To The Student


What do you need to understand this book? You do not need any specific background in finance. You do need to be thoroughly comfortable with arithmetic and generally comfortable with algebra. You do need mathematical aptitude, but you do not need to know advanced mathematical constructs, such as calculus. Knowledge of statistics would be very helpful, but the book will explain the relevant concepts when the need arises. You should own a S20 scientific calculator. A financial calculator is not necessary, though your instructor may like one. As to myself, I prefer that you learn how to operate a spreadsheet (such as Excel in Microsoft's Office or the free OpenCalc spreadsheet in OpenOffice). It is easier to work with information on a large screen with a 2,000 MHz processor than on a small 2-line display with a 2MHz processor. Because I have tried hard to keep the book self-contained and to explain everything from first principles, you should not need to go hunting for details in statistics, economics, or accounting textbooks. But this is not to say that you do not need to take courses in these disciplines: they have way more to offer than just background knowledge for a finance textbook.

One word of caution: the biggest problem for a novice of any field, but especially of finance, is jargon: the specialized terminology known only to the initiated. Worse, in finance, much jargon is ambiguous. Different people may use different terms for the same thing, and the same term may mean different things to different people. You have been warned! This book attempts to point out such ambiguous usage. Luckily, the bark of jargon is usually worse than its bite. It is only a temporary barrier to entry into the field of finance.

This book and the subject itself are tough, but they are not forbidding, even to an average student. The main prerequisite is mathematical aptitude, but not mathematical sophistication.

Jargon can trip up the reader.

How to Read The Book

Major sections within chapters end with "Solve Now" questions that mostly ask you to review The layout of the book.

the points just made with examples or questions similar to those just covered. You should not proceed beyond a section without completing these questions (and in "closed book"

format)! Many, but not all, questions are easy and/or straightforward replications of problems that you will have just encountered in the chapter. Each chapter ends with answers to these review questions. However, some solve now problems are more challenging. I occasionally even use them to let you think for yourself about an important novel use and application of the material just covered. (I believe you will remember it better if you try to figure it out for yourself.) Of course, in these cases, I try to lead you along—and you can always look up the solution. In either case, do not move on until you have mastered these review questions. (The published version of this book will contain many more student questions, and there will be a separate student testbank.)

There are "annotations" on the left side of most paragraphs throughout the text that give you some guidance what a paragraph wants to communicate. Suggestion: use the remaining white space in the margin to scribble your own notes.

This is an annotation.

Other notices.

IMPORTANT: Especially important concepts that you should memorize are typeset like this.

"Side notes" and "digging deeper" notes can be safely omitted from reading without compromising understanding:

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