Foreword xiii
Preface xv
Acknowledgments xvii
About the CFA Institute Investment Series xix
Chapter 1 The Time Value of Money 1
Learning Outcomes 1
1. Introduction 1
2. Interest Rates: Interpretation 2
3. The Future Value of a Single Cash Flow 4
3.1. The Frequency of Compounding 9
3.2. Continuous Compounding 11
3.3. Stated and Effective Rates 12
4. The Future Value of a Series of Cash Flows 13
4.1. Equal Cash Flows—Ordinary Annuity 14
4.2. Unequal Cash Flows 15
5. The Present Value of a Single Cash Flow 16
5.1. Finding the Present Value of a Single Cash Flow 16
5.2. The Frequency of Compounding 18
6. The Present Value of a Series of Cash Flows 19
6.1. The Present Value of a Series of Equal Cash Flows 19
6.2. The Present Value of an Infinite Series of Equal Cash Flows—Perpetuity 24
6.3. Present Values Indexed at Times Other than t = 0 25
6.4. The Present Value of a Series of Unequal Cash Flows 26
7. Solving for Rates, Number of Periods, or Size of Annuity Payments 27
7.1. Solving for Interest Rates and Growth Rates 27
7.2. Solving for the Number of Periods 30
7.3. Solving for the Size of Annuity Payments 31
7.4. Review of Present and Future Value Equivalence 35
7.5. The Cash Flow Additivity Principle 37
8. Summary 38
Problems 38
Chapter 2 Discounted Cash Flow Applications 43
Learning Outcomes 43
1. Introduction 43
2. Net Present Value and Internal Rate of Return 44
2.1. Net Present Value and the Net Present Value Rule 44
2.2. The Internal Rate of Return and the Internal Rate of Return Rule 46
2.3. Problems with the IRR Rule 49
3. Portfolio Return Measurement 51
3.1. Money-Weighted Rate of Return 52
3.2. Time-Weighted Rate of Return 53
4. Money Market Yields 59
5. Summary 64
References 65
Problems 65
Chapter 3 Statistical Concepts and Market Returns 69
Learning Outcomes 69
1. Introduction 70
2. Some Fundamental Concepts 70
2.1. The Nature of Statistics 70
2.2. Populations and Samples 71
2.3. Measurement Scales 72
3. Summarizing Data Using Frequency Distributions 73
4. The Graphic Presentation of Data 81
4.1. The Histogram 82
4.2. The Frequency Polygon and the Cumulative Frequency Distribution 83
5. Measures of Central Tendency 86
5.1. The Arithmetic Mean 86
5.2. The Median 90
5.3. The Mode 93
5.4. Other Concepts of Mean 94
6. Other Measures of Location: Quantiles 103
6.1. Quartiles, Quintiles, Deciles, and Percentiles 103
6.2. Quantiles in Investment Practice 108
7. Measures of Dispersion 110
7.1. The Range 111
7.2. The Mean Absolute Deviation 111
7.3. Population Variance and Population Standard Deviation 113
7.4. Sample Variance and Sample Standard Deviation 116
7.5. Semivariance, Semideviation, and Related Concepts 120
7.6. Chebyshev’s Inequality 121
7.7. Coefficient of Variation 123
7.8. The Sharpe Ratio 125
8. Symmetry and Skewness in Return Distributions 129
9. Kurtosis in Return Distributions 134
10. Using Geometric and Arithmetic Means 138
11. Summary 140
References 141
Problems 142
Chapter 4 Probability Concepts 151
Learning Outcomes 151
1. Introduction 152
2. Probability, Expected Value, and Variance 152
3. Portfolio Expected Return and Variance of Return 175
4. Topics in Probability 184
4.1. Bayes’ Formula 184
4.2. Principles of Counting 188
5.
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Quantitative investment analysis by Richard Armand DeFusco. ISBN 9781119104605. Published by John Wiley & Sons in 2015. Publication and catalogue information, links to buy online and reader comments.
