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TABLE OF CONTENTS
Chapter 1 | Introduction to InvestmentsIntroductiontoInvesting................................................................................2
HowtoSaveMore .......................................................................................... 6
GoalsofInvesting........................................................................................7InvestorsandTheirGoals ................................................................................... 8HowInvestorsBuildPortfolios.............................................................................11HabitsofSuccessfulInvestors..............................................................................12
HowtheTextisDesigned ............................................................................... 14
Chapter 2 | Securities Laws, Market Structure, and Asset ClassesLearningObjectives .................................................................................... 16
SecuritiesLawsandRegulations ........................................................................ 16GovernmentLegislation ...................................................................................17SecuritiesandExchangeCommission(SEC)................................................................18IndependentOrganizations................................................................................20
MarketStructure....................................................................................... 21U.S.TreasurySecurities ....................................................................................21SharesofStockandAllOtherBondIssues ..................................................................22SecondaryMarket .........................................................................................22
MarketParticipants .................................................................................... 23Broker-Dealers............................................................................................24SecuritiesExchanges.......................................................................................24IndividualAdvisers ........................................................................................24FinancialInstitutions......................................................................................25Self-RegulatoryOrganizations .............................................................................25TransferAgents ...........................................................................................27
AssetClasses ........................................................................................... 27CashandMoneyMarketSecurities .........................................................................27Fixed-IncomeSecurities ...................................................................................31Equities ...................................................................................................41
Summary ............................................................................................... 46
KeyTerms.............................................................................................. 47
DiscussionQuestions ................................................................................... 50
Multiple-ChoiceProblems .............................................................................. 51
QuickQuizExplanations ................................................................................ 52
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Chapter 3 | Risk & ReturnLearningObjectives .................................................................................... 54
Introduction............................................................................................ 54
MethodsofMeasuringReturn .......................................................................... 55HoldingPeriodReturn.................................................................................... 57AverageReturn........................................................................................... 58InternalRateofReturn.................................................................................... 61AnnualizedReturn ........................................................................................ 65BondEquivalentYield(BEY).............................................................................. 66Weighted-AverageReturn................................................................................. 66After-TaxReturn.......................................................................................... 67RealReturn ............................................................................................... 68EffectiveAnnualRateofReturn ........................................................................... 70
MethodsofAssessingRisk .............................................................................. 71TypesofSystematicRisks ................................................................................. 73TypesofUnsystematicRisks .............................................................................. 80LiquidityandMarketability ............................................................................... 87
MethodsofMeasuringRisk............................................................................. 88StandardDeviation().................................................................................... 88SkewnessandKurtosis.................................................................................... 94Low-Probability,High-ImpactEconomicEvents ........................................................... 96Beta ...................................................................................................... 97HowcanBetabeUsedwithIndividualSecurities? ......................................................... 98Correlation ............................................................................................... 99Covariance............................................................................................... 103Semivariance............................................................................................ 104CoefficientofVariation................................................................................... 106ValueatRisk ............................................................................................. 107
ComprehensiveExamples .............................................................................111NewYorkYankees....................................................................................... 111AppleStock .............................................................................................. 112Jack’sPortfolio ........................................................................................... 115
Summary ..............................................................................................116
KeyTerms.............................................................................................118
DiscussionQuestions ..................................................................................120
Multiple-ChoiceProblems .............................................................................121
QuickQuizExplanations ...............................................................................122
Chapter 4 | Portfolio TheoryLearningObjectives ...................................................................................124
Introduction...........................................................................................124
HistoricalReturnsandRisk............................................................................125
Diversification ........................................................................................127
PortfolioRiskandReturn..............................................................................128
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TOCTheEfficientFrontier..................................................................................133
ModernPortfolioTheory ..............................................................................136ArbitragePricingTheory(APT) ..........................................................................140
RiskTolerance ........................................................................................141RiskToleranceandAssetAllocation......................................................................146
AssetAllocation .......................................................................................150StrategicAssetAllocation ................................................................................150TacticalAssetAllocation.................................................................................150Core-SatelliteAllocation.................................................................................151MarketTimingandSectorRotation ......................................................................151Mean-VarianceOptimizationModels .....................................................................152
InvestmentPolicyStatements .........................................................................152
TimeDiversification...................................................................................154BuildingPortfoliosofMutualFunds,ETFs,andSeparatelyManagedPortfolios ............................154
Summary ..............................................................................................156
KeyTerms.............................................................................................159
DiscussionQuestions ..................................................................................160
