CFA Level 1 Volume 4

Description

How to Use the CFA Program Curriculum Errata Designing Your Personal Study Program CFA Institute Learning Ecosystem (LES) Feedback Corporate Issuers Learning Module 1 Cost of Capital-Foundational Topics Introduction Cost of Capital Taxes and the Cost of Capital Costs of the Various Sources of Capital Cost of Debt Cost of Preferred Stock Cost of Common Equity Estimating Beta Estimating Beta for Public Companies Estimating Beta for Thinly Traded and Nonpublic Companies Flotation Costs Methods in Use Summary References Practice Problems Solutions Learning Module 2 Capital Structure Introduction Factors Affecting Capital Structure Internal Factors Affecting Capital Structure Existing leverage External Factors Affecting Capital Structure Capital Structure and Company Life Cycle Background Start-Ups Growth Businesses Mature Businesses Unique Situations Modigliani–Miller Propositions MM Proposition I without Taxes: Capital Structure Irrelevance MM Proposition II without Taxes: Higher Financial Leverage Raises the Cost of Equity MM Propositions with Taxes: Firm Value MM Propositions with Taxes: Cost of Capital Costs of Financial Distress Optimal and Target Capital Structures Market Value vs. Book Value Target Weights and WACC Pecking Order Theory and Agency Costs Stakeholder Interests Debt vs. Equity Conflict Preferred Shareholders Management and Directors Summary References Practice Problems Solutions Learning Module 3 Measures of Leverage Introduction Leverage Business and Sales Risks Business Risk and Its Components Sales Risk Operating Risk and the Degree of Operating Leverage Financial Risk, the Degree of Financial Leverage and the Leveraging Role of Debt Total Leverage and the Degree of Total Leverage Breakeven Points and Operating Breakeven Points The Risks of Creditors and Owners Summary Practice Problems Solutions Equity Investments Learning Module 1 Market Organization and Structure Introduction The Functions of the Financial System Helping People Achieve Their Purposes in Using the Financial System Determining Rates of Return Capital Allocation Efficiency Assets and Contracts Classifications of Assets and Markets Securities Fixed Income Equities Pooled Investments Currencies, Commodities, and Real Assets Commodities Real Assets Contracts Forward Contracts Futures Contracts Swap Contracts Option Contracts Other Contracts Financial Intermediaries Brokers, Exchanges, and Alternative Trading Systems Dealers Arbitrageurs Securitizers, Depository Institutions and Insurance Companies Depository Institutions and Other Financial Corporations Insurance Companies Settlement and Custodial Services and Summary Summary  Positions and Short Positions Short Positions Leveraged Positions Orders and Execution Instructions Execution Instructions Validity Instructions and Clearing Instructions Stop Orders Clearing Instructions Primary Security Markets Public Offerings Private Placements and Other Primary Market Transactions Importance of Secondary Markets to Primary Markets Secondary Security Market and Contract Market Structures Trading Sessions Execution Mechanisms Market Information Systems Well-functioning Financial Systems Market Regulation Summary Practice Problems Solutions Learning Module 2 Security Market Indexes Introduction Index Definition and Calculations of Value and Returns Calculation of Single-Period Returns Calculation of Index Values over Multiple Time Periods Index Construction Target Market and Security Selection Index Weighting Index Management: Rebalancing and Reconstitution Rebalancing Reconstitution Uses of Market Indexes Gauges of Market Sentiment Proxies for Measuring and Modeling Returns, Systematic Risk, and Risk-Adjusted Performance Proxies for Asset Classes in Asset Allocation Models Benchmarks for Actively Managed Portfolios Model Portfolios for Investment Products Equity indexes Broad Market Indexes Multi-Market Indexes Sector Indexes Style Indexes Fixed-income indexes Construction Types of Fixed-Income Indexes Indexes for Alternative Investments Commodity Indexes Real Estate Investment Trust Indexes Hedge Fund Indexes Summary Practice Problems Solutions Learning Module 3 Market Efficiency Introduction The Concept of Market Efficiency The Description of Efficient Markets Market Value versus Intrinsic Value Factors Affecting Market Efficiency Including Trading Costs Market Participants Information Availability and Financial Disclosure Limits to Trading Transaction Costs and Information-Acquisition Costs Forms of Market Efficiency Weak Form Semi-Strong Form Strong Form Implications of the Efficient Market Hypothesis Fundamental Analysis Technical Analysis Portfolio Management Market Pricing Anomalies - Time Series and Cross-Sectional Time-Series Anomalies Cross-Sectional Anomalies Other Anomalies, Implications of Market Pricing Anomalies Closed-End Investment Fund Discounts Earnings Surprise Initial Public Offerings (IPOs) Predictability of Returns Based on Prior Information Implications for Investment Strategies Behavioral Finance Loss Aversion Herding Overconfidence Information Cascades Other Behavioral Biases Behavioral Finance and Investors Behavioral Finance and Efficient Markets Summary References Practice Problems Solutions Learning Module 4 Overview of Equity Securities Importance of Equity Securities Equity Securities in Global Financial Markets Characteristics of Equity Securities Common Shares Preference Shares Private Versus Public Equity Securities Non-Domestic Equity Securities Direct Investing