9e

Investments:
An Introduction

Herbert B. Mayo
The College of New Jersey


Investments: An Introduction, 9e
Herbert B. Mayo
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Dedication
“No matter what accomplishments you make, somebody helps you.”
This quote from Althea Gibson and on display in the American pavilion at Epcot in
Disney World certainly applies to me. Investments: An Introduction, Ninth Edition,
is dedicated to four of my colleagues at The College of New Jersey, who in different
ways have helped me “accomplish.” They are, in alphabetical order:
Thomas Breslin
Nancy Lasher
Bozena Leven
Thomas Patrick


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South-Western Publishing
Series in Finance
Finance–General
Personal Finance
Boone/Kurtz/Hearth: Planning Your Financial Future, 4e
Gitman/Joehnk: Personal Financial Planning, 11e
Survey of Finance
Besley/Brigham: Principles of Finance, 3e
Mayo: Basic Finance: An Introduction to Financial Institutions, Investments, and
Management, 9e
Entrepreneurial Finance
Leach/Melicher: Entrepreneurial Finance, 2e

Corporate Finance
Corporate Finance/Financial Management—Undergraduate
Aplia: Aplia for Finance
For:
Besley/Brigham 14e
Brigham/Houston: Concise 5e
Brigham/Houston: Fundamentals 11e
Besley/Brigham: Essentials of Managerial Finance, 14e
Brigham/Houston: Fundamentals of Financial Management, Concise 5e
Brigham/Houston: Fundamentals of Financial Management, Concise 5e Hybrid Text
Brigham/Houston: Fundamentals of Financial Management, 11e
Brigham/Houston: Fundamentals of Financial Management, 11e Hybrid Text
Lasher: Practical Financial Management, 5e
Megginson/Smart: Introduction to Corporate Finance
Moyer/McGuigan/Kretlow: Contemporary Financial Management, 10e
Moyer/McGuigan/Rao: Fundamentals of Contemporary Financial Management, 2e
International Finance

Butler: Multinational Finance, 3e
Crum/Brigham/Houston: Fundamentals of International Finance
Madura: International Financial Management, 9e
Madura: International Financial Management, Abridged 8e
Intermediate/Advanced Undergraduate Corporate Finance
Brigham/Daves: Intermediate Financial Management, 9e


Capital Budgeting/Long-Term Capital Budgeting
Seitz/Ellison: Capital Budgeting and Long-Term Financing Decisions, 4e
Working Capital Management/Short-Term Financial Management
Maness/Zietlow: Short-Term Financial Management, 3e
Valuation
Daves/Ehrhardt/Shrieves: Corporate Valuation: A Guide for Managers and Investors
MBA/Graduate Corporate Finance
Brigham/Ehrhardt: Financial Management: Theory and Practice, 12e
Ehrhardt/Brigham: Corporate Finance: A Focused Approach, 2e
Hawawini/Viallet: Finance for Executives: Managing for Value Creation, 3e
Smart/Megginson/Gitman: Corporate Finance, 2e
Weaver/Weston: Strategic Financial Management
Corporate Finance/Supplemental Products
Aplia: Preparing for Finance
Klein/Brigham: Finance Online Case Library
Mayes/Shank: Financial Analysis with Microsoft ® Excel, 4e

Investments
Investments—Undergraduate
Hearth/Zaima: Contemporary Investments: Security and Portfolio Analysis, 4e
Mayo: Basic Investments
Mayo: Investments: An Introduction, 9e

Reilly/Norton: Investments, 7e
Strong: Practical Investment Management, 4e
Derivatives/Futures and Options
Chance/Brooks: An Introduction to Derivatives and Risk Management, 7e
Stulz: Risk Management and Derivatives
Fixed Income
Grieves/Griffiths: A Fixed Income Internship: Introduction to Fixed Income
Analytics Volume
Real Options
Shockley: An Applied Course in Real Options Valuation
MBA/Graduate Investments
Reilly/Brown: Investment Analysis and Portfolio Management, 8e
Strong: Portfolio Construction, Management, and Protection, 4e


Financial Institutions
Financial Institutions and Markets
Madura: Financial Markets and Institutions, 8e
Madura: Financial Markets and Institutions, Abridged 7e
Money and Capital Markets
Liaw: Capital Markets
Commercial Banking/Bank Management
Koch/MacDonald: Bank Management, 6e

