Equity Markets and Portfolio Analysis

CHAPTER 3 Stock and Bond Valuation and Return

Introduction

In Chapter 1, we discussed how securities can be evaluated in terms of eight common characteristics: value, rate of return, risk, life, divisibility, marketability, liquidity, and taxability. For most investors, the most important of these characteristics are value and return. In this chapter, we examine the valuation of bonds and stocks and how to measure the rates of return from investing in such securities. In Chapter 11, we will examine more closely the value, return, and risk relations for stocks when we begin our analysis of equity securities. Understanding how securities are valued and their rates determined, however, is fundamental to being able to evaluate and select these ...