Multiple-ChoiceProblems .............................................................................161
QuickQuizExplanations ...............................................................................162
Chapter 5 | Investment Decisions and Attribution AnalysisLearningObjectives ...................................................................................164
Introduction...........................................................................................164
BenchmarkPortfolio ..................................................................................165FormingaBenchmarkPortfolio ..........................................................................167
PerformanceMeasures................................................................................168
TheAssetAllocationDecision..........................................................................170AssetAllocationStrategies ...............................................................................171
AssetSelectionDecision...............................................................................173DiscountedCashFlowTechnique ........................................................................173RelativeValuationwithMultipliers.......................................................................174TechnicalAnalysis .......................................................................................176Indexing .................................................................................................177
SummaryExample.....................................................................................177Taft’sDiscountedCashFlowAnalysis ....................................................................178Taft’sTechnicalAnalysis .................................................................................178TaftSummary ...........................................................................................178
AttributionAnalysisandFamaDecomposition .........................................................179
Brinson,Hood,andBeebower(BHB)Model ............................................................181
Fixed-IncomeAttributionAnalysis.....................................................................184
Summary ..............................................................................................188
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KeyTerms.............................................................................................189
DiscussionQuestions ..................................................................................191
Multiple-ChoiceProblems .............................................................................193
QuickQuizExplanations ...............................................................................194
Chapter 6 | Market Efficiency & Behavioral FinanceLearningObjectives ...................................................................................196
BriefHistoryofFinancialDecisionMaking .............................................................196
ModernDayFinance&ModernPortfolioTheory(MPT) ................................................198TheEfficientMarketHypothesis.......................................................................... 200
BehavioralFinance ....................................................................................203Framing ................................................................................................. 204BehavioralFinanceandProspectTheory................................................................. 206BehavioralFinanceandCognitiveErrors................................................................. 208BehavioralFinanceandEmotionalBiases ................................................................ 210
MoneyManagersandBehavioralIssues................................................................212
ConcludingRemarksRegardingaBlendofTraditionalandBehavioralFinance ........................213
Summary ..............................................................................................214
KeyTerms.............................................................................................216
DiscussionQuestions ..................................................................................219
Multiple-ChoiceProblems .............................................................................221
QuickQuizExplanations ...............................................................................222
Chapter 7 | Fixed-Income SecuritiesLearningObjectives ...................................................................................224
Introduction...........................................................................................224
TypesofFixed-IncomeSecurities......................................................................225
MoneyMarketandShort-TermDebtSecurities ........................................................226TreasuryBills(T-Bills) ................................................................................... 226CommercialPaper ....................................................................................... 228MoneyMarketDepositAccounts ......................................................................... 228CertificatesofDeposit(CDs) ............................................................................. 229Bankers’Acceptances.................................................................................... 230RepurchaseAgreements ................................................................................. 230FederalFunds ........................................................................................... 230Short-TermMunicipalDebtObligations .................................................................. 231EurodollarDeposits...................................................................................... 231
CommonFeaturesofBonds&BondTerminology ......................................................231CouponRate ............................................................................................. 231YieldtoMaturity ......................................................................................... 232SecuredandUnsecuredBonds ........................................................................... 232BondswithEmbeddedOptions........................................................................... 233
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TOCExceptionstoCommonBondDesigns....................................................................234AccruedInterest .........................................................................................235BondPriceQuotes.......................................................................................236
U.S.GovernmentBondsandAgencySecurities .........................................................237TreasuryNotesandBonds ...............................................................................237TreasurySTRIPS.........................................................................................238TreasuryInflationProtectedSecurities(TIPS)............................................................240U.S.SavingsBonds .......................................................................................240U.S.GovernmentAgencyandSponsoredSecurities.......................................................242
MunicipalBonds.......................................................................................243
CorporateBonds ......................................................................................246
CollateralizedMortgageObligations(CMOs)...........................................................250
ForeignBonds .........................................................................................252
PromissoryNotes......................................................................................253
GuaranteedIncomeContracts(GICs)...................................................................253
ConvertibleBonds .....................................................................................254
Summary ..............................................................................................257
KeyTerms.............................................................................................258
DiscussionQuestions ..................................................................................261
MultipleChoiceProblems .............................................................................262
QuickQuizExplanations ...............................................................................263
Chapter 8 | Fixed-Income Securities - AnalysisLearningObjectives ...................................................................................266
Introduction...........................................................................................266
ValuationofFixed-IncomeSecurities ..................................................................266BasicCalculationExample ...............................................................................267CalculationInputs .......................................................................................268
MeasureofBondReturns ..............................................................................269CurrentYield(CY).......................................................................................269YieldtoMaturity(YTM)..................................................................................270YieldtoMaturityforaZero-CouponBond ................................................................272YieldtoCall(YTC) .......................................................................................273ComparingCorporateReturnsandMunicipalBondReturns(TaxFree)...................................274
