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Investment Pricing Methods: A Guide for Accounting and Financial Professionals


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
* 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

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.


1 Pricing Concepts and the Term Structure of Interest Rates.


Present Value Formula.

Duration and Other Fixed-Income Pricing Concepts.

Concluding Remarks.


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

Appendix B: Eurodollar Futures Yields.

2 Fixed-Income Pricing Matrix and Decomposing Yields.


Determining the Discount Rate.

Credit Rating Categories and Determination.

Processes for Decomposing Bond Yields.

Normalized-Yield Pricing Matrix.

Concluding Remarks.


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


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.


Appendix C: Bloomberg-Yield to Call Data.

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

4 Mortgage-Backed and Asset-Backed Securities.


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.


5 Privately Held Equity.


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.


6 Public Equity Pricing.


"Fox Rocks" Valuation Illustration.

Discounted Cash Flow Model.

Concluding Remarks.


Appendix E: "Fox Rocks" Valuation Illustration.

7 Derivatives.


Forward Contracts.

Futures Contracts.

Option Contracts.


Credit Derivatives.

Forward Rate Agreements.


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.


Surfside Condominium Partnership.

Concluding Remarks.