Financial Modeling

by Benninga, Simon

ISBN13: 9780262024372

ISBN10: 0262024373

Format: Hardcover

Pub. Date: 1997-11-01

Publisher(s): Mit Pr

Upgraded Edition: Click here!

Other versions by this Author

List Price: ~~$57.95~~

Rent Textbook

Select for Price

Add to Cart

There was a problem. Please try again later.

New Textbook

We're Sorry
Sold Out

Used Textbook

We're Sorry
Sold Out

eTextbook

We're Sorry
Not Available

Buy from our Marketplace starting at $4.40

Summary

Too often, finance courses stop short of making a connection between textbook finance and the problems of real-world business. Financial Modeling bridges this gap between theory and practice by providing a nuts-and-bolts guide to solving common financial models with spreadsheets. Simon Benninga takes the reader step by step through each model, showing how it can be solved using Microsoft Excel. In this sense, this is a finance "cookbook", providing recipes with lists of ingredients and instructions. Areas covered include the computation of corporate finance problems, standard portfolio problems, option pricing and applications, and duration and immunization. The author includes a set of chapters dealing with advanced techniqueS, including random number generation, matrix manipulation, and the Gauss-Seidel method. Although the reader should know enough about Excel to set up a simple spreadsheet, the author explains advanced Excel techniques such as functions, macros, the use of data tables, and VBA programming. The book comes with a disk containing Excel worksheets and solutions to end-of-chapter exercises.

Preface

I Corporate Finance Models

(64)

1 Financial Statement Modeling

(18)

1.1 Overview

(1)

1.2 How Financial Models Work: Theory and an Initial Example

(6)

1.3 A Variation on the Model: Including Short-Term Financial Assests

(4)

1.4 Incorporating a Target Debt Equity Ratio into a Pro Forma

(1)

1.5 Credit Analysis: Debt Repayment Schedules

(4)

1.6 Free Cash Flow: Measuring the Cash Produced by the Business

(2)

Exercises

(1)

2 Using Financial Statement Models for Valuation

(16)

2.1 Overview

(1)

2.2 Farmers Bagels

(2)

2.3 Building a Financial Model

(4)

2.4 Deriving the Free Cash Flows (FCF) for Farmers Bagels

(2)

2.5 Valuing the Firm as an Unlevered Entity

(1)

2.6 The Effects of Leverage on the Valuation

(4)

2.7 Some Sensitivity Analysis

(1)

2.8 Summary

(1)

Exercises

(1)

3 The Financial Analysis of Leasing

(14)

3.1 Introduction

(1)

3.2 A Simple Example

(2)

3.3 Leasing and Firm Financing: The Equivalent-Loan Method

(3)

3.4 The Lessor's Problem: Calculating the Highest Acceptable Lease Rental

(2)

3.5 Asset Residual Value and Other Considerations

(2)

Exercises

(1)

Appendix: The Tax and Accounting Treatment of Leases

(5)

4 The Financial Analysis of Leveraged Leases

(14)

4.1 Introduction

(2)

4.2 An Example

(3)

4.3 Analyzing the Cash Flows by NPV or IRR

(1)

4.4 What Does the IRR Mean?

(3)

4.5 Accounting for Leveraged Leases: The "Multiple-Phases Method"

(4)

4.6 Comparing the MPM Rate of Return with the IRR

(1)

Exercises

(1)

II Portfolio Models

(74)

5 Portfolio Models--Introduction

(16)

5.1 Overview

(1)

5.2 A Simple Two-Asset Example

(4)

5.3 Calculating Portfolio Means and Variances

(2)

5.4 Portfolio Mean and Variance: The General Case

(5)

5.5 Efficient Portfolios

(1)

Exercises

(1)

Appendix: Continuously Compounded versus Discrete Returns

(3)

6 Calculating the Variance-Covariance Matrix

(10)

6.1 Overview

(1)

6.2 Using the Excess-Return Matrix in the Spreadsheet

(1)

6.3 Illustration

(1)

6.4 Using an Excel Macro

(4)

6.5 The Single-Index Model

(2)

