Finance, Zvi Bodie and Robert C. Merton, Upper Saddle River, New Jersey: Prentice Hall, !!!.

"n developin# $inance Zvi Bodie and Robert Merton collected inp%t &ro' (%ndreds o& collea#%es teac(in# introd%ctory &inance co%rses. )(e res%lt is a lon# awaited and e*citin# inte#ration o& &inance principles %ni+%e to introd%ctory te*ts. ,(ile 'ost te*ts &oc%s pri'arily i& not e*cl%sively on corporate &inance, t(e te*t reco#ni-es t(at t(ere are certain laws and principles in $inance t(at apply across all s%b &ields o& &inancial t(eory. )(e res%lt is a very e*citin# synt(esis o& &inancial principles. )(e boo. is written wit( t(e ri#ors o& t(e introd%ctory &inance co%rse at t(e MB/ level in 'ind. )(e te*t is desi#ned &or, 0b%t not li'ited to1, t(ose wantin# a 'ore inte#rated &inance co%rse. "nstead o& &oc%sin# e*cl%sively on corporate &inance, t(e te*t develops b%ildin# bloc.s t(at are re+%ired in all areas o& &inance. )(is 'eans t(at instr%ctors in &%t%re electives will not need to develop t(ese principles &ro' scratc(. )(is not only eli'inates '%c( o& t(e d%plication we see in &inance te*tboo.s, it also provides st%dents %p&ront wit( an appreciation o& t(e inte#ration o& &inancial 'ar.ets, corporate &inance and invest'ents. /not(er o%tstandin# &eat%re o& t(e boo. is t(e inte#ration o& international 'aterial. )(e te*t is written to be c%rrent anyw(ere in t(e world. Many te*ts (ave rele#ated international 'aterial to separate c(apters at t(e end o& t(e boo.2 (ere t(e a%t(ors rely on international e*a'ples in nearly every c(apter. )(e a%t(ors present ideas in a very well or#ani-ed and concise 'anner res%ltin# in a te*t t(at is a very di#estible 344 pa#es. )(e presentation is str%ct%red to provide instr%ctors wit( a'ple opport%nity to s%pply &%rt(er e*a'ples and e*po%nd on 'aterial in lect%re. )(e c(apter 'aterial is presented very neatly &ro' basic principles to 'ore advanced topics. )(is or#ani-ation allows instr%ctors a #reat deal o& &le*ibility in t(e level o& content and ri#or t(at t(ey c(oose to deliver. )(e &le*ibility also e*tends to co%rse covera#e. "nstr%ctors wis(in# to &oc%s 'ore (eavily on corporate &inance co%ld &oc%s corporate c(apters 'ore (eavily, w(ile t(ose wis(in# &or stron#er invest'ents covera#e can &oc%s on t(e invest'ents c(apters. )o e*pand on t(e application o& principles, t(e a%t(ors (ave provided n%'ero%s spreads(eet5'odelin# e*ercises created by Crai# Holden. )(ese e*ercises are contained on a C6 incl%ded wit( t(e te*t. Startin# wit( a blan. s(eet, st%dents &ollow instr%ction in creatin# 'odels t(at solve co'ple* proble's. )(e 'odels ta.e 7! to 8! 'in%tes 0by a%t(or esti'ate1 and teac( st%dents to not only create t(e 'odels b%t (ow also to %se t(e' in analysis. )(is adds an i'portant level o& instr%ction to t(e boo., as spreads(eet 'odelin# is s%c( an i'portant s.ill in &inance. )(e te*t is divided into si* parts (owever t(e a%t(or9s approac( is clearly inte#rative. )(e transitions &ro' section to section are nearly transparent and t(e p%rpose o& dividin# t(e te*t into sections see's to be a 'ore concession to tradition t(an an atte'pt to place 'aterial into &%nctional silos. )(ro%#(o%t t(e te*t t(e a%t(ors re5visit and e*po%nd on