RisksofFixed-IncomeSecurities.......................................................................276InterestRateRisk........................................................................................276Default(orCredit)Risk..................................................................................278ReinvestmentRateRisk..................................................................................279PurchasingPowerRisk ..................................................................................279CallRisk .................................................................................................280ExchangeRateRisk ......................................................................................280LiquidityRisk............................................................................................280
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StructureofInterestRates.............................................................................280YieldCurves............................................................................................. 280YieldCurveTheories ..................................................................................... 281
BondPriceVolatility...................................................................................284BondPricesMoveInverselytoChangesinYields ......................................................... 285Longer-TermBondsAreMoreVolatileThanShorter-TermBonds......................................... 285LowerCouponBondsAreMoreVolatile.................................................................. 287BondPriceConvergence ................................................................................. 288
Duration,Immunization,andConvexity................................................................289CalculatingDuration(Macaulay) ......................................................................... 290DurationasaMeasureofaBond’sVolatility.............................................................. 292ModifiedDuration ....................................................................................... 293EffectiveDuration........................................................................................ 295PortfolioDuration ....................................................................................... 296ProblemswithDuration................................................................................. 297UsingDurationtoImmunizeBondPortfolios............................................................. 300Convexity ................................................................................................ 303
BondPortfolioManagementStrategies ................................................................305PassiveStrategies ........................................................................................ 305ActiveStrategies ......................................................................................... 306
Summary ..............................................................................................311
KeyTerms.............................................................................................312
DiscussionQuestions ..................................................................................314
MultipleChoice........................................................................................315
QuickQuizExplanations ...............................................................................316
Chapter 9 | Equity Securities - IntroductionLearningObjectives ...................................................................................318
Introduction...........................................................................................318
BasicConceptsofOwnership-TypeInvestments .......................................................319WhatOwnershipMeans.................................................................................. 319Dividends................................................................................................ 321CapitalAppreciation..................................................................................... 328DividendsorCapitalAppreciation:WhichisBetter?...................................................... 329Voting................................................................................................... 330MaintainingOwnershipPercentage ...................................................................... 330Liability.................................................................................................. 330Liquidation.............................................................................................. 331
TypesofEquitySecurities .............................................................................333CommonStock........................................................................................... 333MarketCapClassification ................................................................................ 337TreasuryStock........................................................................................... 338ClassifiedCommonStock................................................................................. 339PreferredStock.......................................................................................... 342ForeignSecurities........................................................................................ 344
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TOCEquityMarketsandBenchmarks ......................................................................346
InitialPublicOffering....................................................................................346PrimaryMarket..........................................................................................351SecondaryMarket .......................................................................................360ThirdandFourthMarkets ...............................................................................360
MarketIndexesandAverages..........................................................................361Price-WeightedIndex ....................................................................................361MarketCapitalization-Weighted(orCap-Weighted)Index ................................................362Equal-WeightedIndex...................................................................................362DowJonesIndustrialAverage ............................................................................363Standard&Poor’s500Index .............................................................................364Wilshire5000Index.....................................................................................366RussellU.S.Indexes ......................................................................................366Barron’s400Index ......................................................................................367MSCIEAFAIndex........................................................................................367NASDAQ.................................................................................................368
InvestingInEquitySecurities ..........................................................................368LongPositions ...........................................................................................368ShortPositions ..........................................................................................369
MarginAccounts.......................................................................................372DeterminingthePriceforaMarginCall ..................................................................372DeterminingHowMuchtoPutUptoRestoretheAccountEquity .........................................373
TypesofOrders .......................................................................................374MarketOrder ............................................................................................374LimitOrder ..............................................................................................375StopOrders..............................................................................................375TimeLimitationsandSpecialOrders .....................................................................377OrderSizeandPricing...................................................................................377BrokerageIndustry ......................................................................................378
Summary ..............................................................................................378
KeyTerms.............................................................................................381
DiscussionQuestions ..................................................................................384
Multiple-ChoiceProblems .............................................................................385
QuickQuizExplanations ...............................................................................386
Chapter 10 | Equity Securities - AnalysisLearningObjectives ...................................................................................388
Introduction...........................................................................................388
FundamentalAnalysis .................................................................................389Bottom-UpversusTop-DownApproaches................................................................389EconomicAnalysis .......................................................................................390FederalGovernmentPolicyandItsInfluences ............................................................393BusinessCycles ..........................................................................................398