Exercises

(1)

7 Calculating Efficient Portfolios When There Are No Short Sale Restrictions

(20)

7.1 Overview

(1)

7.2 Some Preliminary Definitions and Notation

(2)

7.3 Some Theorems on Efficient Portfolios and the CAPM

(3)

7.4 Calculating the Efficient Frontier: An Example

(6)

7.5 Finding the Market Portfolio: The Capital Market Line (CML)

104

(2)

7.6 The SML When There Is a Risk-Free Asset

106

(1)

Exercises

106

(1)

Appendix

107

(6)

8 Estimating Betas and the Security Market Line

113

(14)

8.1 Introduction

113

(1)

8.2 Testing the CAPM

113

(3)

8.3 Testing the CAPM: General Rules

116

(1)

8.4 Why Are the Results so Bad? Is the "Market" Portfolio Efficient?

117

(1)

8.5 The Nonefficiency of the "Market Portfolio"

118

(6)

8.6 So What's the Real Market Portfolio? How Can We Test the CAPM?

124

(1)

8.7 Does the CAPM Have Any Uses?

125

(1)

Exercise

126

(1)

9 Efficient Portfolios without Short Sales

127

(12)

9.1 Introduction

127

(2)

9.2 A Numerical Example

129

(3)

9.3 The Efficient Frontier with Short-Sale Restrictions

132

(2)

9.4 The VBA Program

134

(3)

9.5 Conclusion

137

(1)

Exercises

137

(2)

III Option Pricing Models

139

(88)

10 An Introduction to Options

141

(20)

10.1 Basic Option Definitions and Terminology

141

(6)

10.2 Some Examples

147

(1)

10.3 Option Payoff and Profit Patterns

148

(4)

10.4 Option Strategies: Payoffs from Portfolios of Options and Stocks

152

(2)

10.5 Option Arbitrage Propositions

154

(5)

Exercises

159

(2)

11 The Binomial Option-Pricing Model

161

(18)

11.1 Two-Date Binomial Pricing

161

(1)

11.2 State Prices

162

(2)

11.3 Multiperiod Binomial Model

164

(5)

11.4 Pricing American Options Using the Binomial Pricing Model

169

(2)

11.5 Programming the Binomial Option-Pricing Model in VBA

171

(7)

Exercises

178

(1)

12 The Lognormal Distribution

179

(18)

12.1 Introduction

179

(1)

12.2 What Do Stock Prices Look Like?

180

(1)

12.3 Lognormal Price Distributions and Geometric Diffusions

181

(4)

12.4 What Does the Lognormal Distribution Look Like?

185

(3)

12.5 Simulating Lognormal Price Paths

188

(4)

12.6 Technical Analysis

192

(1)

12.7 Calculating the Parameters of the Lognormal Distribution from Stock Prices

193

(2)

Exercises

195

(2)

13 The Black-Scholes Model

197

(10)

13.1 Introduction

197

(1)

13.2 The Black-Scholes Model

197

(2)

13.3 Using VBA to Define a Black-Scholes Pricing Function

199

(2)

13.4 Calculating the Implied Volatility

201

(2)

13.5 A VBA Function to Find the Implied Variance

203

(2)

Exercises

205

(2)

14 Portfolio Insurance

207

(20)

14.1 Overview: Insuring Stock Returns

207

(1)

14.2 Portfolio Insurance on More Complicated Assets

208

(2)

14.3 An Example

210

(3)

14.4 Some Properties of Portfolio Insurance

213

(2)

14.5 What Do Portfolio Insurance Strategies Look Like? A Simulation Program

215

(6)

14.6 Insuring Total Portfolio Returns

221

(3)

14.7 Implicit Puts and Asset Values

224

(2)

Exercises

226

(1)

IV Bonds and Duration

227

(54)

15 Duration

229

(18)

15.1 Introduction

229

(1)

15.2 Two Examples

229

(3)

15.3 What Does Duration Mean?

232

(2)

15.4 Duration Patterns

234

(1)

15.5 The Duration of a Bond with Uneven Payments

235

(8)