However 'y e*perience is t(at o&ten st%dents #et ca%#(t %p in t(e details o& debits and credits in acco%ntin# and so'eti'es &ail to see t(e <bi##er pict%re=.ed tirelessly at inte#ratin# t(e te*t o& t(e boo. )(e te*t covers basic &%t%re val%e and present val%e calc%lations %sin# bot( &or'%las and calc%lators. Part " 0C(apters .es place in t(e 'ar. as well as pro&essional li&e " wo%ld li.ets. )(e te*t e*a'ines &inancial 'ar. &inancial analysis. )(e te*t incl%des a re&erence to /da' S'it(9s <"nvisible Hand= as an e*a'ple o& w(ere and (ow &inancial innovation ta. )(e te*t (i#(li#(ts &inancial decisions o& (o%se(olds as well as t(ose o& corporations and it is t(is inte#ration t(at separates t(is te*t &ro' traditional introd%ctory te*ts. and s(ort5ter' &inancial plannin# all in one c( t(eory wit( 'ore traditional introd%ctions to corporate &inancial t(eory. )raditionally st%dents do see so'e o& t(is 'aterial in an introd%ctory &inancial acco%ntin# co%rse and s(o%ld be co'in# to t(is 'aterial as a review.ets and inter'ediaries and C(apter introd%ces st%dents to &inancial 'ar. " a' also concerned t(at t(ere are only a &ew pa#es o& wor. C(apter is also t(e &irst c(apter inte#ratin# international concepts into t(e te*t wit( an introd%ction to e*c(an#e rate iss%es and interest rate e+%ali-ation. Aiven t(e i'portance 'any will &ind t(is covera#e very ins%&&icient. "t is obvio%s t(at t(e a%t(ors wor. perpet%ities and #rowt( perpet%ities. @ption Usa#e and Alobal /cco%ntin# R%les. $or 'any st%dents t(is co%ld be t(e last t(ey will see o& &inancial analysis. ann%ities.'aterial &ro' previo%s sections2 &or e*a'ple t(e a%t(ors disc%ss Net Present :al%e concepts in no &ewer t(an t(ree di&&erent sections o& t(e te*t. ?'ployee Stoc. Nonet(eless t(e a%t(ors incl%de a review o& &inancial state'ents.eep t(e 'aterial conte'porary wit( sidebar disc%ssions on ?cono'ic :al%e /dded 0?:/1.571 <$inance and t(e &inancial syste'= be#ins wit( a &airly strai#(t&orward introd%ction to &inance in C(apter wit( one 'a>or e*ception2 t(e te*t does not stop wit( de&inin# &inance &ro' t(e perspective o& t(e corporate &inancial 'ana#er. lon#5ter' &inancial plannin#. $%rt(er ill%stratin# t(e . 'any will &ind t(is covera#e inade+%ate. )(e a%t(ors .ets &ro' bot( t(e personal &inance and corporate &inance perspectives and concl%des wit( an introd%ction to &inancial 'ar. s%stainable #rowt(.ets wit( a stron# e'p(asis on t(e dyna'ic nat%re o& t(ese 'ar. )(e a%t(or9s (ave sea'lessly synt(esi-ed basic invest'ent t(eory and 'ar. )(e te*t covers co'po%ndin#. Part "" 0C(apters 3581 <)i'e and Reso%rce /llocation= be#ins wit( an ade+%ate covera#e o& ti'e val%e o& 'oney tec(ni+%es in C(apter 3. )(e te*t provides so'e derivations allowin# st%dents to see &ro' w(ere t(e &or'%las co'e.e to see t(is c(apter divided into at least two c( capital 'ana#e'ent covera#e in t(e te*t. @ne s%##estion wo%ld be to e*po%nd on &inancial analysis in one c(apter and 'ove and e*pand t(e covera#e o& &inancial plannin# in anot( rates and t(e deter'inants o& rates o& ret%rn on di&&erent assets. )(e a%t(ors9 intention is obvio%sly to provide a broad &inancial ed%cation beyond t(e traditional corporate &inance C(apter 7 contains a review o& acco%ntin# and &inancial analysis. Aiven t(e i'portance o& t(is 'aterial in &%t%re co%rse wor. Since 'ost introd%ctory te*ts cover t(is 'aterial in a 'ini'%' o& t(ree c(apters. )(e added covera#e co%ld be or#ani-ed in s%c( a way as to provide even #reater instr%ctor &le*ibility. "nnovation s(apes &inancial 'ar.

