Mises, L., 2:212 for cost of capital, 4:80–82 trade granting process, 4:176–177 vote by proxy, 5:156 of nonmarket securities in portfolio, cash flows,4: 164–167 voting 4:350 forecasting short-term, 4:165–166 cumulative, 4:16; 5:156 weighted average cost, 3:172 monitoring cash uses and levels, proxy, 1:104, 106; 4:16, 28 weighted average cost method, 3:119, 4:166–167 statutory, 5:156 349–352 cash position, 4:164–167 straight, 4:12 weighted average cost of capital (WACC) defined, 1:360; 4:155 voting rights in capital budgeting decisions, 4:82–83 inventory management, 4:182–185 in dual-class share structure, 4:31–32 computing, 4:79 approaches, 4:183–184 shareholder, 4:31–32; 5:156, 157 cost of debt and cost of equity in, 5:178 evaluating, 4:184–185 vulture investors, 6:153 defined, 1:361n.2; 4:79 financial impact of inventory estimations, 4:98–100 methods, 4:185 W and raising of additional capital, and inventory costs, 4:184 WAC. see weighted average coupon rate 4:102–105 liquidity, 4:156–164 WACC. see weighted average cost of and return on invested capital, 5:204 drags and pulls on, 4:158–159 capital risk factors in, 4:93 liquidity management, 4:157–159 wage-push inflation (cost-push weighted average coupon rate (WAC), measuring, 4:159–164 inflation), 2:231–233 5:491–494 primary sources, 4:157 wages, nominal, 2:157, 161 weighted average life, 5:495 secondary sources, 4:157–158 Wagner, Honus, 6:176n.39 weighted average maturity (WAM), practice problems, 4:196–198 Waha Capital, 5:27 5:491–494 short-term financing,4: 189–194 Walgreens, 4:95 weighted averages, total probability rule asset-based loans, 4:192 Wall Street Journal, 5:103 and, 1:487 borrowing approaches, 4:191–192 Wall Street Reform and Consumer weighted mean, 1:413–416 costs of borrowing for, 4:193–194 Protection Act (2010), 4:18; 6:12–13 formula, 1:414–415 sources of, 4:189–191 Wal-Mart Stores, Inc. portfolio return as, 1:415–416 short-term funds management, balance sheets, 3:15–16 Wellcome Trust, 4:220 4:167–174 as bond issuer, 5:306, 315, 316 Wells Fargo Advantage Small Cap Value evaluating, 4:174 cash flows from operating activities, Fund, 1:433 investment instruments, 4:168–171 3:231–233 Welsh, Jack, 3:659 strategies for, 4:171–174 economies of scale, 2:46 Western Europe, 5:350. see also specific solutions to problems, 4:199–201 industry life cycle of, 5:216–217 countries working capital turnover, 3:292, 297 inventory management, 4:184 Wharf Holdings Ltd., 1:686 work-in-progress inventory, 3:346, 377 liquidity management, 4:161–163 whistleblowing, 1:18, 136, 141 workout period, 5:505 and market model, 4:330–331 White, Harry Dexter, 2:432 World Bank. see International Bank for operating leverage, 4:135–136 wholesale funds, 5:385–386 Reconstruction and Development population mean of sales, 1:404 wholesale price index (WPI), 2:228 World Bank Group population variance of sales, 1:432 Wilcoxon signed-rank test, 1:655 foreign currency of, 2:411 two-factor analysis of, 5:210 Wilder, Welles, 1:710 founding of, 2:380 wage/hour discrimination suit, 4:38 William and Flora Hewlett Foundation, and globalization, 2:337 Walt Disney Company, 5:377 4:219 and IMF, 2:380 WAM. see weighted average maturity willingness to take risk, investors’, mandates of, 2:382 war chests, 3:677 4:371–373 World Development Report, 2:338 warehouse receipt agreements, 4:192 Wilshire 5000 Total Market Index, 5:95 WorldCom warranties, expense recognition for, window dressing, 5:131 capitalization policies, 3:648 3:120–121 Winsorized mean, 1:408n.14 credit ratings, 5:608 warrants “Within GAAP, but biased choices” financial reporting quality,3: 619 bonds with, 3:563–564 financial reports,3: 612–618 technical vs. fundamental analysis of, conversion options vs., 5:333, 334 “Within GAAP, but ‘earnings 1:682 and equities, 5:18; 6:36 management’ ” financial reports,3: 618 World Development Report, 2:338, 362 warranty reserves, 3:655 W.K. Kellogg Foundation, 4:219 World Investment Indicators, 2:340 Wataniya, 4:12 women, in workforce, 5:226–227 The World Is Flat (Friedman), 2:62 waterfall structures, 5:308, 481 won, South Korean, 2:399 world price, 2:336, 337, 347 Watson Pharmaceuticals Inc. case study, work, misrepresentation of, 1:74 World Trade Organization (WTO) 5:618–625 working capital agreements