15.6 Nonflat Term Structures and Duration

243

(3)

Exercises

246

(1)

16 Immunization Strategies

247

(8)

16.1 Introduction

247

(1)

16.2 A Basic Simple Model of Immunization

247

(2)

16.3 A Numerical Example

249

(2)

16.4 Convexity: A Continuation of Our Immunization Experiment

251

(2)

16.5 Building a Better Mousetrap

253

(1)

Exercises

254

(1)

17 Calculating Default-Adjusted Expected Bond Returns

255

(16)

17.1 Introduction

255

(1)

17.2 Calculating the Expected Return in a One-Period Framework

256

(2)

17.3 A Multiperiod, Multistate Markov Chain Problem

258

(4)

17.4 A Numerical Example

262

(2)

17.5 Transition Matrices and Recovery Percentages: What Do We Know?

264

(3)

17.6 Adjusting the Expected Return for Uneven Periods

267

(1)

17.7 Computing Bond Betas

268

(1)

Exercises

269

(2)

18 Duration and the Cheapest-to-Deliver Problem for Treasury Bond Futures Contracts

271

(10)

18.1 Introduction

271

(1)

18.2 A General Model of the CTD

271

(2)

18.3 The Extremal Coupon as a General Solution for the CTD

273

(1)

18.4 Choosing the Optimal Maturity for CTD: The Case of Flat Term Structure

273

(1)

18.5 Using Excel to Plot the CTD and Duration

274

(6)

18.6 Conclusion

280

(1)

V Technical Considerations

281

(46)

19 Generating Random Numbers

283

(12)

19.1 Introduction

283

(1)

19.2 Testing the Excel Random-Number Generator

284

(4)

19.3 Generating Normally Distributed Random Numbers

288

(5)

Exercises

293

(2)

20 Data Table Commands

295

(6)

20.1 Introduction

295

(1)

20.2 An Example

295

(1)

20.3 Setting Up a Data Table

296

(1)

20.4 Building a Two-Dimensional Data Table

297

(2)

20.5 An Aesthetic Note: Hiding the Formula Cells

299

(1)

20.6 Excel Data Tables Are Arrays

300

(1)

21 Matrices

301

(8)

21.1 Introduction

301

(1)

21.2 Matrix Operations

301

(3)

21.3 Matrix Inverses

304

(1)

21.4 Solving Systems of Simultaneous Linear Equations

305

(1)

Exercises

306

(3)

22 The Gauss-Seidel Method

309

(4)

22.1 Overview

309

(1)

22.2 A Simple Example

309

(1)

22.3 A More Concise Example

310

(1)

22.4 Conclusion

310

(1)

Exercise

311

(2)

23 Excel Functions

313

(14)

23.1 Introduction

313

(1)

23.2 Financial Functions

313

(4)

23.3 Array Functions

317

(4)

23.4 Statistical Functions

321

(1)

23.5 Doing Regressions with Excel

322

(3)

23.6 Conditional Functions

325

(2)

VI Introduction to Visual Basic for Applications

327

(72)

24 Programming in Microsoft Excel

329

(24)

24.1 Overview

329

(1)

24.2 Why Macros Are Necessary

329

(1)

24.3 Recording a Macro

330

(4)

24.4 Editing a Macro

334

(2)

24.5 Running a Macro (Part 1)

336

(2)

24.6 Making a Macro Globally Available

338

(3)

24.7 Running a Macro (Part 2)

341

(9)

24.8 More Information on Our First Macro

350

(3)

25 Introduction to User-Defined Functions in Visual Basic for Applications

353

(46)

25.1 Overview

353

(1)

25.2 A Simple Example

353

(2)

25.3 Using User-Defined Functions

355

(23)

25.4 Excel Objects: A Short Introduction

378

(13)

25.5 The Ins and Outs of Array Manipulation in VBA

391

(6)

25.6 Conclusion

397

(2)

References

399

(6)

Index

405

Financial Modeling

Rent Textbook

New Textbook

Used Textbook

eTextbook

How Marketplace Works:

Summary

Table of Contents

Digital License