Insurance
Risk Management and Insurance/Introduction to Insurance
Trieschmann/Hoyt/Sommer: Risk Management and Insurance, 12e


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Brief Contents
Part 1

Part 2

Part 3

The Investment Process and Financial Concepts 1
Chapter 1

An Introduction to Investments

3

Chapter 2

The Creation of Financial Assets

Chapter 3

Securities Markets

Chapter 4

The Time Value of Money

Chapter 5


The Tax Environment

Chapter 6

Risk and Portfolio Management

28

49
83

117
145

Investment Companies 209
Chapter 7

Investment Companies: Mutual Funds

Chapter 8

Closed-end Investment Companies

211

251

Investing in Common Stock 269
Chapter 9


The Valuation of Common Stock

271

Chapter 10 Investment Returns and Aggregate Measures of Stock Markets
Chapter 11 Dividends: Past, Present, and Future

Chapter 12 The Macroeconomic Environment for Investment Decisions
Chapter 13 Analysis of Financial Statements

475

Investing in Fixed-Income Securities 499
Chapter 15 The Bond Market

501

Chapter 16 The Valuation of Fixed-Income Securities
Chapter 17 Government Securities

535

596

Chapter 18 Convertible Bonds and Convertible Preferred Stock

Part 5

644


Derivatives 677
Chapter 19 An Introduction to Options

679

Chapter 20 Option Valuation and Strategies
Chapter 21 Commodity and Financial Futures

Part 6

390

422

Chapter 14 Behavioral Finance and Technical Analysis

Part 4

325

363

721
763

Alternative Investments 801
Chapter 22 Investing in Foreign Securities

803


Chapter 23 Investing in Nonfinancial Assets: Collectibles, Natural Resources,
and Real Estate 831
Chapter 24 Portfolio Planning and Management in an Efficient Market Context
Appendix A

893

Appendix B

899

Glossary
Index

878

909

917

ix


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Contents
Part 1 The Investment Process and Financial Concepts 1
Chapter 1


An Introduction to Investments 3
Portfolio Construction and Planning 4
Some Preliminary Definitions 5
Sources of Risk 8
Diversification and Asset Allocation 11
Efficient and Competitive Markets 12
Portfolio Assessment 14
The Internet 15
The Author’s Perspective and Investment Philosophy
The Plan and Purpose of This Text 17
Appendix 1 22

Chapter 2

16

The Creation of Financial Assets 28
The Transfer of Funds to Business 29
The Issuing and Selling of New Securities 31
The Role of Financial Intermediaries 41
Money Market Mutual Funds and Money Market Instruments

Chapter 3

Securities Markets 49
Secondary Markets and the Role of Market Makers
The Mechanics of Investing in Securities 54
Foreign Securities 70
Regulation 72
Securities Investor Protection Corporation 77


Chapter 4

44

50

The Time Value of Money 83
The Future Value of $1 84
The Present Value of $1 87
The Future Sum of an Annuity 89
The Present Value of an Annuity 92
Illustrations of Compounding and Discounting 95
Equations for the Interest Factors 100
Nonannual Compounding 101
Uneven Cash Flows 103
Time Value Problems and Spreadsheets 105

xi


xii

Contents

Chapter 5

The Tax Environment 117
Tax Bases 118
Income Taxation 118

Tax Shelters 120
Life Insurance as a Tax Shelter 134
Employee Stock Option Plans as a Tax Shelter
Taxation of Wealth 137

Chapter 6

135

Risk and Portfolio Management 145
Return 146
Sources of Risk 149
The Measurement of Risk 154
Risk Reduction through Diversification: An Illustration
Portfolio Theory 167
The Capital Asset Pricing Model 171
Beta Coefficients 174
Arbitrage Pricing Theory 183
Appendix 6 195

Part 2

163

Investment Companies 209
Chapter 7

Investment Companies: Mutual Funds 211
Investment Companies: Origins and Terminology 211
Mutual Funds 213

Selecting Mutual Funds 221
Mutual Fund Returns 221
Fees and Expenses 224
Taxation 228
Risk-Adjusted Performance and the Importance of Benchmarks

Chapter 8

Closed-end Investment Companies 251
Closed-end Investment Companies 252
Unit Trusts 256
Exchange-Traded Funds (ETFs) 257
Asset Allocation 260

