Principles of Finance
Edition: 2
Copyright: 2023
Pages: TBD
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Through this book, you will learn the fundamentals of finance. The discussion topics for the book include the financial markets, financial statement analysis, time value of money, risk and returns, cost of money and capital, capital budgeting, bonds, and stocks.
Upon completion of this book, you will be able to:
- demonstrate familiarity with the symbols and terminology associated with the field of financial management.
- solve compounding and discounting problems relevant to time’s effect upon the value of money.
- demonstrate an understanding of investing fundamentals.
- use financial data to explain real life business and personal decisions.
Chapter 1. Overview of Finance
1. Defining Finance
2. General Area of Finance
a. Public Finance
b. Corporate Finance
c. Personal Finance
d. Environmental, Social, and Corporate Governance
e. Behavioral Finance
i. Mental Accounting
ii. Herd Behavior
iii. Anchoring
iv. Overconfidence
3. Finance, Economics, and Accounting
4. What Is a Company?
a. Primary Forms of Business Organization
i. Sole Proprietorship
ii. Partnership
1. General Partnership
2. Limited Partnership
3. Limited Liability Partnership
4. Limited Liability Company
iii. Corporation
iv. Types of Corporations
1. C Corporation
2. S Corporation
v. Entity Selection
5. Stages of Business
a. Stage 1: Seed and Development
b. Stage 2: Start-up
c. Stage 3: Growth and Establishment
d. Stage 4: Expansion
e. Stage 5: Maturity and Exit
6. End of Chapter Problems
7. End of Chapter Problem Answers
Chapter 2. Financial Market
1. Financial Market
2. Types of Financial Markets
a. Primary Markets
b. Money Market
i. Money Market Funds
ii. Certificate of Deposits (CDs)
iii. Commercial Paper
iv. Banker’s Acceptance
v. Eurodollars
vi. Repurchase Agreement
c. Stock Market
i. New York Stock Exchange (NYSE)
ii. National Association of Securities Dealers Automated
Quotations (Nasdaq)
iii. Over-the-Counter Market
d. Stock Market Index
i. Dow Jones Industrial Average
ii. S&P 500 Index
e. Bond/Debt Market
i. Government Bonds
ii. Corporate Bonds
iii. Municipal Bonds
iv. Mortgage-Backed Bonds
v. Emerging Market Bonds
f. Derivatives Market
i. Futures Contract
ii. Forward Contract
iii. Swap
iv. Option
g. Insurance Market
i. Disability Insurance
ii. Life Insurance
iii. Health Insurance
iv. Long-Term Care Insurance
v. Property Insurance
vi. Liability Insurance
h. Foreign Exchange Market
3. Financial Intermediaries
a. Banks
b. Credit Unions
c. Mutual Fund Companies
d. Financial Advisors or Brokers
e. Stock Exchanges
f. Investment Banks
4. Financial Technologies
a. Active Areas of Fintech Innovation
5. Regulations of Financial Markets
a. Examples of Financial Regulations
b. Main Types of Financial Regulators
i. Federal Deposit Insurance Company
ii. Securities and Exchange Commission
iii. Consumer Financial Protection Bureau
c. Other Types of Financial Regulators
6. Efficiency Market Hypothesis
a. Weak Form of Market Efficiency
b. Semi Strong Form of Market Efficiency
c. Strong Form of Market Efficiency
7. Macroeconomic Factors for Financial Markets
a. Gross Domestic Product
b. Interest Rates
i. Simple Interest Rate
ii. Compound Interest
c. Unemployment and Job Report
8. End of Chapter Problems
9. End of Chapter Problem Answers
Chapter 3. Time Value of Money
1. Purpose of Time Value of Money
2. TVM Formula
3. Financial Calculator and Excel
4. Cash Flow Timeline
a. Compounding
b. Discounting
5. Compounding Periods
a. Quarterly Compounding
b. Monthly Compounding
c. Daily Compounding
6. Types of Cash Flow Patterns
a. Single Cash Flow
b. Annuity
c. Uneven Cash Flow
7. Future Value
a. FV of Single Cash Flow
b. FV of Ordinary Annuity
c. FV of Annuity Due
d. FV of Uneven Cash Flow
8. Present Value
a. PV of Single Cash Flow
b. PV of Ordinary Annuity
c. PV of Annuity Due
d. PV of Uneven Cash Flow
9. Solving for the Number of Periods
10. Solving for Rate of Return or Interest Rate
11. Solving for Payment
12. Amortization
13. End of Chapter Problems
14. End of Chapter Problem Answers
Chapter 4. Financial Statement Analysis
Part 1
1. What Is Financial Statement Analysis
2. Balance Sheet
a. Assets
i. Current Assets
1. Cash and Cash Equivalents
2. Account Receivables
3. Inventory
ii. Noncurrent Assets
1. Property, Plant, and Equipment (PP&E)
2. Depreciation and Amortization
3. Intangible Assets
4. Investments and Other Advances
b. Liabilities
i. Current Liabilities
1. Payables
2. Accrued Expenses
3. Current Debt
4. Capital Lease
5. Deferred Liabilities
ii. Noncurrent Liabilities
1. Long-Term Debt
2. Trade and Other Payables
c. Equities
i. Common Stock
ii. Preferred Stock
iii Retained Earnings
3. Income Statement
a. Revenue
b. Cost of Revenue
c. Cost of Goods Sold
d. Gross Profit
e. Operating Expenses
f. Operating Income
g. Interest Expense
h. Tax Provision
i. Net Income (Applicable to Common Stockholders)
j. Earnings per Share (EPS)
