on 12-Jul-2017 (Wed)

The cover letter is much more important than many authors realize. This letter usually is your first contact with the editor, and the editor will make some important decisions about your paper based on the contents and professionalism of your cover letter. Note: The cover letter is the only section of the manuscript that is single- spaced.

The purpose of the cover letter is to explain ? politely ? what you are submitting and why. State the title and length of your manuscript and indicate the number of tables and figures. Explain why you decided to submit your manuscript to that particular journal. Why would your paper be of interest to the readers of that journal? What are the strengths of your paper? Explain which section of the target journal would be most appropriate for your manuscript (e.g., Original Articles, Brief Communications, or Reviews). In the salutation of the cover letter, make sure that you use the current editor?s name ? and spell it correctly. Avoid writing ?Dear Editor.? Avoid using the name of the editor of the journal that you submitted to on your first try.

Help the editors appreciate the significance of your work. Explain what is already known about this area and the advances presented in your paper. Summarize what is new and why the editor should care. The important question that is answered in this paper is X and that is important because of Y. Describe any related papers that you have submitted or will submit soon. Help the editor identify appropriate reviewers, especially for papers that use unusual methodologies or have a limited number of qualified experts.

Medieval history, then, as recorded at the time, appears for the most part confined to events affecting no more than one of the three great power blocs.

ut while medieval history portrays the protagonists' conflict over funda mentals, those fundamentals stand revealed as largely identical as soon as the sameness of problems, principles, methods, and aims is envisaged rather than the disparity of the individual solution, procedure, and style of argument or action.

A company should choose those capital investment processes that maximize shareholder wealth.

The net present value (NPV) of an investment is the present value of its cash inflows minus the present value of its cash outflows. The internal rate of return (IRR) is the discount rate that makes net present value equal to 0.

According to the NPV rule, a company should accept projects where the NPV is positive and reject those in which the NPV is negative. A positive NPV suggests that cash inflows outweigh cash outflows on a present value basis. That is, the positive cash flows are sufficient to repay the initial investment along with the capital costs (opportunity cost) associated with the project. If the company must choose between two, mutually-exclusive projects, the one with the higher NPV should be chosen.

According to the IRR Rule, a company should accept projects where the IRR is greater than the discount rate used (WACC) and reject those in which the IRR is less than the discount rate. An IRR greater than the WACC suggests that the project will more than repay the capital costs (opportunity costs) incurred.

There are three problems associated with IRR as a decision rule.

• Reinvestment

  The IRR is intended to provide a single number that represents the rate of return generated by a capital investment. As such, it is an easy number to interpret and understand. However, calculation of the IRR assumes that all project cash flows can be reinvested to earn a rate of return exactly equal to the IRR itself. In other words, a project with an IRR of 6% assumes that all cash flows can be reinvested to earn exactly 6%. If the cash flows are invested at a rate lower than 6%, the realized return will be less than the IRR. If the cash flows are invested at a rate higher than 6%, the realized return will be greater than the IRR.

• Scale

  In most cases, NPV and IRR rules provide the same recommendation as to whether to accept or reject a given capital investment project. However, when choosing between two mutually-exclusive projects (ranking), NPV and IRR rules may provide conflicting recommendations. In such cases, the NPV rule's recommendation should take precedence.

  One of the situations in which IRR is likely to contradict NPV is when there are two mutually-exclusive projects of greatly differing scale: one that requires a relatively small investment and returns relatively small cash flows, and another that requires a much larger investment and returns much larger cash flows.

• Timing

  The other situation in which IRR is likely to contradict NPV is when there are two mutually-exclusive projects whose cash flows are timed very differently: one that receives its largest cash flows early in the project and another that receives its largest cash flows late in the project.

A positive NPV suggests that cash inflows outweigh cash outflows on a present value basis.

A project with an IRR of 6% assumes that all cash flows can be reinvested to earn exactly 6%. If the cash flows are invested at a rate lower than 6%, the realized return will be less than the IRR. If the cash flows are invested at a rate higher than 6%, the realized return will be greater than the IRR.

When analyzing rates of return, our starting point is the total return, or holding period return (HPR). HPR measures the total return for holding an investment over a certain period of time, and can be calculated using the following formula:

• P_t = price per share at the end of time period t
• P_(t-1) = price per share at the end of time period t-1, the time period immediately preceding time period t
• P_t - P_t-1 = price appreciation of the investment
• D_t = cash distributions received during time period t: for common stock, cash distribution is the dividend; for bonds, cash distribution is the coupon payment.

It has two important characteristics:

• It has an element of time attached to it: monthly, quarterly or annual returns. HPR can be computed for any time period.
• It has no currency unit attached to it; the result holds regardless of the currency in which prices are denominated.

Example

A stock is currently worth $60. If you purchased the stock exactly one year ago for $50 and received a $2 dividend over the course of the year, what is your holding period return?