236


xiii

Contents

Part 3 Investing in Common Stock
Chapter 9

269

The Valuation of Common Stock 271
The Corporate Form of Business and the Rights of Common Stockholders 272
Preemptive Rights 274
Investors’ Expected Return 275

Valuation as the Present Value of Dividends and the Growth of
Dividends 277
The Investor’s Required Return and Stock Valuation 283
Alternative Valuation Techniques: Ratios That Combine Two Ratios 293
The Efficient Market Hypothesis 298
Appendix 9 320

Chapter 10 Investment Returns and Aggregate Measures
of Stock Markets 325
Measures of Stock Performance: Averages and Indexes 326
The Dow Jones Industrial Average 329
Other Indexes of Aggregate Stock Prices 332
Securities Prices and Investors’ Purchasing Power 340
Rates of Return on Investments in Common Stock 343
Reducing the Impact of Price Fluctuations: Averaging 353

Chapter 11 Dividends: Past, Present, and Future 363
Common Stock Cash Dividends 364
Stock Dividends 369
The Stock Split 371
Federal Income Taxes and Stock Dividends and Stock Splits
Dividend Reinvestment Plans 373
Stock Repurchases and Liquidations 375
Estimating Dividend Growth Rates 376
Appendix 11 387

373

Chapter 12 The Macroeconomic Environment for Investment Decisions 390
The Logical Progression of Fundamental Analysis 391

The Economic Environment 392
Measures of Economic Activity 393
The Consumer Price Index 397
The Federal Reserve 399
Fiscal Policy 409
Industry Analysis 410
The Anticipated Economic Environment and Investment Strategies

414


xiv

Contents

Chapter 13 Analysis of Financial Statements 422
Ratio Analysis 423
Liquidity Ratios 424
Activity Ratios 429
Profitability Ratios 432
Leverage or Capitalization Ratios 435
Ratio Analysis for Specific Investors 441
Analysis of Cash Flow 449
Fundamental Analysis in an Efficient Market Environment
Appendix 13 468

Chapter 14 Behavioral Finance and Technical Analysis 475
Behavioral Finance 476
The Purpose of the Technical Approach 481
Market Indicators 482

Specific Stock Indicators 485
The Verification of Technical Analysis 492

Part 4 Investing in Fixed-Income Securities

499

Chapter 15 The Bond Market 501
General Features of Bonds 502
Risk 507
The Mechanics of Purchasing Bonds 511
Variety of Corporate Bonds 513
High-Yield Securities 518
Returns Earned by Investors in High-Yield Securities
Retiring Debt 524
Appendix 15 533

522

Chapter 16 The Valuation of Fixed-Income Securities 535
Perpetual Securities 536
Bonds with Maturity Dates 538
Fluctuations in Bond Prices 542
Yields 545
Risk and Fluctuations in Yields 551
Realized Returns and the Reinvestment Assumption
Duration 558
Bond Price Convexity and Duration 563

554


455


xv

Contents

Management of
Preferred Stock
Appendix 16A
Appendix 16B

Bond Portfolios
569
590
594

Chapter 17 Government Securities

565

596

The Variety of Federal Government Debt 597
Federal Agencies’ Debt 606
State and Local Government Debt 614
Taxable Municipal Securities 622
Foreign Government Debt Securities 624
Government Securities and Investment Companies

Appendix 17 637

626

Chapter 18 Convertible Bonds and Convertible Preferred Stock 644
Features of Convertible Bonds 645
The Valuation of Convertible Bonds 646
Premiums Paid for Convertible Debt 652
Convertible Preferred Stock 656
Selecting Convertibles 659
The History of Selected Convertible Bonds 661
Calling Convertibles 663
Put Bonds 664
Bonds with Put and Call Features Compared 666
Investment Companies and Convertible Securities 667

Part 5

Derivatives 677
Chapter 19 An Introduction to Options 679
Call Options 680
Leverage 683
Writing Calls 687
Puts 692
Price Performance of Puts and Calls 700
The Chicago Board Options Exchange 702
Stock Index Options 704
Currency and Interest Rate Options 707
Warrants 708
Rights Offerings 709



xvi

Contents

Chapter 20 Option Valuation and Strategies 721
Black-Scholes Option Valuation 721
Expensing Employee Stock Options and Option Valuation 730
Put–Call Parity 732
The Hedge Ratio 735
Additional Option Strategies 738
Buying the Call and a Treasury Bill Versus Buying the Stock—An Alternative to
the Protective Put 749
Appendix 20 759