under, 2:361 The Wave Principle (Elliott), 1:723 defined, 3:166, 297, 689n.6 founding of, 2:380 weak-form efficient markets,5: 125, 128, and issuer liquidity, 5:639 functions of, 2:383–384 129 net, 5:618 and globalization, 2:337 wealth working capital management, 4:155–201 quotas on non-members, 2:357 household, 2:151–152 about, 4:155–156 termination of Multi Fiber Agreement, store of, 2:263–264 accounts payable management, 2:343 wealth effect,2: 151–152 4:185–188 World War I, 2:224, 305, 365 weather cash disbursements, 4:188 World War II, 2:224, 305 derivatives on, 6:38 evaluating, 4:188 WPI. see wholesale price index risk associated with, 4:428 trade discounts, 4:187–188 wrap accounts, 4:235

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wrap fee, 1:271 cash flow,5: 555 and cost of debt, 4:84–85 Wrap Fee/SMA Portfolios (GIPS Section CD equivalent, 1:377 defined, 5:304, 407 I.8), 1:250–252 collateral, 6:173 differences in,5: 433–435 about, 1:233 and credit risk/return, 5:629–630 and Macaulay duration, 5:551 compliance with, 1:229 current, 5:423 and rate of return, 5:531–532 Composite Construction provisions, defined, 4:169–170 true, 5:422–423 1:251 discount, 1:375–376, 378 yield to redemption, 5:304 Disclosure provisions, 1:251 of discounted securities, 4:169–170 yield-to-worst, 5:425 Presentation and Reporting provisions, effective annual,1: 377–379 yield volatility, 5:568–569 1:252 of fixed-income securities,5: 304 YPG Holdings, 5:256 requirements, 1:251–252 of fixed-rate bonds,5: 420–433 YTM. see yield-to-maturity write-downs, inventory of floating-rate notes,5: 425–429 yuan, Chinese (yuan renminbi), in financial analysis,3: 378 forward, 5:438 2:399 and financial ratios,3: 370–375 government equivalent, 5:423 CNY/USD exchange rate, 2:401–402 US GAAP vs. IFRS on, 3:368–369 holding period, 1:376, 378 exchange rate regime, 2:435 write-offs, private equity,6: 154 horizon, 5:532–536, 571 international bonds outstanding, writers, derivatives, 6:7 money market, 1:374–379; 4:170; 5:351 writing, after exam period, 1:196 5:429–433 Yue Yuen Industrial, 4:208–211 written material, brought into exam option-adjusted, 5:425 Yugoslavia, 2:224 room, 1:195 redemption, 5:304 (see also “wrong-way” risk, 4:431 yield-to-maturity) Z WTO. see World Trade Organization required, 5:402 Zambia, 3:59 W.W. Grainger, 5:210 roll (convenience), 6:64–65, 173 zero-coupon bonds, 5:301, 378 running, 5:304 with call options, 5:382 X semiannual bond basis yield, 5:421 convexity adjustment for, 5:560–563 XBRL. see eXtensible Business Reporting on short-term investments, 4:169–170 default risk premium for, 1:494–495 Language simple, 5:423 as deferred coupon bonds, 5:325 sovereign yield spread, 4:100 sovereign, 5:369 Y true, 5:422 spot curve for, 5:434 Yahoo!, 5:40 yield curves zero-coupon indexed bonds, 5:327 Yahoo! Finance, 4:245 benchmark, 5:443–445 zero curve, 5:434 Yale University, 4:218–220, 224; 6:127 inverted, 5:434 zero rates, 5:411 Yankee bonds, 5:313 yield duration, 5:538, 545, 548, 562 zero-sum game, 6:15 yen, Japanese yield enhancement instruments, 5:382 zero-volatility spread (Z-spread), 5:443, cross-rate calculations with, 2:420–421 yield maintenance charges, 5:505 445 currency code, 2:399 yield measures, money market. see Zhao, Quanshui, 4:105 exchange rate quotes with, 2:416–417 money market yields Zimbabwe, 2:224–225; 3:59 foreign exchange gains, 5:169 yield spreads, 5:441–445 Zimmer, 5:209, 213 international bonds outstanding in, and credit risk/return, 5:630–637 Z-score, 3:326 5:351 over benchmark rates, 5:441–443 z-test alternative JPY/USD currency pair, 2:414 over benchmark yield curve, 5:443–445 confidence intervals for population as reserve currency, 5:19 required, 5:418 mean, 1:595–597 yield(s), 5:420–433 yield-to-maturity (YTM) for disclosures and share prices, annual percentage, 1:313n.6 based on spot rates, 5:412–413 1:637–639 bank discount, 1:375–376, 378 and bond equivalent yield, 1:379 hypothesis testing with, 1:636–639 benchmark, 5:574 for bond vs. money market, 5:429 nonparametric test vs., 1:654, 655 bond equivalent, 1:379; 4:170; building blocks of, 5:441–442 rejection points for, 1:630, 637 5:431–433 calculation of, 5:406–407 t-test vs., 1:636, 639, 654, 655

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