fbpixel 101 concepts level II | IFT World - Part 5
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101 concepts level II
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LM01 Alternative Investment Features, Methods, and Structures.
LM01 Categories, Characteristics, and Compensation Structures of Alternative Investments
LM01 Corporate Structures and Ownership
LM01 Derivative Instrument and Derivative Market Features
LM01 Derivative Instrument and Derivative Market Features.
LM01 Ethics and Trust in the Investment Profession
LM01 Ethics and Trust in the Investment Profession.
LM01 Fixed-Income Instrument Features.
LM01 Fixed-Income Securities: Defining Elements
LM01 Introduction to Financial Statement Analysis
LM01 Introduction to Financial Statement Analysis.
LM01 Market Organization & Structure.
LM01 Market Organization and Structure
LM01 Organizational Forms, Corporate Issuer Features, and Ownership.
LM01 Portfolio Management Overview
LM01 Portfolio Management: An Overview.
LM01 Rates and Returns.
LM01 The Firm & Market Structures.
LM01 Time Value of Money
LM01 Topics in Demand and Supply Analysis
LM02 Alternative Investment Performance and Returns.
LM02 Analyzing Income Statements.
LM02 Code of Ethics and Standards of Professional Conduct Profession
LM02 Code of Ethics and Standards of Professional Conduct.
LM02 Financial Reporting Standards
LM02 Fixed Income Markets - Issuance Trading and Funding
LM02 Fixed-Income Cash Flows and Types.
LM02 Forward Commitment and Contingent Claim Features and Instruments
LM02 Forward Commitment and Contingent Claim Features and Instruments.
LM02 Introduction to Corporate Governance and Other ESG Considerations
LM02 Investors and Other Stakeholders.
LM02 Organizing, Visualizing, and Describing Data
LM02 Performance Calculation and Appraisal of Alternative Investments
LM02 Portfolio Risk & Return: Part I.
LM02 Portfolio Risk and Return Part I
LM02 Security Market Indexes
LM02 Security Market Indexes.
LM02 The Firm and Market Structures
LM02 Time Value of Money in Finance.
LM02 Understanding Business Cycles.
LM03 Aggregate Output, Prices and Economic Growth
LM03 Analyzing Balance Sheets.
LM03 Business Models & Risks
LM03 Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits.
LM03 Derivative Benefits, Risks, and Issuer and Investor Uses
LM03 Derivative Benefits, Risks, and Issuer and Investor Uses.
LM03 Fiscal Policy.
LM03 Fixed-Income Issuance and Trading.
LM03 Guidance for Standards I-VII
LM03 Guidance for Standards I–VII.
LM03 Introduction to Fixed Income Valuation
LM03 Investments in Private Capital: Equity and Debt.
LM03 Market Efficiency
LM03 Market Efficiency.
LM03 Portfolio Risk & Return: Part II.
LM03 Portfolio Risk and Return Part II
LM03 Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds
LM03 Probability Concepts
LM03 Statistical Measures of Asset Returns.
LM03 Understanding Income Statements
LM04 An Introduction to Asset-Backed Securities
LM04 Analyzing Statements of Cash Flows I.
LM04 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
LM04 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives.
LM04 Basics of Portfolio Planning & Construction
LM04 Basics of Portfolio Planning and Construction.
LM04 Capital Investments
LM04 Common Probability Distributions
LM04 Fixed-Income Markets for Corporate Issuers.
LM04 Introduction to the Global Investment Performance Standards (GIPS)
LM04 Introduction to the Global Investment Performance Standards (GIPS).
LM04 Monetary Policy.
LM04 Overview of Equity Securities
LM04 Overview of Equity Securities.
LM04 Probability Trees and Conditional Expectations.
LM04 Real Estate and Infrastructure.
