Complete Guide to Investing. 5 th Edition

Transcription

1 Complete Guide to Investing 5 th Edition

2 Chapter 1 Getting Started as an Investor... 1 Learning Objectives... 1 Introduction... 1 Investing... 2 What Are the Sources of Money for Investing?... 2 What Are the Types of Investments?... 2 What Are the Features of Bonds?... 3 What Are the Features of Common Stocks?... 4 What Are the Types of Dividends?... 4 What Are Convertible Securities?... 4 What Are Derivative Products?... 5 What Is the Difference between Common Stocks and Mutual Funds?... 5 What Other Types of Investments Exist?... 5 What Are the Factors to Consider in Investment Decisions?... 5 What Tax Aspects Should You Consider When Investing?... 6 What Are the Drawbacks and Benefits of Buying Municipal Bonds?... 7 What about Retirement?... 7 How Are Capital Losses Treated for Tax Purposes?... 7 How Do Risk and Return Relate?... 7 What Is the Difference between a Marketable Investment and a Liquid Investment?... 8 How Do Interest Rates Affect the Market Value of Your Investment?... 8 What Are the Expenses Associated with Your Investments?... 9 How Aggressive or Conservative Should You Be?... 9 Steps in Investment Planning... 9 Review Questions Review Answers Chapter 2 Financial Markets and Investment Process Learning Objectives Introduction Capital Markets What Is the Over-the-Counter Market and NASDAQ? What about the Futures Market? Transactions What do Security Transactions Involve? What Are the Types of Securities Transactions? What Are the Various Kinds of Orders to Your Broker? When Is the Settlement Date? How to Pick a Stock Broker Are You Better off with Stock Splits and Stock Dividends? What You Must Know about Cash Dividends Are Dividend Reinvestment and Cash Option Plans for You? Is Buying Stock on Margin (Margin Trading) a Good Idea? Is Selling a Stock Short Advisable? Review Questions Review Answers Chapter 3 Return and Risk Learning Objectives Introduction Investment Return What Is Return? How Do You Measure the Return over Time? What Is the Effective Annual Yield? How Do You Compute the Expected Rate of Return?... 26

3 How Do You Measure Risk? Investment Risks What Risks Do You Face? What Can Be Done to Reduce Risk? What Are the Considerations in Determining How Much Risk to Take? How Does the Risk/Return Trade-Off Work? What Is the Meaning of Beta? How Do You Read Beta? How Do Investment Alternatives Affect the Risk/Return Trade-Off? Review Questions Review Answers Chapter 4 Fundamental Analysis Learning Objectives Introduction Fundamental Analysis Why Is Risk Analysis Important? Why Are Political Uncertainties Important to Consider? Industry Analysis Analyzing Financial Statements Whats and Whys of Financial Statement Analysis What Are Horizontal and Vertical Analyses? Working with Financial Ratios How Do You Evaluate a Company s Liquidity? How Well Does the Company Utilize Its Assets? Is the Business Solvent? Is This a Profitable Company? How Are the Company s Earnings and Market Value Related? Overall, Would You Invest in This Company? Bankruptcy Prediction Model A Systematic Approach for Stock Picking Review Questions Review Answers Chapter 5 Technical Analysis Learning Objectives Introduction Technical Analysis What Is Technical Analysis? What Are the Tools of Technical Analysis? The Dow Theory What Is Charting? What Types of Charts May Be Used? What Are Moving Averages? What Do Support and Resistance Levels Show? What Is Relative Strength Analysis? Public versus Computer Charting What Do You Do with Key Indicators? Why Is Price-Trading Volume Important? Why Is Market Breadth Relevant? What Is Barron s Confidence Index and How Is It Used? What Are the Contrarian Indicators? Why Is the Amount of Cash Held by the Mutual Fund Revealing? What Is the Short Interest Ratio? Short Sales by Specialists What Is the Odd-Lot Trading Indicator? What Is the Index of Bearish Sentiment? Are Puts and Calls Revealing? ii

4 What Does the Chicago Board Options Exchange Volatility Index (VIX) represent? Computerized Technical Analysis A Caveat Review Questions Review Answers Chapter 6 Common Stocks and Preferred Stocks Learning Objectives Introduction Common Stock What Is Common Stock? What Are the Characteristics of Common Stock? What Types of Stocks Are There? What Is the Yield on Common Stock Investments? Preferred Stock What Is Preferred Stock? How Is the Preferred Stock Rated? How Do You Calculate Expected Return from Returned Stock? What Are the Types of Preferred Stock? What About Investing in Money Market Preferred Stock? Review Questions Review Answers Chapter 7 Common Stock Valuation Learning Objectives Introduction The Time Value of Money What Is the Time Value of Money? Future Value of $ Future Value of an Annuity of $ Present Value of $ Present Value of an Annuity of $ The Fundamental Value of Common Stock How Do You Determine the Required Rate of Return? What Are Some Price/Earnings Ratio Approaches? A Caveat about P/E Ratios Other Stock Valuation Techniques The Price-Sales (P/S) Ratio The Price-Free Cash Flow The Price-Dividends (P/D) Ratio The Price-Book (P/B) Ratio Stock Valuation by PC The Bottom Line Review Questions Review Answers Chapter 8 Fixed Income Securities Learning Objectives Introduction Bonds What Is a Bond? What Are the Characteristics of Bonds? Bond Yields, Interest Rates, and Bond Prices What Is the Yield Curve? What Are the Types of Bonds? How to Select a Bond How Do You Determine Interest Rate Risk? Macaulay s Duration Coefficient iii