Chapter 21 Commodity and Financial Futures 763
What Is Investing in Commodity Futures? 764
The Mechanics of Investing in Commodity Futures 764
Leverage 770
Hedging 774
The Selection of Commodity Futures Contracts 776
Financial and Currency Futures 777
Stock Market Futures 780
Programmed Trading and Index Arbitrage 783
The Pricing of Futures 788
Swaps 790

Part 6


Alternative Investments 801
Chapter 22 Investing in Foreign Securities 803
The Global Economy 804
The Special Considerations Associated with Foreign Investments
Fluctuations in Exchange Rates 806
Balance of Payments 809
Risk Reduction through Hedging with Currency Futures 814
Advantages Offered by Foreign Securities 816
Emerging Markets 820
Investment Companies with Foreign Investments 822

805

Chapter 23 Investing in Nonfinancial Assets: Collectibles, Natural Resources,
and Real Estate 831
Returns, Markets, and Risk 832
Art and Other Collectibles 835
Precious Metals and Natural Resources 839
Real Estate 845
Hedge Funds and Private Equity Funds 867


xvii

Contents

Chapter 24 Portfolio Planning and Management in an Efficient Market
Context 878
The Process of Financial Planning 879
Common Sense, Efficient Markets, and Investment Strategies

Appendix A 893
Appendix B 899
Glossary 909
Index 917

886


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Preface
Many individuals fi nd investments to be fascinating because they can actively participate in the decision-making process and see the results of their choices. Of course,
not all investments will be profitable because you will not always make correct investment decisions. Over a period of years, however, you should earn a positive return on
a diversified portfolio. In addition, there is the thrill from a major success, along with
the agony associated with the stock that dramatically rose after you sold or did not
buy. Both the big fish you catch and the big fish that got away can make wonderful
stories.
Investing, of course, is not a game, but a serious subject that can have a major
impact on your future well-being. Virtually everyone makes investments. Even if the
individual does not select specific assets such as the stock of AT&T or federal government Series EE bonds, investments are still made through participation in pension
plans and employee savings programs or through the purchase of whole-life insurance
or a home. Each of these investments has common characteristics, such as the potential return and the risk you must bear. The future is uncertain, and you must determine how much risk you are willing to bear, since a higher return is associated with
accepting more risk.
You may fi nd investing daunting because of specialized jargon or having to work
with sophisticated professionals. A primary aim of this textbook is to make investing
less difficult by explaining the terms, by elucidating the possible alternatives, and by
discussing many of the techniques professionals use to value assets and to construct
portfolios. While this textbook cannot show you a shortcut to fi nancial wealth, it can
reduce your chances of making uninformed investment decisions.

This textbook uses a substantial number of examples and illustrations employing
data that are generally available to the investing public. This information is believed
to be accurate; however, you should not assume that mention of a specific fi rm and its
securities is a recommendation to buy or sell those securities. The examples have been
chosen to illustrate specific points, not to pass judgment on individual investments.
Many textbooks on investments are written for students with considerable background in accounting, finance, and economics. Not every student who takes a course
in investments has such a background. These students cannot cope with (or be expected to cope with) the material in advanced textbooks on investments. Investments:
An Introduction is directed at these students and covers investments from descriptive
material to the theory of portfolio construction and efficient markets. Some of the
concepts (for example, portfolio theory) and some of the investment alternatives (for
example, derivatives) are difficult to understand. There is no shortcut to learning this
material, but this text does assume that the student has a desire to tackle a fascinating
subject and to devote real energy to the learning process.
Individuals studying for the Certified Financial Planner (CFP) professional designation also use Investments: An Introduction. The investments section of the CFP
exam covers a broad range of topics. While professionals studying for the exam may
have covered some or even all of the topics in this text previously, they often need a
comprehensive review of investments. For this reason, Investments: An Introduction
xix


xx

Preface

is comprehensive and includes material that some reviewers have suggested should be
excluded. Such exclusion, however, would result in topics on the CFP exam not being
covered. This extensive coverage does result in a long text that is difficult, perhaps impossible, to complete during the traditional academic semester. To meet the needs of
instructors who are teaching a traditional semester course in investments, I have written a more concise version of this text, Basic Investments.

