fbpixel 101 concepts level I | IFT World - Part 7
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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: 101 Concepts for Level I

Concept 60: NPV Profile

NPV profile shows the sensitivity of a project’s NPV for different discount rates. It is plotted on a graph where NPVs are on the y-axis with the discount rates on the x-axis. Crossover rate is the discount rate at which the NPVs of both the projects are equal. The differences in timings of cash flows cause the two profiles to intersect and crossover. Both NPV profiles intersect x axis where their NPVs are 0 i.e. at their IRRs. In the above NPV profile, if Project I and Project D are mutually exclusive projects, for discount rates greater than 10%, Project… Read More

101 concepts level I

Concept 61: Weighted Average Cost of Capital (WACC)

It is the overall cost of the sources of capital. Represents the required return or opportunity costs for the firm as a whole. It is the appropriate discount rate for cash flows of projects having similar risk profile as that of the firm. Has weights that are derived from target capital structure and market values of each source of capital. Is also called the marginal cost of capital (MCC)     A firm has the following capital structure: 20% debt, 10% preferred stock, and 70% equity. The before-tax cost of debt is 6%, cost of preferred stock is 8%, and… Read More

101 concepts level I

Concept 62: Beta of a Project

Project’s beta is a measure of systematic or market risk present in a particular project. It is used to adjust for differences between project’s risk and firm’s average risk. Project’s beta is estimated using ‘Pure play method’. This method has three steps: Step 1: Shortlist comparable publicly traded companies. Step 2: Derive unlevered beta or comparable asset beta for the project using comparable company’s D/E and tax rate:     Step3: Get the equity levered beta for the project using project specific D/E and tax rate:     Drawbacks of “Pure Play” method: Public companies’ betas are dependent on time… Read More

101 concepts level I

Concept 63: Calculating Degree of Operating Leverage, Financial Leverage, and Total Leverage

Degree of operating leverage (DOL) measures operating risk. It is the ratio of the percentage change in operating income to the percentage change in quantity sold.     where: Q: Quantity sold, P: Unit price, V: Variable cost per unit, F: Fixed operating costs S: Dollar amount of sales, TVC: total variable costs, Degree of financial leverage (DFL) measures financial risk. It is the ratio of percentage change in net income to percentage change in operating income.     where: Q: Quantity sold, P: Unit price, V: Variable cost per unit, F: Fixed costs I: Fixed financial costs Degree of… Read More

101 concepts level I

Concept 64: Pooled Investment Products

Mutual fund is an investment pool of multiple investors, in which each investor has claim on income and value of the fund in proportion to the investment made by them. Net asset value = value of assets – liabilities. Open-end fund: A mutual fund that allows the issuance of new shares or redemption of existing shares, i.e. new investments are allowed. (No-load funds: Do not charge fees on redemption and fees for purchasing of shares; while load funds can charge either or both the fees). Purchases and sales are made with the fund. Closed-end fund: No new investment money is… Read More

101 concepts level I

Concept 65: Minimum-Variance and Efficient Frontiers

Investment opportunity set: Portfolios with varying weights of all the individual assets (both risky assets and risk free assets) available to the investors are plotted on a graph where return is on the y-axis and standard deviation (risk) is on the x-axis. For a given rate of return, there will be a portfolio with minimum variance (risk) available in the opportunity set. The curve connecting such portfolios with minimum variance is called the minimum-variance frontier. The portfolio having the least risk (variance) among all the portfolios of risky assets is called the global minimum-variance portfolio. As a risk averse investor… Read More

101 concepts level I

Concept 66: Applications of the CAPM and the SML

Expected return of an asset will be equal to the required return on the asset for a market in equilibrium. SML can be used to find overvalued and undervalued securities. Securities on the SML lineà fairly valued, Securities above the SML line à undervalued, Securities below the SML line à The market has an expected return of 16% and a risk-free rate of 5%. Compute the expected and required return on each stock and determine whether they are fairly valued, overvalued or undervalued. The following are the street forecasts for the stocks: Security Current price Expected year-end price Expected dividend… Read More

101 concepts level I

Concept 67: Principles of Portfolio Construction

1. Define IPS: Capture the investor requirements and constraints. 2. Determine the strategic asset allocation: a. Define the investable asset classes for the portfolio and gather historical data on their risk, return and correlation. b. Combine the IPS and the risk/return profile of various asset classes derived from above step, to determine a strategic asset allocation. Up to this step, investment decisions are entirely passive i.e. returns are primarily generated by investing in asset class indices. 3. Tactical asset allocation: a. This is the first step of active management. b. Determine whether there are any short-term opportunities that warrant a… Read More

101 concepts level I

Concept 68: Types of Securities

Securities can be broadly classified into: Fixed income: refers to debt securities where the borrower is obligated to pay interest and principal at pre-determined schedule. They may be collateralized, which means that investors have claim on certain physical assets. The different types are: • Bonds: Long-term debts. • Notes: Intermediate-term debts. • Bank borrowings: Long to short term involving revolving credit lines and other debt instruments. • Convertible: Debt can be exchanged for a specified number of equity shares. Equity: refers to ownership claims by investors in companies. The different types are: • Common shareholders: have a residual claim over… Read More

101 concepts level I

Concept 69: Types of Financial Intermediaries

Financial intermediaries facilitate transaction between buyers and sellers allowing them to exchange asset, capital and risk. The different types are: Brokers, Exchanges, and Alternative Trading Systems: Brokers: find counterparties for transactions (other entities willing to take the opposing side in a transaction) and do not indulge in trade with their clients directly. Block brokers: provide similar services as brokers, except that their clients have large trade orders that might potentially impact the security prices if the trade is executed without proper care. Investment banks: provide advice for corporate actions like mergers & acquisitions and help firms raise capital by issuing… