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Finance
Markets, Instruments & Investments was written with a wide audience in mind. It is suitable for introductory finance courses or for anyone who needs a basic understanding of the core principles of finance. Mathematical analysis consciously has been kept to a minimum. The appendix includes the most important statistical concepts and each chapter ends with a list of questions, complete answers and solutions. Additional examples and exercises have been included and the book's website contains new study material.
244 pages, Paperback
First published January 13, 2014
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Displaying 1 - 2 of 2 reviews
July 15, 2021
I have previously read books and taken MOOC courses on finance, but I bought this book for a introductory university course. I think this is a great book. It is concise (229 pages) and well-written, and covers a lot of ground.
Each chapter is quite short, and ends with a section of questions with comprehensive answers. Very good. There are also "Food For Thought"-boxes with interesting side-stories that I liked sprinkled throughout the book.
Concepts covered:
Compounding interest, and the "inverse": present value calculation (discounting) of future cash flows. Risk, return, volatility. Bonds (with and without coupons), and how their prices are affected by changing interest rates.
Stocks and dividends. The Dividend Discount Model (DDM) for pricing stocks. Fundamental and technical analysis. Forwards and futures (forwards are non-standardized, futures are exchange-traded) - derivates on underlying assests, originally commodities. Can be used both for hedging risks and for speculating. The price is determined from an arbitrage argument, and depends on the cost of carry (interest rate plus storage cost).
Put and call options. Pay-off diagrams are used to show the put-call parity for option prices in an arbitrage-free market. The Black-Scholes formula is described (but not derived, since that is far beyond the scope of the book).
Portfolio returns, risks and correlations. The Markowitz mean-variance model. By combining assets that are not totally correlated, you can lower your risk and increase your expected return. This is mostly shown in graphs with expected return and volatility on the axes. The two-fund separation: depending on your risk appetite, you split your investment between the risk-free bank account and the optimal portfolio along the capital market line (CML). The Capital Asset Pricing Model (CAPM), market portfolio (index fund), the beta risk-measure.
Market efficiency - weak, semi-strong and strong, that is if prices reflect all historical, public or insider information. "Markets are probably weak, and possibly also semi-strong", but the opinion is divided. Credit (default) risks for bonds. Credit rating agencies. Credit derivates, like credit default swap (CDS) and collateralized debt obligation (CDO).
Each chapter is quite short, and ends with a section of questions with comprehensive answers. Very good. There are also "Food For Thought"-boxes with interesting side-stories that I liked sprinkled throughout the book.
Concepts covered:
Compounding interest, and the "inverse": present value calculation (discounting) of future cash flows. Risk, return, volatility. Bonds (with and without coupons), and how their prices are affected by changing interest rates.
Stocks and dividends. The Dividend Discount Model (DDM) for pricing stocks. Fundamental and technical analysis. Forwards and futures (forwards are non-standardized, futures are exchange-traded) - derivates on underlying assests, originally commodities. Can be used both for hedging risks and for speculating. The price is determined from an arbitrage argument, and depends on the cost of carry (interest rate plus storage cost).
Put and call options. Pay-off diagrams are used to show the put-call parity for option prices in an arbitrage-free market. The Black-Scholes formula is described (but not derived, since that is far beyond the scope of the book).
Portfolio returns, risks and correlations. The Markowitz mean-variance model. By combining assets that are not totally correlated, you can lower your risk and increase your expected return. This is mostly shown in graphs with expected return and volatility on the axes. The two-fund separation: depending on your risk appetite, you split your investment between the risk-free bank account and the optimal portfolio along the capital market line (CML). The Capital Asset Pricing Model (CAPM), market portfolio (index fund), the beta risk-measure.
Market efficiency - weak, semi-strong and strong, that is if prices reflect all historical, public or insider information. "Markets are probably weak, and possibly also semi-strong", but the opinion is divided. Credit (default) risks for bonds. Credit rating agencies. Credit derivates, like credit default swap (CDS) and collateralized debt obligation (CDO).
May 27, 2023
Bra och pedagogisk! Rolig emellanåt:)
Displaying 1 - 2 of 2 reviews