1.= Consistent wit( t(e a%t(ors9 co''it'ent to inte#rate international &inancial topics t(ro%#(o%t t(e te*t. )(e a%t(ors cover capital b%d#etin# tec(ni+%es 0wit( an obvio%s o'ission o& non5disco%nted cas(5&low tec(ni+%es1. Many will &ind t(e +%antitative analysis inade+%ate b%t 'ore covera#e is provided in &%t%re c(apters.inte#ration o& t(e te*t t(e a%t(ors introd%ce stoc. ..!5. trans&er 0i. t(e c(apter incl%des a disc%ssion o& trian#%lar arbitra#e and t(e appendi* o& C(apter C introd%ces p%rc(asin# Power parity and real interest rate parity. Section """ 0C(apters C5D1 <:al%ation Models= is a 'ore t(an ade+%ate covera#e o& &inancial asset val%ations. )(e concept%al overview ta.e a stron# inte#ration between real asset val%es and &inancial asset val%es. )(ose wed to a traditional corporate &inance approac( to t(e &irst &inance co%rse 'ay &ind t(is covera#e inade+%ate. . Unli. Most introd%ctory te*ts eit(er i#nore t(e dividend decision or rele#ate it to t(e end o& t(e te*t. analysis and t(e cost o& capital in one concise c(apter.(ile so'e 'ay &ind one c(apter o& covera#e in t(is area inade+%ate. C(apter 4 <Bi&e Cycle $inancial Plannin#= is %ni+%e to introd%ctory $inance te*ts. val%ation 'odels. Part ": 0C(apters . 'oral (a-ard etc. cas( &low a re&res(in# brea. and (ow &inancial 'ar.e. C(apter 8 <How to analy-e "nvest'ent Pro>ects= is t(e a%t(ors9 pri'ary covera#e o& capital b%d#etin#. t(e a%t(ors provide t(e 'aterial in a clean and concise &or'at. &ro' bot( t(e perspective o& t(e individ%al and t(e &ir'.! de&ines ris. C(apters E and D provide an introd%ction to bond and stoc. C(apter D does incl%de an introd%ction to dividend policy decisions.ets and &inancial instr%'ents can be %sed to red%ce or eli'inate ris. )(e te*t provides a &o%ndation &or instr%ctors to e*po%nd %pon in lect%re wit( e*a'ples and &%rt(er disc%ssion w(ere dee'ed appropriate. )(e a%t(ors also &ail to 'a. ris. C(apter C provides a concept%al overview o& t(e i'portance o& asset val%ation and t(e i'pact o& in&or'ation on sec%rity prices. NP: and "RR calc%lations in t(is c(apter. Mana#e'ent and Port&olio )(eory= de&ines ris. C(apter .= So'ew(at %ni+%e to t(is te*t is t(e disc%ssion o& arbitra#e and t(e <Baw o& @ne Price.(ile t(e 'aterial is si#ni&icantly condensed t(e a%t(ors still provide an introd%ction to a n%'ber o& 'ore advanced topics and instr%ctors wantin# a 'ore detailed covera#e o& capital b%d#etin# co%ld easily s%pple'ent t(e 'aterial in lect%re. " &o%nd t(is to be an e*cellent e*tension o& t(e val%ation 'odels introd%ced in t(e c(apter. in conte'porary iss%es wit( no c%rrent articles or sidebars. (ow ris. . adverse selection. )(e c(apter provides n%'ero%s personal &inancial applications &or t(e tec(ni+%es learned in C(apter 3.s st%dents to see t(e <&orest t(ro%#( t(e trees. 1 <Ris. and so'e o& t(e in(erent proble's wit( ris. )(e bond covera#e is &airly traditional w(ile t(e stoc.e ot(er c(apters t(is c(apter is lac. val%ation covera#e o'its disc%ssion o& '%lti5sta#e or non5constant #rowt( 'odels. can be trans&erred. &ro' t(e +%antitative 'et(ods o& previo%s c(apters and as.

