Fundamentals of Finance: Investments, Corporate Finance, and Financial Institutions

428 Pages·2020·11.074 MB·English

by  Mustafa Akan, Arman Teksin Tevfik

MustafaAkanandArmanTeksinTevfik
FundamentalsofFinance

Mustafa Akan and Arman Teksin Tevfik
Fundamentals
of Finance
Investments, Corporate Finance,
and Financial Institutions
ISBN978-3-11-070534-8
e-ISBN(PDF)978-3-11-070535-5
e-ISBN(EPUB)978-3-11-070540-9
LibraryofCongressControlNumber:2020946336
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TheDeutscheNationalbibliothekliststhispublicationintheDeutscheNationalbibliografie;
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ToPerranAkan,alwaysatmyside
MustafaAkan
ToYaseminTevfik,asupportivewife
ArmanTeksinTevfik

About the Authors
Prof.Dr.MustafaAkanworkedforBooz,AllenandHamiltoninthe
USAasaconsultantandatInterbankandiktisatBanksasmanager
ofthetreasury,planning,andeconomicresearchdepartmentsfor
fiveyearsafterhiseducationinelectricalengineering,andhis
MBA,andPh.D.degreesatRobertCollegeandNorthwesternand
Bosphorusuniversities.
HewastheExecutiveVicePresidentofGarantiBankinchargeof
thetreasuryandinvestmentbankingdivisionsforsixyears.He
establishedGarantiSecuritiesandservedasitsfirstGeneralManager.
HewasappointedastheCEOofImtas(subsidiaryofUnion
AssurancedeParis,thelargestinsurancegroupinEuropeatthetime)
in1992andcontinuedservingastheCEOofGenerali,Ege,and
LibertyInsurancecompaniesforthenext17years.
Dr.AkanwasappointedasAssistantProfessoratHaliçUniversityintheDepartmentof
Managementin2010.HeearnedtheAssociateProfessortitlein2015andthefullProfessortitlein
2019.HeteachesfinanceandquantitativemethodscoursesatHaliçUniversity.Hisprincipalresearch
interestistheapplicationofOptimalControlTheorytomanagement,finance,andeconomics.
HeteachesOptimalControlTheoryatgraduatelevelintheIndustrialEngineeringDepartment
ofBosphorusUniversity.HeisalsoaguestlectureratTechnischeHochschuleIngolstadt(THI).He
hasbeenaparticipantandinvitedspeakerinmanyinternationalconferencesandhaspublished
numerousarticlesininternationalanddomesticjournals.
Prof.Dr.ArmanT.TevfikisProfessorofFinanceatHaliçUniversity,
Istanbul,Turkey,apositionhehasheldsince2013.Hehasbeen
theDeanoftheFacultyofBusinesssince2017atthisuniversity.He
previouslyheldteachingappointmentsatManasUniversity,
Bishkek,Kyrgyzstan(2001–2005and2008–2011),Beykent
University(2005–2008),andHaliçUniversity(2011–).
HereceivedhisBAinBusinessAdministrationfromAnadolu
Universityin1977,MBA(finance-accounting)fromBoğaziçiUniversity
in1983,andPh.D.inBusinessfromAnadoluUniversityin1989.
Beforeenteringacademia,ArmanT.Tevfikworkedinthe
financeindustryforalmost20years.Heworkedasacontrollerand
headofthecorporatefinancedepartmentforaninvestmentbank.Hewasawardedthefirstprize
foraresearchstudyinabankingcompetitionin1995.
Heistheauthororcoauthorof13booksoncorporatefinance,investments,valuation,and
banking.
https://doi.org/10.1515/9783110705355-202

Contents
AbouttheAuthors VII
ListofFigures XV
ListofTables XVII
Preface XXI
Part I:Introduction toFinance,Money and Interest Rates,
and TimeValue ofMoney
1 IntroductiontoFinance 3
1.1 Introduction 3
1.2 WhatisFinance? 3
1.3 WhyStudyFinance? 4
1.4 ElevenPrinciplesofFinance 5
1.5 TheFinancialSystemanditsFunctions 6
1.6 TypesofFinancialInstitutions 8
1.7 TypesofFinancialMarkets 10
1.8 TypesofSecurities 11
1.9 Summary 12
2 MoneyandInterestRates 13
2.1 Introduction 13
2.2 OverviewofMonetarySystem 13
2.3 TheDefinitionsofMoneySupplyandControlofMoneySupply 14
2.4 MoneySupplyandEconomicActivity 16
2.5 Interest:CostofMoney 18
2.6 StructureofInterestRates 20
2.7 TheYieldCurve 22
2.8 CentralBanks 26
2.9 CentralBankBalanceSheet 27
2.10 BankingRegulationandSupervision 29
2.11 Summary 29
3 TimeValueofMoney 31
3.1 Introduction 31
3.2 ConceptualBackground 31
3.3 SimpleInterest 32
X Contents
3.4 CompoundInterest:FutureValueCalculations 32
3.5 CompoundInterest:PresentValueCalculations 34
3.6 Annuities 35
3.7 PerpetuitiesandUnevenPaymentStreams 37
3.8 MoreFrequentCompounding 38
3.9 ContinuousCompounding 39
3.10 AmortizedLoans 40
3.11 SinkingFund 41
3.12 Summary 43
Part II:Investmentsand Portfolio Management
4 BondsandtheMarkets 47
4.1 Introduction 47
4.2 BondTerminologyandFeaturesofBondMarkets 47
4.3 BondValuation 51
4.4 PureDiscountBonds 54
4.5 BondPriceChanges 55
4.6 MeasuringBondPriceVolatility:Duration 56
4.7 Convexity 59
4.8 Immunization 60
4.9 BondPortfolioManagementStrategies 62
4.10 BondPortfolioPerformanceMeasurement 64
4.11 Summary 64
5 StocksandtheMarkets 66
5.1 Introduction 66
5.2 TypesofCommonStockandStockholders’Rights 66
5.3 InsideInformationandStockTransactions 68
5.4 InitialPublicOffering(IPO)andCostsofIPOs 70
5.5 TradingSecuritiesandTradingCommissions 73
5.6 StockMarketIndices 74
5.7 EvaluatingtheCorporation 75
5.8 StockValuation:DividendDiscountModel(DDM) 76
5.9 StockValuation:RelativeValuationModel 81
5.10 StockValuation:FreeCashFlowtoFirmMethod 82
5.11 Summary 87
6 Risk,RateofReturn,andPortfolioTheory 89
6.1 Introduction 89
6.2 EfficientMarkets 89