CHANGES FROM THE PREVIOUS EDITION

Both reviewers and users have made suggestions for improving Investments: An
Introduction. While I seriously considered every suggestion, the need to retain the
comprehensive nature of the text is paramount.
This edition is divided into six instead of five parts. Part 1, Chapters 1 through 6,
is devoted to the investment process and basic fi nancial concepts such as the time
value of money and the measurement of risk. Part 2, Chapters 7 and 8, covers investment companies, which were covered in one chapter in the previous edition. Since
both mutual funds and exchange-traded funds have grown in number and importance, the coverage has been expanded into two chapters. Exchange-traded funds also
appear throughout the text.
Part 3, chapters 9 through 14, covers investing in common stock, whereas Part 4,
Chapters 15 through 18, covers fi xed income securities. Chapters 19 through 21 (Part 5)
are devoted to those fascinating speculative and hedging financial assets referred to
as derivatives. Part 6 adds foreign securities (Chapter 22) and alternative investments
(Chapter 23). The text ends with an introduction to financial planning in Chapter 24.
Specific changes to the individual chapters are as follows.
Although asset allocation appears throughout the text, it is introduced in Chapter 1. The chapter has a new Point of Interest on professional designations such as the
CFA and the CFP. The section in the previous edition on the similarities between investments and corporate fi nance was deleted. The investment project has also been replaced with a case titled “The Investment Assignment,” which reappears several times
through out the book. (Internet assignments and problems have been added to several
chapters, and they may be used as an alternative to the investment assignment.)
The material on fi nancial intermediaries and money market mutual funds in
Chapter 2 has been reduced. Chapter 3 has a new Point of Interest on the pink sheets
and additional problems. Previously Chapter 4 was devoted to sources of information, While that chapter was been deleted, much of the contents appears throughout
the text where in it is more appropriate and more useful.
Chapter 4 is devoted to the time value of money, and a section on uneven cash
flows has been added. Reviewers can never agree as to whether this material should
be in an investment text. The two extremes are that time value has already been covered in previous classes and hence is redundant versus the position that you can never
have too many time problems. Many of the problems in this chapter illustrate investment concepts such as valuation, the importance of retirement accounts, and the computation of returns.
While taxation affects investment decisions, the material in Chapter 5 on taxation has been streamlined, and the section on corporate income taxation was deleted.
Chapter 6 on risk is essentially the same as in the previous addition except that asset



Preface

xxi

allocation has been integrated with diversification. The material on averages in the
statistical appendix was deleted and integrated with the computation of indexes in
Chapter 10.
The two chapters in Part 2 have been completely recast. Chapter 7 is devoted
solely to mutual funds and now includes material on the selection and redemption of
funds that was previously in Chapter 24. Chapter 8 is devoted to closed-end and other
investment companies with expanded coverage of exchange-traded funds. This chapter includes asset allocation and the use of various types of investment companies to
achieve a specified asset allocation.
Part 3 is devoted to investments in common stock. Chapter 9 covers stock valuation; the material on P/E ratios and other multiplier models has been expanded to include ratios such as the price of the stock relative to the return on equity. These multiplier models are rarely covered in textbooks but are used by fi nancial analysts and
portfolio managers to value stock. Some of this material in Chapter 9 was previously
in Chapter 13, and the reorganization reduces duplication.
To meet reviewers’ requests, the coverage of various indexes in Chapter 10 has
been expanded. The calculation of averages and indexes has been reorganized, and
the section of studies of investment returns has been tightened. Chapter 11 on dividends remains one of the shortest chapters in the book. The only substantive change
was to increase coverage of stock repurchases. Chapter 12 on the macro economy has
been shortened.
Reviewers’ comments on Chapter 13 on the analysis of financial statements are
similar to the comments on the time value of money. Some reviewers believe their
students have had sufficient exposure, whereas others believe it is the heart of stock
valuation and securities selection. Placing some of the coverage with stock valuation
in Chapter 9 reduces the length of this chapter, but the chapter remains a thorough
introduction to the analysis of fi nancial statements.
One growing area in investments is behavioral fi nance. While occasional references to behavioral fi nance occur throughout the text, Chapter 14 starts with a new
section of behavioral fi nance applied to investment decision making. This discussion
is followed by technical analysis. Some of the previous coverage of technical indicators has been cut or streamlined.
Part 4 on fi xed income securities and Part 5 on derivatives are the least changed

