Investments, tenth edition

IBX Ratio Analysis

(1)

(2)

(3)

(4)

(5)

(6)

(7)

Year

ROE

Net 

Profit/

Pretax 

Profit

Pretax 

Profit/

EBIT

EBIT/Sales 

(Margin)

Sales/

Assets 

(turnover)

Assets/

Equity

Combined 

Leverage 

Factor 

(2) 3 (5)

ROA 

(3) 3 (4)

2015

11.4%

.616

.796

7.75%

1.375

2.175

1.731

10.65%

2013

10.2

.636

.932

8.88

1.311

1.474

1.374

11.65

bod61671_ch19_635-677.indd   677

bod61671_ch19_635-677.indd   677

7/17/13   4:13 PM

7/17/13   4:13 PM

Final PDF to printer

---

20 

   DERIVATIVE SECURITIES, OR 

 

more simply 

derivatives,  play a large and increasingly 

important role in financial markets. These 

are securities whose prices are determined 

by, or “derive from,” the prices of other 

securities. 

 Options and futures contracts are both 

derivative securities. Their payoffs depend on 

the value of other securities. Swaps, which we 

will discuss in Chapter 23, also are derivatives. 

Because the value of derivatives depends 

on the value of other securities, they can be 

powerful tools for both hedging and specula-

tion. We will investigate these applications in 

the next four chapters, starting in this chapter 

with options. 

 Trading of standardized options contracts 

on a national exchange started in 1973 when 

the Chicago Board Options Exchange (CBOE) 

began listing call options. These contracts 

were almost immediately a great success, 

crowding out the previously existing over-

the-counter options market. 

 Option contracts are traded now on several 

exchanges. They are written on common stock, 

stock indexes, foreign exchange, agricultural 

commodities, precious metals, and interest 

rate futures. In addition, the over-the-counter 

market has enjoyed a tremendous resurgence 

in recent years as trading in custom-tailored 

options has exploded. Popular and potent 

tools in modifying portfolio characteristics, 

options have become essential tools a port-

folio manager must understand. 

 This chapter is an introduction to options 

markets. It explains how puts and calls work 

and examines their investment characteris-

tics. Popular option strategies are considered 

next. Finally, we examine a range of securities 

with embedded options such as callable or 

convertible bonds, and we take a quick look 

at some so-called exotic options.  

 CHAPTER TWENTY