LM04 Understanding Balance Sheets
LM04 Understanding Business Cycles
LM04 Working Capital and Liquidity.
LM05 Analyzing Statements of Cash Flows II.
LM05 Capital Investments and Capital Allocation.
LM05 Company Analysis: Past and Present.
LM05 Fixed-Income Markets for Government Issuers.
LM05 Introduction to Geopolitics.
LM05 Introduction to Industry and Company Analysis
LM05 Monetary and Fiscal Policy
LM05 Natural Resources.
LM05 Portfolio Mathematics.
LM05 Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities
LM05 Pricing and Valuation of Forward Contracts.
LM05 Sampling and Estimation
LM05 The Behavioral Biases of Individuals
LM05 The Behavioral Biases of Individuals.
LM05 Understanding Cash Flow Statements
LM05 Understanding Fixed-Income Risk and Return
LM05 Working Capital & Liquidity
LM06 Analysis of Inventories.
LM06 Capital Structure.
LM06 Cost of Capital-Foundational Topics
LM06 Equity Valuation: Concepts and Basic Tools
LM06 Financial Analysis Techniques
LM06 Fixed-Income Bond Valuation: Prices and Yields.
LM06 Fundamentals of Credit Analysis
LM06 Hedge Funds.
LM06 Hypothesis Testing
LM06 Industry and Competitive Analysis.
LM06 International Trade.
LM06 Introduction to Geopolitics
LM06 Introduction to Risk Management
LM06 Introduction to Risk Management.
LM06 Pricing and Valuation of Futures Contracts
LM06 Pricing and Valuation of Futures Contracts.
LM06 Simulation Methods.
LM07 Analysis of Long-Term Assets.
LM07 Business Models.
LM07 Capital Flows and the FX Market.
LM07 Capital Structure
LM07 Company Analysis: Forecasting.
LM07 Estimation and Inference.
LM07 International Trade and Capital Flows
LM07 Introduction to Digital Assets.
LM07 Introduction to Linear Regression
LM07 Inventories
LM07 Pricing and Valuation of Interest Rate and Other Swaps.
LM07 Pricing and Valuation of Interest Rates and Other Swaps
LM07 Technical Analysis
LM07 Yield and Yield Spread Measures for Fixed-Rate Bonds.
LM08 Currency Exchange Rates
LM08 Equity Valuation: Concepts and Basic Tools.
LM08 Exchange Rate Calculations.
LM08 Fintech in Investment Management
LM08 Hypothesis Testing.
LM08 Long Lived Assets
LM08 Measures of Leverage
LM08 Pricing and Valuation of Options
LM08 Pricing and Valuation of Options.
LM08 Topics in Long-Term Liabilities and Equity.
LM08 Yield and Yield Spread Measures for Floating-Rate Instruments.
LM09 Analysis of Income Taxes.
LM09 Income Taxes
LM09 Option Replication Using Put-Call Parity
LM09 Option Replication Using Put–Call Parity.
LM09 Parametric and Non-Parametric Tests of Independence.
LM09 The Term Structure of Interest Rates: Spot, Par, and Forward Curves.
LM10 Financial Reporting Quality.
LM10 Interest Rate Risk and Return.
LM10 Non-current (Long-Term) Liabilities
LM10 Simple Linear Regression.
LM10 Valuing a Derivative Using a One-Period Binomial Model
LM10 Valuing a Derivative Using a One-Period Binomial Model.
LM11 Financial Analysis Techniques.
LM11 Financial Reporting Quality
LM11 Introduction to Big Data Techniques.
LM11 Yield-Based Bond Duration Measures and Properties.
LM12 Applications of Financial Statement Analysis
LM12 Introduction to Financial Statement Modeling.
LM12 Yield-Based Bond Convexity and Portfolio Properties.
LM13 Curve-Based and Empirical Fixed-Income Risk Measures.
LM14 Credit Risk.
LM15 Credit Analysis for Government Issuers.
LM16 Credit Analysis for Corporate Issuers.
LM17 Fixed-Income Securitization.
LM18 Asset-Backed Security (ABS) Instrument and Market Features.
LM19 Mortgage-Backed Security (MBS) Instrument and Market Features.
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Category: Essential Concepts for Level II

