Preface vii Fifth Edition Changes vii
Ready-To-Build Spreadsheets vii
What Is Unique About This Book xi
Conventions Used In This Book xii
Craig's Challenge xiv
Excel (R) Modeling Books xiv
Suggestions for Faculty Members xiv
Acknowledgements xv
About The Author xvi
PART 1 BONDS / FIXED INCOME SECURITIES 1
Chapter 1 Bond Pricing 1
1.1 Annual Payments 1
1.2 EAR, APR, and Foreign Currencies 2
1.3 Duration and Convexity 7
1.4 Price Sensitivity 9
1.5 Immunization 11
1.6 System of Five Bond Variables 17
Problems 18
Chapter 2 The Yield Curve 21
2.1 Obtaining It From Treasury Bills and Strips 21
2.2 Using It To Price A Coupon Bond 22
2.3 Using It To Determine Forward Rates 23
Problems 24
Chapter 3 Affine Yield Curve Models 25
3.1 US Yield Curve Dynamics 25
3.2 The Vasicek Model 30
3.3 The Cox-Ingersoll-Ross Model 32
Problems 34
PART 2 PORTFOLIO MANAGEMENT 35
Chapter 4 Portfolio Optimization 35
4.1 Two Risky Assets and a Riskfree Asset 35
4.2 Descriptive Statistics 38
4.3 Many Risky Assets and a Riskfree Asset 42
4.4 Any Number of Risky Assets 52
Problems 57
Chapter 5 Constrained Portfolio Optimization 58
5.1 No Short Sales, No Borrowing, and Other Constraints 58
5.2 Any Number of Risky Assets 68
Problems 77
Chapter 6 Portfolio Performance 78
6.1 Evaluation Measures 78
Problems 80
Chapter 7 Portfolio Diversification Lowers Risk 81
7.1 Basics 81
7.2 International 82
Problems 84
PART 3 SECURITY ANALYSIS 85
Chapter 8 Stock Valuation 85
8.1 Dividend Discount Mode