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IndustryAnalysis ......................................................................................400IndustryLifeCycle ....................................................................................... 400Porter’sFiveCompetitiveForces......................................................................... 401CompanyAnalysis ....................................................................................... 403FinancialAnalysts........................................................................................ 404SourcesofInformation ................................................................................... 404SWOTAnalysis........................................................................................... 405
RatioAnalysis.........................................................................................406
TechnicalAnalysis.....................................................................................417ComparisonwithFundamentalAnalysis .................................................................. 417ToolsofTechnicalAnalysis............................................................................... 418SupportandResistanceLevels ........................................................................... 424
Summary ..............................................................................................425
KeyTerms.............................................................................................427
DiscussionQuestions ..................................................................................429
Multiple-ChoiceProblems .............................................................................430
QuickQuizExplanations ...............................................................................431
Chapter 11 | Equity Securities - ValuationLearningObjectives ...................................................................................434
Introduction...........................................................................................434
ValuationofEquitySecurities..........................................................................436ValuationofCommonStockforGoingConcerns .......................................................... 436ValuingCommonStockWithoutaGoingConcernAssumptionorforCompanieswithNaturalResources .. 437
PresentValueModels..................................................................................438BasicPresentValueModel ............................................................................... 439DividendDiscountModel(DDM)......................................................................... 440ConstantGrowthDividendModel ........................................................................ 440H-Model................................................................................................. 446ValuationUsingFreeCashFlows......................................................................... 447
RelativeValuationMethods(PriceMultiples) ..........................................................449PERatio ................................................................................................. 450ThePEGRatio ........................................................................................... 453Price-to-SalesRatio...................................................................................... 454Price-to-Cash-FlowRatio................................................................................. 454Price-to-BookRatio...................................................................................... 454
Summary ..............................................................................................458
KeyTerms.............................................................................................460
DiscussionQuestions ..................................................................................462
MultipleChoiceQuestions.............................................................................463
QuickQuizExplanations ...............................................................................464
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TOCChapter 12 | Investment CompaniesLearningObjectives ...................................................................................466
Introduction...........................................................................................466
InvestmentCompanyCharacteristics ..................................................................469
UnitInvestmentTrusts................................................................................470
Exchange-TradedFunds(ETFs) ........................................................................471
Closed-EndInvestmentCompanies ....................................................................474
Open-EndInvestmentCompanies(MutualFunds)......................................................475
MutualFundFeesandCosts ...........................................................................477LoadsorSalesCharges...................................................................................477OtherMutualFundFeesandCosts.......................................................................479
MutualFundClassification.............................................................................483LoadversusNo-LoadFunds..............................................................................483ClassesofLoadFundShares .............................................................................483ExpenseRatiosforDifferentTypesofFunds..............................................................485
AdvantagesofMutualFunds ...........................................................................485LowInitialInvestment ...................................................................................485Diversification ...........................................................................................486EaseofAccess...........................................................................................486ProfessionalManagement................................................................................487TaxEfficiencyofManagementFees ......................................................................487Liquidity ................................................................................................487TransactionCostEfficiency ..............................................................................488RangeofMutualFundProducts ..........................................................................488Services.................................................................................................488
DisadvantagesofMutualFunds ........................................................................489PoorRelativePerformance...............................................................................489ControlIssues...........................................................................................489Fees,Loads,andExpenses ...............................................................................489CashReserves...........................................................................................490NoInsurance............................................................................................490MarketImpact ...........................................................................................490ChoiceofManyFunds....................................................................................490ClassificationSystem ....................................................................................490TaxInefficiencies........................................................................................491
TypesandObjectivesofMutualFunds .................................................................491MoneyMarketMutualFunds.............................................................................491Fixed-IncomeMutualFunds .............................................................................493EquityMutualFunds.....................................................................................496HybridorBalancedFunds ...............................................................................497
Summary ..............................................................................................498
KeyTerms.............................................................................................499
DiscussionQuestion ...................................................................................501
Multiple-ChoiceProblems .............................................................................502
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QuickQuizExplanations ...............................................................................503
Chapter 13 | Investment Company - AnalysisLearningObjectives ...................................................................................506
Introduction...........................................................................................506
AssetAllocationUsingMutualFunds...................................................................507StepsintheInvestmentProcess .......................................................................... 507MeanVarianceOptimization............................................................................. 508PortfolioPerformanceReport ............................................................................ 509MutualFundSelectionbyProfessionalInvestmentAdvisers.............................................. 510