sections of the new edition. Chapter 15, which describes the features of debt securities, has a new, short discussion of the spread in yields between high- and low-quality
debt. Chapter 16 is a detailed discussion of bond valuation. Several additional problems have been added. Chapter 17 on government securities is essentially unchanged
except for the determination of mortgage payments, which has been transferred from
Chapter 23 to Chapter 17 to help better explain the valuation of Ginnie Maes. The
only change in Chapter 18 on convertibles has been to streamline the chapter.
Part 5 on derivatives begins with an introduction to puts and calls in Chapter 19.
Chapter 20 covers option strategies and valuation with emphasis on the Black-Scholes
option valuation model. Chapter 21 is devoted to futures contracts. Other than additional problems and selected rewriting, these chapters are essentially unchanged.
Part 6 is devoted to alternative investments. Chapter 22 encompasses foreign investments with additional material on foreign indexes, globalization, and the possible
reduction in the benefits of diversification through foreign investments. Chapter 23 is


xxii

Preface

a long chapter that encompasses collectibles, real assets such a timber and gold, real
estate, and hedge funds. The chapter is structured so that each section is independent of the other. Coverage of hedge and private-equity funds, which have received
so much attention in the fi nancial press, has been added. Chapter 24 is a brief introduction to fi nancial planning. Material in the previous edition that applies to specifi c
types of assets has been allocated to other sections of the text. The remaining sections
of this chapter stress specifying fi nancial goals, constructing an individual’s fi nancial statements, and developing fi nancial strategies to achieve fi nancial objectives. The
text ends with a reminder that fi nancial plans and the allocation of assets occur in efficient fi nancial markets.
The previous edition had an “investment project,” which required students to set
up watch accounts and follow how the stocks performed during the semester. In this
edition, the investment project has been recast as a case titled “The Investment Assignment.” It is essentially a buy-and-hold strategy and not a trading game. I have
some reluctance to use this type of pedagogical tool, since my personal investment
goals and strategies have a longer time dimension than a semester. I want students to
develop a longer time horizon for investing and to realize the importance of diversification and not to chase the latest investment fad or the latest hot stock. However,
even though the investment project and the revised cases have major drawbacks, they
may be used to illustrate diversification, market risk, and the tendency for a portfolio

to follow the market.
One potentially useful feature on the Web site is the Investment Analysis Calculator, which can perform many of the calculations used in this text and help solve
end-of-chapter problems. An instructor can easily create additional problems that are
readily solved by the calculator but might be unreasonable if the student had to perform many calculations. For example, if an instructor wanted to illustrate the impact
on the price of a bond from many changes in the interest rate, the investment analysis
calculator facilitates the calculations so the instructor may spend time using and explaining the results.

PEDAGOGICAL FEATURES
This textbook has a variety of features designed to assist the student in the learning
process. Each chapter starts with a set of learning objectives. These point out topics to
look for as the chapter develops. Terms to remember are defi ned in the marginal glossary that appears as each term is introduced in the text. Chapters also include questions and, where appropriate, problems. The questions and problems are straightforward and designed primarily to review the material. Answers to selected problems are
provided in Appendix B.
This edition retains the short cases. These are not cases in the general usage of
the term, in which a situation is presented and the student is required to determine
the appropriate questions and formulate an answer or strategy. The cases in this textbook are essentially problems that are cast in real-world situations. For example, a
case may ask how much an individual would lose following one investment strategy
instead of an alternative when either could be appropriate to meet a specific fi nancial
goal. Thus, the primary purpose of the cases is to help illustrate how the material may
apply in the context of real investment decisions.


Preface

xxiii

Time value of money problems permeate this text. While the use of interest tables
is an excellent means to teach and illustrate time value problems, many students have
fi nancial calculators. Time value calculations using a financial calculator are placed in
the margin to avoid breaking the flow of the text material.
Many instructors have their students construct a paper portfolio. An Investment

Assignment case is included, which is essentially a buy-and-hold strategy. There are
also interesting points that may not fit neatly into a particular chapter. To include
these, I have added boxed Point of Interest features to the chapters. These boxes may
amplify the text material or present new material to supplement the coverage in the
text. The tone of the Point of Interest features is often lighter than the text and is designed to increase reader interest in the chapter as a whole.

