Investment Pricing Methods

Practical, expert coverage of investment pricing methods for financial professionals

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 www.wiley.com/go/investmentpricing
• 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

Bilanzierungsrichtlinien werden aufgrund der zunehmenden Komplexität von Investitionen ständig weiterentwickelt. Entsprechend sind Konzepte zur Bestimmung des marktgerechten Wertes Bestandteil der Ermittlungs- und Offenlegungsrichtlinien geworden, und Fachleute des Rechnungswesens müssen die Grundlagen der Preisbildung im Investmentbereich beherrschen. "Investment Pricing Methods" wurde speziell für Fachleute im Finanz- und Rechnungswesen geschrieben. Es erläutert ausführlich die Verfahren und Methoden, die Investmentanalysten anwenden bei der Bewertung allgemeiner Finanzinstrumente, wie z.B. gewerbliche Hypotheken, Privatplazierungen, hypothekarisch gesicherte Wertpapiere, börslich und außerbörslich gehandelte Aktienwerte, Derivate und Joint Ventures. Der Band liefert eine klare Definition der wichtigen Terminologie und gibt einen Überblick über grundlegende Konzepte für weniger erfahrene Fachleute. Darüber hinaus bietet er eine tiefgreifende und aktuelle Diskussion technischer Fragen zu komplexeren Themen für erfahrene Experten. "Investment Pricing Methods" ist ein maßgeblicher und zuverlässiger Leitfaden, der dem Leser zeigt, wie er feststellen kann, ob Investitionen vernünftig bewertet oder unrealistisch überzogen sind. Er enthält grundlegende Bausteine zu Preisbildungsverfahren, wie z.B. Formeln zur Ermittlung des Barwertes und Methoden, die zur Ermittlung des gegenwärtigen Wertes allgemeiner Investitionsarten eingesetzt werden. Auch komplexe Fragen zu Zinsstruktur, Risikozuschlägen, Terminologie und Cash Flow-Eigenschaften werden umfassend erörtert. Ein wertvoller Ratgeber für die Praxis! Preface.

Acknowledgments.

1 Pricing Concepts and the Term Structure of Interest Rates.

Introduction.

Present Value Formula.

Duration and Other Fixed-Income Pricing Concepts.

Concluding Remarks.

Notes.

Appendix A: Calculation of U.S. Treasury Bond Yield Curve.

Appendix B: Eurodollar Futures Yields.

2 Fixed-Income Pricing Matrix and Decomposing Yields.

Introduction.

Determining the Discount Rate.

Credit Rating Categories and Determination.

Processes for Decomposing Bond Yields.

Normalized-Yield Pricing Matrix.

Concluding Remarks.

Notes.

3 Public Corporate Bonds, Private-Placement Bonds, and Whole Commercial Mortgages.

Introduction.

Key Terminology.

Publicly Issued Corporate Bonds.

Public Corporate Bond Pricing.

Private-Placement Bonds.

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.

Notes.

Appendix C: Bloomberg-Yield to Call Data.

Appendix D: Selected Portions of BondCalc (r) Brochures.

4 Mortgage-Backed and Asset-Backed Securities.

Introduction.

Evolution of the Mortgage-Backed Securities Market.

Mortgage-Backed Securities.

Collateralized Mortgage Obligations.

Bloomberg Median Prepayments.

Stripped Securities.

Private-Placement Asset-Backed Securities.

Concluding Remarks.

Notes.

5 Privately Held Equity.

Introduction.

Equity Volatility.

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.

Concluding Remarks.

Notes.

6 Public Equity Pricing.

Introduction.

"Fox Rocks" Valuation Illustration.

Discounted Cash Flow Model.

Concluding Remarks.

Notes.

Appendix E: "Fox Rocks" Valuation Illustration.

7 Derivatives.

Introduction.

Forward Contracts.

Futures Contracts.

Option Contracts.

Swaps.

Credit Derivatives.

Forward Rate Agreements.

Notes.

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.

8 Partnerships.

Introduction.

Surfside Condominium Partnership.

Concluding Remarks.

Glossary.

References.

Index. PATRICK CASABONA, PhD, is Associate Professor in the Department of Accounting and Taxation at the Peter J. Tobin College of Business at St. John's University and a consultant to various business organizations.
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. This book on investment pricing methods provides accounting and financial professionals and academics with a practical understanding of how investment analysts price common investments, such as commercial mortgages, private placement-bonds, mortgage-backed securities, private and public equities, derivatives, and joint ventures.

Authors Casabona and Traficanti provide explanations and easy-to-follow illustrations of investment pricings in order to reinforce valuation concepts and help accountants apply those concepts to more complicated investments that are found in the marketplace. They show how investors are compensated for assuming risks and how this impacts pricing. Such in-depth discussions will allow accountants to understand the inputs used in appropriate investment pricing models (including the basic valuation formula), how changing market conditions impact fair values, and why certain internal control processes are important in arriving at accurate and consistent pricing estimates for investments. The book also illustrates common derivative hedging transactions to help the reader understand how derivatives are used to reduce risk and achieve other objectives.

Detailed coverage of the five elements that professionals use to price private investments is provided:
* Estimation of future cash flows
* Expectation about variations in the amount or timing of future cash flows
* Time value of money as represented by the risk-free rate of interest
* Price for bearing the uncertainty in the asset or liability
* Other factors such as illiquidity and market imperfections

Investment Pricing Methods offers readers a sound understanding of the fundamentals of investment pricing procedures and helps them apply these techniques to investment pricing calculations observed in practice. Suitable for professionals and academics of various experience levels, the book offers both fundamental concepts in pricing methods and advanced coverage of particular techniques. Practical, expert coverage of investment pricing methods for financial professionals

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 www.wiley.com/go/investmentpricing
* 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