k. Outstanding Common Shares
4. Cash Flow Statement
a. Operating Cash Flow
b. Investing Cash Flow
c. Financing Cash Flow
5. Part 1 Practice Problems
a. Assets in Balance Sheet
b. Liabilities in Balance Sheet
c. Equities in Balance Sheet
d. Income Statement
e. Cash Flow Statement Summary
f. Operating Cash Flow
g. Investing Cash Flow
h. Financing Cash Flow
6. Part 1 Practice Problems Answers
Part 2
1. Financial Ratio Analysis
2. Liquidity Ratios Analysis
a. Current Ratio
b. Quick Ratio
c. Cash Ratio
3. Efficiency Ratios Analysis
a. Inventory Turnover Ratio
b. Days Sales Outstanding Ratio
c. Fixed Asset Turnover Ratio
d. Total Assets Turnover Ratio
4. Solvency Ratios Analysis
a. Debt Ratio
b. Debt-to-Equity Ratio
5. Coverage Ratios Analysis
a. Times Interest Earned Ratio
b. Debt Service Coverage Ratio
6. Profitability Ratios Analysis
a. Net Profit Margin
b. Return on Total Assets
c. Return on Equity
d. DuPont Analysis
7. Market Value Ratios Analysis
a. Book Value per Share
b. Dividend Yield
c. Earnings per Share
d. Market Value per Share
e. Price-to-Earnings Ratio
8. Limitations of Financial Statement Analysis
a. Financial statements are derived from historical costs
b. Financial statements are not adjusted for inflation
c. Financial statements do not contain some intangible assets
d. Financial statements only cover a specific period
e. Financial statements may not comparable
f. Financial statements could be wrong due to fraud
g. Financial statements may not have been verified
h. Financial statements have no predictive value
9. Part 2 Practice Problems
10. Exhibit 1. Intel Corporation Balance Sheet (Assets)
11. Exhibit 2. Intel Corporation Balance Sheet (Liabilities)
12. Exhibit 3. Intel Corporation Balance Sheet (Equity)
13. Exhibit 4. Intel Corporation Income Statement
14. Exhibit 5. Additional Information for Intel Corporation
15. Exhibit 6. Intel Corporation Cash Flow Statement Summary
16. Exhibit 7. Intel Corporation Operating Cash Flow Statement
17. Exhibit 8. Intel Corporation Investing Cash Flow Statement
18. Exhibit 9. Intel Corporation Financing Cash Flow Statement
19. Part 2 Practice Problem Answers
20. End of Chapter Problems
21. End of Chapter Problem Answers
Chapter 5 Risk and Return
1. What Is Return?
2. Holding Period Return
3. Annualized HPR
4. Portfolio Return
5. Geometric Return
6. Money-Weighted Return
7. What Is Risk?
a. Systematic Risk
b. Unsystematic Risk
8. Standard Deviation
9. Standard Deviation of Portfolio
10. Covariance and Correlation
11. Capital Asset Pricing Model
12. Beta
13. Jensen’s Alpha
14. Sharpe Ratio
15. Treynor Ratio
16. Skewness
17. Kurtosis
18. End of Chapter Problems
19. End of Chapter Problem Answers
Chapter 6 Stock
1. What Is Stock?
a. Common Stock
b. Preferred Stock
2. Why Companies Issue Stock to Raise Capital?
3. Why Invest in Stocks?
a. Grow Your Money
b. Historically Stocks Have Gone Up
c. For Inflation Hedge—Money Sitting in Cash Will Lose Its Value
4. Publicly Traded Stock
5. Private Company Stock
6. Domestic Company Stock
7. International Company Stocks
a. Developed International Markets
b. Emerging Markets
c. Frontier Markets
8. American Depository Receipt
9. Growth Company Stock
10. Value Company Stock
11. Large-Cap Company
12. Medium-Cap Company
13. Small-Cap Company
14. Style Box
15. Stock Valuation
a. Absolute Valuation Method
i. Dividend Discount Model
1. Gordon Growth Model
2. Supernormal Growth Model
3. No Dividend Payments Growth Model
b. Relative Valuation Method
i. P/E Ratio
ii. P/S Ratio
iii. P/B Ratio
16. End of Chapter Problems
17. End of Chapter Problem Answers
Chapter 7 Bond
1. What Is Bond?
2. Bond Terminology
