This book on investment pricing methods offers accounting and financial practitioners and academics a solid understanding of the techniques and methods investment analysts use to price common financial investment instruments, such as commercial mortgages, private placement–bonds, mortgage–backed securities, private and public equities, derivatives, and joint ventures. Clarification of important terminology and an overview of fundamental concepts are provided for less experienced professionals, while in–depth and up–to–date discussion of technical matters offers experienced professionals expert dissection of more complex material. This authoritative and reliable guide features:
∗ PowerPoint(TM) presentation for teaching purposes available online at [external URL]
∗ In–depth and up–to–date pricing models
∗ Verbal and formula explanations for all mathematical equations
∗ Tips on reviewing investment prices for accuracy or flaws
∗ Investment type characteristics such as contractual provisions, cash flows, and risks for applying Statement 133 hedge effectiveness guidelines
∗ Basic building blocks of investment pricing methodologies including present value methodologies used for pricing and evaluating common investment types
∗ Coverage of complex issues including term structure of interest rates, determinants of bond yields and stock risk premiums, estimation of free cash flows for valuing a business entity, and more
1 Pricing Concepts and the Term Structure of Interest Rates.
Present Value Formula.
Duration and Other Fixed–Income Pricing Concepts.
Appendix A: Calculation of U.S. Treasury Bond Yield Curve.
Appendix B: Eurodollar Futures Yields.
2 Fixed–Income Pricing Matrix and Decomposing Yields.
Determining the Discount Rate.
Credit Rating Categories and Determination.
Processes for Decomposing Bond Yields.
Normalized–Yield Pricing Matrix.
3 Public Corporate Bonds, Private–Placement Bonds, and Whole Commercial Mortgages.
Publicly Issued Corporate Bonds.
Public Corporate Bond Pricing.
Valuing a Private–Placement Bond.
Pricing Bonds that Have Sinking–Fund Payment Requirements.
Pricing Defaulted Bonds.
Whole Commercial Mortgage Loans.
Valuing a Whole Commercial Mortgage Loan.
Monetary Default Scenarios.
Appendix C: Bloomberg–Yield to Call Data.
Appendix D: Selected Portions of BondCalc (r) Brochures.
4 Mortgage–Backed and Asset–Backed Securities.
Evolution of the Mortgage–Backed Securities Market.
Collateralized Mortgage Obligations.
Bloomberg Median Prepayments.
Private–Placement Asset–Backed Securities.
5 Privately Held Equity.
Pricing Equity Issues.
Common Equity Pricing Models Used by Investment Analysts.
Price–Multiple Equity Pricing Models.
Discounted Cash Flow Approach Equity Pricing Model.
Basic Framework of Private–Equity Investing.
Accountant′s Review of Private–Equity Valuations.
6 Public Equity Pricing.
"Fox Rocks" Valuation Illustration.
Discounted Cash Flow Model.
Appendix E: "Fox Rocks" Valuation Illustration.
Forward Rate Agreements.
Appendix F: Using Pricing Concepts of Fixed–Income Investments and Derivatives to Illustrate How to Hedge the Base Rate of Interest.
Appendix G: Fixed Income Option Strategies.
Surfside Condominium Partnership.
ROBERT M. TRAFICANTI is Director of Accounting Policy at a major investment bank. He coauthored this book while he was a project manager at the Financial Accounting Standards Board.