Essential Concept 41: Target Company Valuation

Discounted cash flow analysis: In this method, we discount the company’s expected future free cash flows to the present in order to estimate the value of the company. A two-stage model is used. The first stage includes only those years where an analyst can provide reasonably accurate estimates of the company’s free cash flows. These are discounted to their present value, using an appropriate discount rate. The second stage incorporates value derived from years beyond the first stage. This is called the terminal value of the company. The terminal value is then discounted back to the present. The sum of… Read More

101 concepts level II

Essential Concept 42: Intrinsic Value and Sources of Perceived Mispricing

Intrinsic value is the true or real value given a hypothetically complete understanding of the asset’s investment characteristics. Intrinsic value might be different from the current (market) price of an asset. Perceived mispricing is the difference between the estimated intrinsic value and the market price of an asset. It can be expressed as: VE – P = (V – P) + (VE – V) Interpretation: The first component is (V-P) is the true mispricing or market error.  It is the difference between the unobservable intrinsic value V, and the observed market price An analyst exploits the mispricing if it arises from the first term as it contributes to the… Read More

101 concepts level II

Essential Concept 43: Return Concepts

Holding period return is the return earned from investing in an asset over a specified period of time. Realized return is the holding period return earned in the past. Expected return is the expected holding-period return for a stock in the future based on expected dividend yield and the expected price appreciation return. Required return is the minimum level of expected return that an investor requires over a specified period of time, given the asset’s riskiness. Asset’s expected alpha or expected abnormal return is the difference between the expected return and the required rate of return on an asset. It… Read More

101 concepts level II

Essential Concept 44: Equity Risk Premium

The equity risk premium is the incremental return above the risk-free rate that investors expect from holding equities. It can be used to calculate the required return for a particular stock. Required return on a stock = current expected risk-free return + βi * equity risk premium Historical equity risk premium is the mean value of the difference between a broad-based equity market index returns and government debt return over some selected period Generally, longer time period is better, but if the selected is too long then there is a risk that ERP has permanently shifted to a different level…. Read More

101 concepts level II

Essential Concept 45: Estimating Required Return on Equities

The CAPM is the widely used for estimating required return. Required return:   The Fama–French model (FFM) is a three-factor model; it adds two premiums in addition to the equity risk: a size factor, and a value factor.   The Pastor-Stambaugh model is an extension to the FFM; it adds a fourth factor for liquidity.   Build up models are similar to risk premium approaches, however they do not use betas to adjust for exposures to factors. An example is the bond yield plus risk premium approach, which is used to value the equity of companies with publicly traded debt…. Read More

101 concepts level II

Essential Concept 46: Top-down and Bottom-up Approaches

Top-down approach begins at the economy level, then the industry and finally to the company level. There are two top-down approaches: Growth relative to GDP growth: In this approach, we: Forecast nominal GDP growth rate (can forecast real GDP growth and inflation separately) Forecast revenue growth relative to GDP depending on the company’s position in the lifecycle and/or business cycle sensitivity. The forecasted revenue is expressed in two ways: As percentage point discounts or premiums. For instance, Pfizer’s revenue is projected to grow at 100 bps above nominal GDP growth rate. In relative terms: GDP is forecasted to grow at… Read More

101 concepts level II

Essential Concept 47: Impact of Competitive Factors in Prices and Costs

The forecasting process must consider the competitive environment of a company/industry. Porter’s “five forces” framework is commonly used to analyze the impact of competition on future prices and costs. Force Comment Threat of substitutes If numerous substitutes exist and switching costs are low, companies have limited pricing power. If few substitutes exist and/or switching costs are high, companies have greater pricing power. Internal rivalry Pricing power is limited in industries that are fragmented, have limited growth, high exit barriers, high fixed costs, and have more or less identical product offerings. Supplier power Companies (and overall industries) whose suppliers have greater… Read More

101 concepts level II

Essential Concept 48: Dividend Discount Model (DDM)

The value of a stock using DDM for a single-holding period is:   The value of a stock using DDM for multiple finite holding periods is:   The value of a stock for infinite holding periods is:   There are two approaches to forecast dividends. One is to assume that they follow a stylized growth pattern (constant growth, two-stages of growth, or three stages of growth). The other alternative is to forecast dividends for a finite period, then forecast the remaining dividends based on a pattern or by calculating the terminal stock price.

101 concepts level II

Essential Concept 49: Gordon Growth Model

The Gordon growth model assumes that: Dividends grow at a constant growth rate g. Discount rate r is constant and is greater than g. Dividends bear and understandable and consistent relationship with profits. The value of a stock using the Gordon growth model is: If prices are efficient (price equals value), the price is expected to grow at a rate of g, known as the rate of price appreciation. In this case, the stock’s expected rate of return is: If an estimate of the next-period dividend and the stock’s required rate of return are given, then the Gordon growth model… Read More

101 concepts level II

Essential Concept 50: Multistage Dividend Discount Models

Companies with varying growth prospects must be valued using multistage DCF models such as the two-stage DDM, H-model, three-stage DDM or spreadsheet modeling. The assumptions of these models are: Two-stage DDM: this model assumes different growth rates in stage 1 and stage 2. A supernormal growth in stage 1 is followed by a lower, sustainable growth rate in second stage. H-model: the dividend growth rate declines linearly from a high supernormal rate to the normal growth rate in stage 1, and becomes constant and normal in stage 2. Three-stage DDM: There are two variations of this model. In one version,… Read More

101 concepts level II
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