TheFundProspectus ..................................................................................511MutualFundObjective................................................................................... 511InvestmentPolicyandStrategy........................................................................... 512ManagerTenure......................................................................................... 514TotalAnnualReturns .................................................................................... 514PortfolioTurnover ....................................................................................... 515FeesandExpenses ....................................................................................... 516RisksofInvesting........................................................................................ 517BuyingandSellingShares ................................................................................ 517MinimumInitialInvestment.............................................................................. 517InvestorServices......................................................................................... 518
ModernPortfolioTheoryStatistics ....................................................................518CoefficientofCorrelation(R) ............................................................................. 518CoefficientofDetermination(R2)......................................................................... 519Beta ..................................................................................................... 520
PerformanceMeasures................................................................................521Jensen'sAlpha........................................................................................... 521SharpeRatio ............................................................................................. 524TreynorRatio............................................................................................ 525
IssuesfortheManagementofMutualFunds ...........................................................528ChangingAssetSize ...................................................................................... 528StyleShift ................................................................................................ 528ManagerChanges........................................................................................ 529Built-InCapitalGains .................................................................................... 530
Summary .............................................................................................530
KeyTerms.............................................................................................531
DiscussionQuestions ..................................................................................532
Multiple-ChoiceProblems .............................................................................533
QuickQuizExplanations ...............................................................................534
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TOCChapter 14 | Derivatives: Introduction, Futures & SWAPsLearningObjectives ...................................................................................536
Derivatives ............................................................................................536
FuturesContracts .....................................................................................538IntroductiontoFuturesContracts ........................................................................538FuturesExchanges.......................................................................................543PriceLimits..............................................................................................544TypesofOrders..........................................................................................544FuturesContractAgreements ............................................................................545FuturesContractPositions ...............................................................................548FuturesContractPrices ..................................................................................550ClosingaFuturesContract...............................................................................552TaxImplicationsofFuturesContracts1256Contracts ....................................................553
Swaps.................................................................................................553PlainVanillaSwap.......................................................................................555CurrencySwaps .........................................................................................557
Summary ..............................................................................................558
KeyTerms.............................................................................................560
DiscussionQuestions ..................................................................................562
MultipleChoice ........................................................................................563
QuickQuizExplanations ...............................................................................564
Chapter 15 | Derivatives - OptionsLearningObjectives ...................................................................................566
Introduction...........................................................................................566
OptionTerminology ...................................................................................568
OptionPositions.......................................................................................570BuyaCall ................................................................................................572SellaCall................................................................................................574BuyaPut ................................................................................................575SellaPut ................................................................................................576OptionMoneynessandIntrinsicValue ...................................................................578
TradingOptionContracts ..............................................................................579OptionOrders...........................................................................................580MarketOrdersandLimitOrders .........................................................................581
TypesofOptions.......................................................................................583
OptionStrategies ......................................................................................583ProtectivePut ...........................................................................................584CoveredCallandNakedOptions .........................................................................585ProtectiveCall ...........................................................................................586Collar....................................................................................................587Straddles................................................................................................589Strangles,StripsandStraps..............................................................................590
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SecuritieswithEmbeddedOptions.....................................................................593CallableBonds ........................................................................................... 593ConvertibleBond........................................................................................ 593Warrants ................................................................................................ 595
OptionValuation ......................................................................................595Put-CallParityModel .................................................................................... 596BinomialOptionPricingModel(BOPM) .................................................................. 599Black-Scholes-MertonOptionValuationModel ........................................................... 604ApplicationsofOptionValuation......................................................................... 606
Summary ..............................................................................................607
KeyTerms.............................................................................................608
DiscussionQuestions ..................................................................................611
Multiple-ChoiceProblems .............................................................................612
QuickQuizExplanations ...............................................................................613
Chapter 16 | Alternative InvestmentsLearningObjectives ...................................................................................616
Introduction...........................................................................................616
CriticalAlternativeInvestmentFactors................................................................617Benefits.................................................................................................. 617Risks .................................................................................................... 618
Commodities..........................................................................................620Agricultural .............................................................................................. 621Livestock................................................................................................ 622Dairy .................................................................................................... 622Lumber .................................................................................................. 623Textiles .................................................................................................. 623Softs ..................................................................................................... 623