Part : 0C(apters .. )(is or#ani-ation provides %nli'ited teac(in# &le*ibility allowin# instr%ctors to teac( to w(atever level o& ri#or dee'ed appropriate. 'ana#e'ent. 0C(apters . )(e c(apter concl%des wit( contin#ent clai's analysis o& corporate debt and e+%ity. &%t%res and option contracts. <Hed#in#. )(e c(apter be#ins wit( an en#a#in# introd%ction to t(e %se o& &orward contracts. )(e a%t(ors e*tend t(e analysis &ro' a two5asset world to a 'any asset world and provide ?*cel spreads(eets t(at per&or' t(e analysis &or st%dents. li.3 e*pands %pon t(e earlier disc%ssion on t(e %se o& &%t%res and options contracts &or (ed#in#. )(e te*t a#ain contin%es its international inte#ration by ill%stratin# (ow %ni+%e international ris. )(e c(apter be#ins wit( basic option payo&& str%ct%res and e*tends to t(e p%t5call parity relation and t(e relation between volatility and option val%e.79s develop'ent o& t(e C/PM is 'ore t(an ade+%ate. )(e a%t(ors contin%e wit( a bino'ial option5pricin# e*a'ple and e*tend to an introd%ction to t(e Blac.s ri#or.85. )(e presentation nicely inte#rates t(e cost o& capital presentation &ro' earlier c(apters.4 is or#ani-ed.s and (ow t(ey can be %sed as personal invest'ents. St%dents can %se t(ese &iles to #enerate port&olios and e&&icient &rontier c%rves &or '%lti5 asset e*a'ples. )(e 'aterial be#ins its &oc%s on asset pricin# by e*a'inin# t(e lin. )(e detailed covera#e o& derivative sec%rities in an introd%ctory te*t is %ni+%e and one t(at " believe st%dents will &ind +%ite c(allen#in# and interestin#. Here t(e a%t(ors 'a. s%c( as li&e cycle investin#. s%c( as t(at &o%nd in 'ost introd%ctory te*ts. So'e st%dents 'ay bene&it &ro' a statistical t%torial or review.8 covers t(e &ir'9s capital str%ct%re decision and provides a . )(e c(apter concl%des wit( an interestin# presentation on t(e %se o& t(e C/PM &or settin# prices in re#%lated ind%stries.75. "n c(apter . and Sc(oles Model.y assets. )(e te*t provides a ri#oro%s presentation on (ow to &ind t(e opti'al port&olio o& two ris. )(e &inal section.. spec%lation and arbitra#e. controllin# %ni+%e international ris.. between spot prices and &orward prices. C(apter .C1 Corporate $inance ties to#et(er so'e loose ends. wit( 'odern port&olio t(eory in (elpin# st%dents str%ct%re invest'ent port&olios. .e all previo%s c(apters. )(e stylistic approac( to port&olio t(eory and diversi&ication provides a nice concept%al &ra'ewor. C(apter . )(e introd%ction to options and option pricin# in C(apter . )(e inte#ration o& t(e &inance 'aterial is o%tstandin# as st%dents learn (ow derivatives &%nction in controllin# corporate ris. "ns%rin# and 6iversi&yin#= provides %ni+%e covera#e &or an introd%ctory te*t. t(e basic 'aterial at t(e be#innin# o& t(e c(apter provides an o%tstandin# pri'er &or &irst ti'e $inance st%dents. b%t lac.41 </sset Pricin#= e*tends t(e val%ation 'odels o& previo%s sections to val%in# stoc.(ile t(e level o& ri#or in t(e 'ore advanced topics 'ay be e*cessive &or so'e introd%ctory co%rses. to &low &ro' basic topics to 'ore advanced topics.e a si#ni&icant >%'p in t(e statistical ri#or o& t(e te*t. St%dents are introd%ced to t(e di&&erences between (ed#in# and ins%rin# and are provided e*a'ples o& eac(. &%t%res and options in ris.s can be 'ana#ed %sin# &%t%res and options. C(apter . Section :".C(apter . t(e a%t(ors inte#rate 'aterial &ro' previo%s c(apters.