R_t = ($60 - $50 + $2)/$50 = 0.24 or 24%

The return for time period t is the capital gain (or loss) plus distributions divided by the beginning-of-period price (dividend yield). Note that for common stocks the distribution is the dividend; for bonds, the distribution is the coupon payment.

The holding period return for any asset can be calculated for any time period (day, week, month, or year) simply by changing the interpretation of the time interval.

Return can be expressed in decimals (0.05), fractions (5/100), or as a percent (5%). These are all equivalent.

The dollar-weighted rate of return is essentially the internal rate of return (IRR) on a portfolio. This approach considers the timing and amountof cash flows. It is affected by the timing of cash flows. If funds are added to a portfolio when the portfolio is performing well (poorly), the dollar-weighted rate of return will be inflated (depressed).

The time-weighted rate of return measures the compound growth rate of $1 initial investment over the measurement period. Time-weightedmeans that returns are averaged over time. This approach is not affected by the timing of cash flows; therefore, it is the preferred method of performance measurement.

Example

Jayson bought a share of IBM stock for $100 on December 31, 2000. On December 31, 2001, he bought another share for $150. On December 31, 2002, he sold both shares for $140 each. The stock paid a dividend of $10 per share at the end of each year.

To calculate the dollar-weighted rate of return, you need to determine the timing and amount of cash flows for each year, and then set the present value of net cash flows to be 0: - 100 - 140/(1 + r) + 300/(1 + r)² = 0. You can use the IRR function on a financial calculator to solve for r to get the dollar-weighted rate of return: r = 17%.

To calculate the time-weighted rate of return:

• Split the overall measurement period into equal sub-periods on the dates of cash flows. For the first year:
  • beginning price: $100
  • dividends: $10
  • ending price: $150
  For the second year:
  • beginning price: $300 (150 x 2)
  • dividends: $20 (10 x 2)
  • ending price: $280 (140 x 2)

• Calculate the holding period return (HPR) on the portfolio for each sub-period: HPR = (Dividends + Ending Price)/Beginning Price - 1. For the first year, HPR₁: (150 + 10)/100 - 1 = 0.60. For the second year, HPR₂: (280 + 20)/300 - 1 = 0.

• Calculate the time-weighted rate of return:
  • If the measurement period < 1 year, compound holding period returns to get an annualized rate of return for the year.
  • If the measurement period > 1 year, take the geometric mean of the annual returns.

    

In the dollar-weighted rate of return if funds are added to a portfolio when the portfolio is performing well (poorly), the dollar-weighted rate of return will be inflated (depressed).

Money market instruments are low-risk, highly liquid debt instruments with a maturity of one year or less. There are two types of money market instruments: interest-bearing instruments (e.g., bank certificates of deposit), and pure discount instruments (e.g., U.S. Treasury bills).

Pure discount instruments such as T-bills are quoted differently than U.S. government bonds. They are quoted on a bank discount basis rather than on a price basis:

• r_BD = the annualized yield on a bank discount basis
• D = the dollar discount, which is equal to the difference between the face value of the bill, F, and its purchase price, P
• t = the number of days remaining to maturity
• 360 = the bank convention of the number of days in a year.

Bank discount yield is not a meaningful measure of the return on investment because:

• It is based on the face value, not on the purchase price. Instead, return on investment should be measured based on cost of investment.
• It is annualized using a 360-day year, not a 365-day year.
• It annualizes with simple interest and ignores the effect of interest on interest (compound interest).

Holding period yield (HPY) is the return earned by an investor if the money market instrument is held until maturity:

• P₀ = the initial price of the instrument
• P₁ = the price received for the instrument at its maturity
• D₁ = the cash distribution paid by the instrument at its maturity (that is, interest).

Since a pure discount instrument (e.g., a T-bill) makes no interest payment, its HPY is (P₁ - P₀)/P₀.

Note that HPY is computed on the basis of purchase price, not face value. It is not an annualized yield.

The effective annual yield is the annualized HPY on the basis of a 365-day year. It incorporates the effect of compounding interest.

Money market yield (also known as CD equivalent yield) is the annualized HPY on the basis of a 360-day year using simple interest.

Example

An investor buys a $1,000 face-value T-bill due in 60 days at a price of $990.

• Bank discount yield: (1000 - 990)/1000 x 360/60 = 6%
• Holding period yield: (1000 - 990)/990 = 1.0101%
• Effective annual yield: (1 + 1.0101%)^365/60 - 1 = 6.3047%
• Money market yield: (360 x 6%)/(360 - 60 x 6%) = 6.0606%

If we know HPY, then:

• EAY = (1 + HPY)^365/t - 1
• r_MM = HPY x 360/t

If we know EAY, then:

• HPY = ( 1 + EAY)^t/365 - 1
• r_MM = [(1 + EAY)^t/365 - 1] x (360/t)

If we know r_MM, then:

• HPY = r_MM x (t/360)
• EAY = (1 + r_MM x t/360)^365/t - 1

A zero-coupon bond is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.