DerivativeSecurities ..................................................................................624
FuturesContracts .....................................................................................626
VentureCapital........................................................................................627Risks .................................................................................................... 628AngelInvesting.......................................................................................... 629
ArtandCollectibles ...................................................................................629
HedgeFunds ..........................................................................................631ImportantRisksofHedgeFundInvesting................................................................. 632
PrivateEquity.........................................................................................633Risks .................................................................................................... 634
RealEstate ............................................................................................637RealEstateCategories ................................................................................... 638Risks .................................................................................................... 639NetOperatingIncome.................................................................................... 640
Summary ..............................................................................................642
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TOCKeyTerms.............................................................................................644
DiscussionQuestions ..................................................................................646
Multiple-ChoiceProblems .............................................................................647
QuickQuizExplanations ...............................................................................648
Chapter 17 | Taxation of Investment SecuritiesLearningObjectives ...................................................................................650
Introduction...........................................................................................650TheThreeTypesofIncome..............................................................................650BasisRules..............................................................................................651
GeneralRulesofTaxation .............................................................................654OrdinaryIncome ........................................................................................654PortfolioIncome.........................................................................................655PassiveIncome..........................................................................................660
OtherTypesofTaxes ..................................................................................662NetInvestmentIncome(2013andBeyond)..............................................................662AlternativeMinimumTax(AMT).........................................................................663
SpecialTaxationIssueswithStockInvesting ...........................................................665Sale .....................................................................................................665Splits ....................................................................................................665WarrantsandRights .....................................................................................667Spin-offs.................................................................................................667ShortSalesandShortingagainsttheBox.................................................................668WashSales ..............................................................................................670MethodsofDeterminingBasisontheSaleofStock .......................................................671
TaxationofBonds .....................................................................................673Interest(CouponPayments).............................................................................673OriginalIssueDiscount,MarketDiscount,andMarketPremiumBonds ...................................673MunicipalBonds .........................................................................................676U.S.GovernmentBonds..................................................................................677BondSwaps.............................................................................................678
TaxationofMutualFunds..............................................................................678Open-EndMutualFunds.................................................................................678Closed-EndFunds .......................................................................................680UnitInvestmentTrusts ..................................................................................681
TaxationofRealEstateOwnedDirectlybyanInvestor.................................................681InGeneral...............................................................................................681IRCSection121-TaxationoftheSaleofaPrincipalResidence............................................682IRCSection1031 ........................................................................................683StateandLocalTaxation(PropertyTaxes) ...............................................................683InterestonLoansUsedtoAcquireRealEstate ............................................................684TaxationofRealEstateInvestmentTrusts(REITs) .......................................................684
TaxationofDerivatives ................................................................................685TaxationofOptions ......................................................................................685TaxationofFuturesandOther1256Contracts ...........................................................689
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InvestmentExpenses..................................................................................690InvestmentInterestExpense ............................................................................. 690Investment-RelatedExpenses ............................................................................ 690
IRAs,401(k)s,andOtherTaxDeferredAccounts .......................................................691
Summary ..............................................................................................692
KeyTerms.............................................................................................694
DiscussionQuestions ..................................................................................696
Multiple-ChoiceProblems .............................................................................697
QuickQuizExplanations ...............................................................................698
Chapter 18 | Investment Policy StatementLearningObjectives ...................................................................................700
Introduction...........................................................................................700
ThePortfolioManagementProcess....................................................................700
FiduciaryResponsibilities.............................................................................701CFA®Ethics............................................................................................. 701CFA®InstituteStandardsofProfessionalConduct........................................................ 702CFP®ProfessionalEthics................................................................................ 703
TheInvestmentPolicyStatement......................................................................704IndividualInvestorConstraints .......................................................................... 707ReturnObjective ......................................................................................... 708RiskObjective ........................................................................................... 709RolesandResponsibilitiesofManagers................................................................... 711MacroeconomicAnalysis ................................................................................. 711IndustryAnalysis........................................................................................ 711SecurityAnalysis......................................................................................... 712PortfolioAnalysis ........................................................................................ 712
InstitutionalInvestors .................................................................................714PensionFunds........................................................................................... 715EndowmentFunds ....................................................................................... 721
Summary ..............................................................................................723
KeyTerms.............................................................................................724
DiscussionQuestions ..................................................................................726
Multiple-ChoiceProblems .............................................................................727
QuickQuizExplanations ...............................................................................728
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 729
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 751