t(at was so care&%lly inte#rated t(is 'aterial co%ld easily (ave been inte#rated into t(e te*t elsew(ere. )(e a%t(ors clearly s%cceed in creatin# a te*t and a co%rse t(at will provide st%dents wit( an inte#rated %nderstandin# o& &inance. However t(is %sa#e isn9t consistent2 so'e c(apters (ave '%ltiple e*a'ples w(ile ot(ers (ave none. )(e boo. . Aiven t(e &oc%s on recently on et(ics in t(e MB/ t(is appears an obvio%s o'ission especially wit( so 'any e*a'ples available and wit( t(e obvio%s 'ar. 0i& not revol%tionary1. /not(er concern is t(e very brie& covera#e o& wor. C(apter . " believe t(at. inte#ration o& &inance t(eory at t(e introd%ctory disciplines in c%rrent events to t(eory and &re+%ently t(ese are presented in te*t bo*es. @verall Bodie and Merton9s $inance is a very interestin# and insi#(t&%l.t(oro%#( introd%ction to Modi#liani and Miller 'odels as well as ot(er incentive proble's in&l%encin# a &ir'9s capital str%ct%re decisions. "n a boo. w(ile t(is capital 'ana#e'ent. )(is can lead to t(e ill%sion t(at so'e o& t(e topics are less i'portant or relevant in practice. )(e obvio%s +%estion is. . i& t(is &or'at is %se&%l at t(e MB/ level w(y not t(e %nder#rad%ate level. /#ain t(e 'aterial see's to (ave been tac. is also lac. spin o&&s and investin# in real options.(ile t(e te*t provides interestin# e*a'ples t(e 'aterial see's so'ew(at o%t o& place. @ne t(at does not sacri&ice a solid t(eoretical &o%ndation b%t instead reco#ni-es t(e inte#ration o& t(is t(eory across s%b5disciplines.C <$inance and Corporate Strate#y= e*a'ines (ow &inance t(eory is %sed to analy-in# strate#ic decisions s%c( as 'er#ers and ac+%isitions.ed on at t(is point. per(aps wit(in capital b%d#etin# c(apters or in t(e option val%ation c(apters. w(ic( is obvio%sly s%c( an i'portant part o& day5to5day &inancial 'ana#e'ent. was desi#ned &or st%dents at t(e MB/ level. )(e c(apter concl%des wit( a disc%ssion o& &ive (ypot(etical &ir'9s capital str%ct%re c(oices and provides a #reat class disc%ssion topic and a c(ance &or st%dents to apply t(e t(eories in t(e c(apter. co%ld s%ccess&%lly %sed in so'e %nder#rad%ate sit%ations by o'ittin# so'e 'ore advanced topics and i& an instr%ctor was care&%l to 'a. " (ave very &ew criticis's o& t(e te*t and all are relatively 'inor. t(is boo. )(e a%t(ors provide conte'porary e*a'ples in 'any c(apters in <&inance et(ics= e*a'ples. @ne not 'entioned above relates to t(e a%t(ors %sa#e o& conte'porary e*a'ples.e t(e appropriate e*tensions in lect%re.