5 Interest Rate Elasticity How Do You Compute the Effective Rate on a Bond? What Are Municipal Bonds? How About Trading in Municipal Bonds? What Are Government Bonds? Treasury Bills Treasury Notes Treasury Bonds Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) How Do You Buy Treasuries? What Are Government Agency Bonds? What Are Other Fixed Income Securities? How Do You Invest In Savings Bonds? I and EE Savings Bond Comparison Should You Invest in a Bond Fund or ETF? How About Considering Unit Investment Trusts? Investing In Municipal Bonds: Three Approaches What About Investing In Mortgage-Backed Securities? Review Questions Review Answers Chapter 9 Investing in Options Learning Objectives Introduction Options What Are Options? Stock Rights The Value of Right Stock Warrants Return on a Warrant The Value of a Warrant Leverage Effect of a Warrant Calls and Puts In-the-Money and Out-of-the-Money Call Options In-the-Money and Out-of-the-Money Put Options Calls Puts Call and Put Investment Strategies Option Writing Naked or Covered Options Review Questions Review Answers Chapter 10 Futures Contracts Learning Objectives Introduction Futures Contracts What Is a Futures Contract? What Is the Difference between a Long and Short Position? How Are Futures Contracts Traded? Is Futures Trading Very Risky? What Are Commodities Futures? What Returns and Risks Are There for Futures Contracts? Who Employs Futures? What Ways Are Available to Minimize Risks? What Are Financial Futures? How Do Interest Rate Futures Work? How Do Currency Futures Work? iv

6 What Is a Stock Index Futures Contract? How Do You Transact in Futures? Review Questions Review Answers Chapter 11 Global Investing Learning Objectives Introduction Global Investing What Are the Advantages of Global Investing? What Are the Risks in Investing Globally? Currency (or Foreign Exchange) Risk Political (or Sovereign) Risk Institutional Obstacles The Ways to Invest Globally Purchasing Foreign Stock Directly How May Your Account Be Handled? American Depository Receipts (ADRs) Disadvantages of ADRs Buying Foreign Bonds What Is the Difference between a Eurobond and a Foreign Bond? Foreign Bonds to U.S. Investors What Are the Advantages of Foreign Convertibles? What Does the Yield Depend On? Investing in International Money Markets What Are the Ways of Investing in International Money Markets? Buying Shares of U.S.-Based Multinational Corporations Investing in International Mutual Funds and ETFs Global Portfolio Diversification via Mutual Funds What Are the Features of the Various Types of International Funds? How Do You Select Mutual Funds and ETFs? Sources of Information Review Questions Review Answers Chapter 12 Tax-Advantaged Investments Learning Objectives Introduction Tax-Advantaged Investments What Are the Related Tax Rules and Applications? What Tax Advantage Is There to Real Estate? What Are Limited Partnerships? What Are Real Estate Investment Trusts (REITs)? What Is a Real Estate Operating Company (REOC)? Retirement Plans What Are the Tax Implications of Retirement Plans? Keeping Your Eye on Retirement What Are the Types of Pension Funds? Retirement Plans: The Basic Rules How Do Annuities Work? Review Questions Review Answers Chapter 13 Investing in Mutual Funds, Index Funds and ETFs Learning Objectives Introduction Mutual Funds and Other Funds What Is Fund Investing? v

7 What Are the Attributes of Funds? What Are Common Services Offered by Funds? How Is Net Asset Value (NAV) Determined? How Do You Make Money in a Mutual Fund? What Is the Total Return on the Mutual Fund? How Much Will Mutual Funds Charge You? What Kinds of Mutual Funds Exist? What Is the Difference between Open-End and Closed-End Funds? What Are the Types of Funds? What Investment Programs Are Tied to Mutual Funds? How Do You Select a Bond (Income) Fund? What Are Some Guidelines to Follow When Investing in a Bond Fund? Are Tax-Exempt Municipal Bond Funds for You? Are Unit Investment Trusts for You? What Has Been the Performance of The Mutual Fund? What Are the Measures of Risk (or Volatility) of a Mutual Fund? How Do You Choose A Mutual Fund? What Is Performance Benchmarking? What about Mutual Fund Peer Group Rankings? Morningstar Rankings What Market Indexes Are Used as Benchmarks? What Risk-Reducing Strategies for Investing in Mutual Funds Are Available? How Does Dollar Cost Averaging Work? Investing in Index Funds: No-Brainer Investment Method Where Can You Obtain Mutual Fund Information and Ratings? Online Screening Resources What About Investing in Money Market Funds? Sources of Information for Money Market Funds How Do Closed-End Funds Work? What are the Advantages and Disadvantages of Closed-End Funds? Sources of Information and Online Services for Closed-End Funds How Do You Determine if Hedge Funds Are Right for You? Tax Tips with Funds Robo-Advisors Review Questions Review Answers Chapter 14 Diversification, Portfolio Construction, and Asset Allocation Learning Objectives Introduction Diversification Diversification Is the Key How to Allocate Assets with Mutual Funds Investing In an Asset Allocation Fund What Is Do-It-Yourself Portfolio Construction? Calculate Your Allocation Mix Rebalancing: Fine-Tune Your Asset Mix Obtain Help for Constructing an Asset Allocation Portfolio How Can You Use Beta for Asset Allocation? Life-Cycle Guide: Recommended Asset Allocation How Your Family Situation Affects Your Financial Goals and Investment Conditions? Review Questions Review Answers Glossary Index vi