Depository Receipts Risk and Return Characteristics Return Characteristics of Equity Securities Risk of Equity Securities Equity and Company Value Accounting Return on Equity The Cost of Equity and Investors’ Required Rates of Return Summary References Practice Problems Solutions Learning Module 5 Introduction to Industry and Company Analysis Introduction Uses of Industry Analysis Approaches to Identifying Similar Companies Products and/or Services Supplied Business-Cycle Sensitivities Statistical Similarities Industry Classification Systems Commercial Industry Classification Systems Constructing a Peer Group Describing and Analyzing an Industry and Principles of Strategic Analysis Principles of Strategic Analysis Barriers to Entry Industry Concentration Industry Capacity Market Share Stability Price Competition Industry Life Cycle External Influences on Industry Macroeconomic Influences Technological Influences Demographic Influences Governmental Influences Social Influences Environmental Influences Industry Comparison Company Analysis Elements That Should Be Covered in a Company Analysis Spreadsheet Modeling Summary References Practice Problems Solutions Learning Module 6 Equity Valuation: Concepts and Basic Tools Introduction Estimated Value and Market Price Categories of Equity Valuation Models Background for the Dividend Discount Model Dividends: Background for the Dividend Discount Model Dividend Discount Model (DDM) and Free-Cash-Flow-to-Equity Model (FCFE) Preferred Stock Valuation The Gordon Growth Model Multistage Dividend Discount Models Multipler Models and Relationship Among Price Multiples, Present Value Models, and Fundamentals Relationships among Price Multiples, Present Value Models, and Fundamentals Method of Comparables and Valuation Based on Price Multiples Illustration of a Valuation Based on Price Multiples Enterprise Value Asset-Based Valuation Summary References Practice Problems Solutions Fixed Income Learning Module 1 Fixed-Income Securities: Defining Elements Introduction and Overview of a Fixed-Income Security Overview of a Fixed-Income Security Bond Indenture Bond Indenture Legal, Regulatory, and Tax Considerations Tax Considerations Principal Repayment Structures Principal Repayment Structures Coupon Payment Structures Floating-Rate Notes Step-Up Coupon Bonds Credit-Linked Coupon Bonds Payment-in-Kind Coupon Bonds Deferred Coupon Bonds Index-Linked Bonds Callable and Putable Bonds Callable Bonds Putable Bonds Convertible Bonds Summary Practice Problems Solutions Learning Module 2 Fixed-Income Markets: Issuance, Trading, and Funding Introduction Classification of Fixed-Income Markets Classification of Fixed-Income Markets Fixed-Income Indexes Investors in Fixed-Income Securities Primary Bond Markets Primary Bond Markets Secondary Bond Markets Sovereign Bonds Characteristics of Sovereign Bonds Credit Quality of Sovereign Bonds Types of Sovereign Bonds Non-Sovereign, Quasi-Government, and Supranational Bonds Non-Sovereign Bonds Quasi-Government Bonds Supranational Bonds Corporate Debt: Bank Loans, Syndicated Loans, and Commercial Paper Bank Loans and Syndicated Loans Commercial Paper Corporate Debt: Notes and Bonds Maturities Coupon Payment Structures Principal Repayment Structures Asset or Collateral Backing Contingency Provisions Issuance, Trading, and Settlement Structured Financial Instruments Capital Protected Instruments Yield Enhancement Instruments Participation Instruments Leveraged Instruments Short-Term Bank Funding Alternatives Retail Deposits Short-Term Wholesale Funds Repurchase and Reverse Repurchase Agreements Structure of Repurchase and Reverse Repurchase Agreements Credit Risk Associated with Repurchase Agreements Summary Practice Problems Solutions Learning Module 3 Introduction to Fixed-Income Valuation Introduction Bond Prices and the Time Value of Money Bond Pricing with a Market Discount Rate Yield-to-Maturity Relationships between the Bond Price and Bond Characteristics Pricing Bonds Using Spot Rates Prices and Yields: Conventions For Quotes and Calculations Flat Price, Accrued Interest, and the Full Price Matrix Pricing Annual Yields for Varying Compounding Periods in the Year Yield Measures for Fixed-Rate Bonds Yield Measures for Floating-Rate Notes Yield Measures for Money Market Instruments The Maturity Structure of Interest Rates Yield Spreads Yield Spreads over Benchmark Rates Yield Spreads over the Benchmark Yield Curve Summary Practice Problems Solutions Learning Module 4 Introduction to Asset-Backed Securities Introduction: Benefits of Securitization Benefits of Securitization for Economies and Financial Markets How Securitization Works An Example of a Securitization Parties to a Securitization and Their Roles Structure of a Securitization Key Role of the Special Purpose Entity Residential Mortgage Loans Maturity Interest Rate Determination Amortization Schedule Prepayment Options and Prepayment Penalties Rights of the Lender in a Foreclosure Mortgage Pass-Through Securities Mortgage Pass-Through Securities Collateralized Mortgage Obligations and Non-Agency RMBS Sequential-Pay CMO Structures CMO Structures Including Planned Amortization Class and Support Tranches Other CMO Structures Non-Agency Residential Mortgage-Backed Securities Commercial Mortgage-Backed Securities Credit Risk CMBS Structure Non-Mortgage Asset-Backed Securities Auto Loan ABS Credit Card Receivable ABS Collateralized Debt Obligations CDO Structure An Example of a CDO Transaction Covered Bonds Summary Practice Problems Solutions