SUPPLEMENTARY MATERIALS
A number of supplements are included in the Investments package and are available to
instructors and students using the textbook.

Instructor’s Manual and Test Bank (found on the IRCD-ROM and on the
Instructor’s companion Web site)
The Instructor’s Manual includes points to consider when answering the questions as
well as complete solutions to the problems. In addition, suggestions are given for using the Investment Assignment feature in the classroom; teaching notes are provided
for the cases; and instructions are provided for the Investment Analysis Calculator,
which can be found on the book’s Web site. The Test Bank section of the manual includes approximately 1,000 true/false and multiple-choice questions. It is available on
the text Web site in Word format for simple word-processing purposes. The Test Bank
can also be found in ExamView. This edition’s Test Bank answers include tagging
with AACSB Standards.

ExamView
This computerized testing software contains all of the questions in the printed Test
Bank. ExamView is easy-to-use test creation software that is compatible with both
Microsoft Windows and Macintosh. Instructors can add or edit questions, instructions, and answers and select questions by previewing them on the screen, selecting
them randomly, or selecting them by number.

ThomsonNOW: A New Web-Based Course Management Platform
ThomsonNOW is a Web-based course management system. It can be seamlessly integrated into Blackboard and WebCT for those instructors already using those Webbased course management systems. ThomsonNOW includes the following features,
with more to be added over time:


The Courseware Individualized Learning Plan For each chapter, a student can
take a “pre-test” in the Courseware section of ThomsonNOW. This pre-test is automatically scored, and the student is given a learning plan that identifies the chapter’s
sections on which the student needs to improve. This learning plan has links to an


xxiv

Preface

e-book and other learning objects for each topic, so a student can also read and study
the material without leaving the computer. In addition, a “post-test” helps the student
determine if he or she has mastered the material.

Homework Assignments with Automatic Grading As previously noted, ThomsonNOW includes select end-of-chapter and Test Bank problems. With just a few
clicks, an instructor can create a Web-based homework assignment that contains
unique problems and answers for each student. The assignment is automatically
graded, and the scores are posted to a gradesheet that can be exported into Excel or
into the gradesheets of Blackboard and WebCT. Similarly, an instructor can create
sets of practice problems (based on the end-of-chapter problems and Test Bank problems). In Finance, practice makes perfect, so ThomsonNOW’s ability to quickly and
easily create practice problems and grade homework assignments can have a dramatic
impact on a student’s progress and knowledge.

e-Book ThomsonNOW also contains an e-book, which is very helpful to students
who use the Individualized Learning Plan in ThomsonNOW’s Courseware—they can
read the e-book and work practice problems without ever leaving the computer.

Investment Analysis Calculator
This browser-based tool found on the book’s Web site is designed to accompany the
book and is free to adopters of the text. It includes numerous routines that may be
used to help solve end-of-chapter problems. The software is menu driven and is a useful tool for solving complex problems. Please note that it is not designed as a substitute for understanding the mechanics of problem analysis and solution. Thus, while

the Investment Analysis Calculator may help determine a stock’s value, it cannot answer the question of whether or not the stock should be bought or sold; such a judgment must come from the user of the Investment Analysis Calculator.

PowerPoint™ Slides
These are available on the Web site and on the Instructor’s Resource CD-ROM for
use by instructors for enhancing their lectures. These slides bring out the most important points in the chapter. They also include important charts and graphs from
the text, which will aid students in the comprehension of significant concepts. This
edition’s slide package has been revised by Anne Piotrowski.

Instructor’s Resource CD-ROM
Get quick access to all instructor ancillaries from your desktop. This easy-to-use
CD-ROM lets you review, edit, and copy exactly what you need in the format you
want. The Instructor’s Resource CD-ROM contains electronic versions of the Instructor’s Manual, the Test Bank, the resource PowerPoint presentation, and the
ExamView fi les.

Web Site
The support Web site for Investments: An Introduction, Ninth Edition (http://www
.thomsonedu.com/mayo) includes the following features:
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Instructor Resources
Internet Applications