a. Face Value
b. Coupon Rate
c. Coupon Date
d. Maturity Date
e. Yield
f. Bond Price
3. Types of Bonds
a. Government Bonds
b. Corporate Bonds
c. Municipal bonds
d. Agency Bonds
e. Bond-Like Derivative Securities
i. Mortgage-Backed Securities
ii. Asset-Backed Securities
4. Bond Rating
a. Investment Grade Bonds
b. High-Yield or Junk Bonds
5. Covenants
a. Affirmative Covenants
b. Negative Covenants
6. Term to Maturity and Yield Curve
a. Normal Yield Curve
b. Inverted Yield Curve
c. Flat Yield Curve
7. Bonds by Coupon and Interest Rates
a. Zero-Coupon Bonds
b. Floating-Rate Bonds (Notes)
8. Bonds with Options
a. Convertible Bond
i. Conversion Ratio
ii. Conversion Price
iii. Conversion Value
b. Callable Bond
c. Puttable Bond
9. Bond Valuation
a. Coupon Bond
b. Zero-Coupon Bond
c. Callable Bond
d. Puttable Bond
10. Bond Prices and Interest Rates
11. Duration
12. Convexity
13. Changes in Bond Price Over Time
14. Reasons to Invest in Bonds
a. Capital Preservation
b. Income
c. Capital Appreciation
d. Diversification
15. End of Chapter Problems
16. End of Chapter Problem Answers
Chapter 8 Cost of Capital and Capital Structure
1. What Is Cost of Capital?
2. Capital Structure
a. Senior Debt
b. Senior Unsecured Debt
c. Subordinated Debt
d. Convertible Bond
e. Preferred Stock
f. Common Stock
3. Market Interest Rates
a. Real Risk-Free Rate of Interest (r*)
b. Inflation Premium (IP)
c. Default Risk Premium
d. Maturity Risk Premium
e. Liquidity Risk Premium
4. Cost of Debt
5. Cost of Equity
6. Weighted Average Cost of Capital
7. Optimal Capital Structure and WACC
8. End of Chapter Problems
9. End of Chapter Problem Answers
Chapter 9 Capital Budgeting
1. What Is Capital Budgeting?
2. Payback Period
3. Discounted Payback Period
4. Net Present Value
5. Internal Rate of Return
6. Modified Internal Rate of Return
7. End of Chapter Problems
8. End of Chapter Problem Answers
DJ is an expert in global macro-economy research, investment analysis, portfolio optimization, and risk management.
Born and raised in South Korea, DJ moved to Reno, Nev. in 2001 to pursue a college education. He received a B.S. in information systems and an M.S. in finance, both from the University of Nevada, Reno. His finance degree led to a career in the investment world.
DJ began his career as an investment analyst in late 2007, just before the 2008 financial crisis was making headlines. Starting his professional career during one of the worst periods in financial market history led him to focus more on risk management and alternative investments. While gaining experience in managing high-net-worth client portfolios, he continued to deepen his knowledge on investments. In 2016, he became a Chartered Financial Analyst.
In addition to a full-time career as a financial advisor, DJ teaches introductory finance and investment courses to undergraduate students at UNR. DJ makes a point to help his students understand investments on both academic and practical levels. He also advises the UNR Investment Club and is involved in their investment competitions.
DJ’s wealth management philosophy is total transparency, believing clients are better equipped to reach their financial goals when they understand the entire financial picture. His detailed understanding of macroeconomic conditions, alternative investments, and global monetary policies helps him build thoughtful, tailored portfolios for his clients.
A clear channel of communication is always open between DJ and his clients. He is diligent about following up, answering questions, and offering ongoing advice to his clients so they are informed, engaged, and prepared for the future.