CFA Level 1 – Equity Investments

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Study Session 12: Equity Investments (1)

Reading 36 Market Organization and Structure 12 LOSs | 2 Quizzes

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0% Complete 0/12 Steps

Explain the main functions of the financial system

Describe classifications of assets and markets

Describe the major types of securities, currencies, contracts, commodities, and real assets that trade in organized markets, including their distinguishing characteristics and major subtypes

Describe types of financial intermediaries and services that they provide

Compare positions an investor can take in an asset

Calculate and interpret the leverage ratio, the rate of return on a margin transaction, and the security price at which the investor would receive a margin call

Compare execution, validity, and clearing instructions

Compare market orders with limit orders

Define primary and secondary markets and explain how secondary markets support primary markets

Describe how securities, contracts, and currencies are traded in quote-driven, order-driven, and brokered markets

Describe characteristics of a well-functioning financial system

Describe objectives of market regulation

Reading 36 Market Organization and Structure – Quiz 1

Reading 36 Market Organization and Structure – Quiz 2

Reading 37 Security Market Indexes 11 LOSs | 2 Quizzes

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0% Complete 0/11 Steps

Describe a security market index

Calculate and interpret the value, price return, and total return of an index

Describe the choices and issues in index construction and management

Compare the different weighting methods used in index construction

Calculate and analyze the value and return of an index given its weighting method

Describe rebalancing and reconstitution of an index

Describe uses of security market indexes

Describe types of equity indexes

Describe types of fixed-income indexes

Describe indexes representing alternative investments

Compare types of security market indexes

Reading 37 Security Market Indexes – Quiz 1

Reading 37 Security Market Indexes – Quiz 2

Reading 38 Market Efficiency 7 LOSs | 2 Quizzes

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Reading Content

0% Complete 0/7 Steps

Describe market efficiency and related concepts, including their importance to investment practitioners

Distinguish between market value and intrinsic value

Explain factors that affect a market’s efficiency

Contrast weak-form, semi-strong-form, and strong-form market efficiency

Explain the implications of each form of market efficiency for fundamental analysis, technical analysis, and the choice between active and passive portfolio management

Describe market anomalies

Describe behavioral finance and its potential relevance to understanding market anomalies

Reading 38 Market Efficiency – Quiz 1

Reading 38 Market Efficiency – Quiz 2

Study Session 13: Equity Investments (2)

Reading 39 Overview of Equity Securities 8 LOSs | 2 Quizzes

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Reading Content

0% Complete 0/8 Steps

Describe characteristics of types of equity securities

Describe differences in voting rights and other ownership characteristics among different equity classes

Distinguish between public and private equity securities

Describe methods for investing in non-domestic equity securities

Compare the risk and return characteristics of different types of equity securities

Explain the role of equity securities in the financing of a company’s assets

Distinguish between the market value and book value of equity securities

Compare a company’s cost of equity, its (accounting) return on equity, and investors’ required rates of return

Reading 39 Overview of Equity Securities – Quiz 1

Reading 39 Overview of Equity Securities – Quiz 2

Reading 40 Introduction to Industry and Company Analysis 11 LOSs | 2 Quizzes

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Explain uses of industry analysis and the relation of industry analysis to company analysis

Compare methods by which companies can be grouped, current industry classification systems, and classify a company, given a description of its activities and the classification system

Explain the factors that affect the sensitivity of a company to the business cycle and the uses and limitations of industry and company descriptors such as “growth,” “defensive,” and “cyclical”

Explain how a company’s industry classification can be used to identify a potential “peer group” for equity valuation

Describe the elements that need to be covered in a thorough industry analysis

Describe the principles of strategic analysis of an industry

Explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and price competition

Describe industry life cycle models, classify an industry as to life cycle stage, and describe limitations of the life-cycle concept in forecasting industry performance

Compare characteristics of representative industries from the various economic sectors

Describe macroeconomic, technological, demographic, governmental, and social influences on industry growth, profitability, and risk

Describe the elements that should be covered in a thorough company analysis

Reading 40 Introduction to Industry and Company Analysis – Quiz 1

Reading 40 Introduction to Industry and Company Analysis – Quiz 2

Reading 41 Equity Valuation: Concepts and Basic Tools 13 LOSs | 2 Quizzes

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Evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market

Describe major categories of equity valuation models

Describe regular cash dividends, extra dividends, stock dividends, stock splits, reverse stock splits, and share repurchases

Describe dividend payment chronology

Explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models

Calculate the intrinsic value of a non-callable, non-convertible preferred stock

Calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate

Identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate

Explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables

Calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value

Describe enterprise value multiples and their use in estimating equity value

Describe asset-based valuation models and their use in estimating equity value

Explain advantages and disadvantages of each category of valuation model

Reading 41 Equity Valuation: Concepts and Basic Tools – Quiz 1

Reading 41 Equity Valuation: Concepts and Basic Tools – Quiz 2

Equity Investments – Exam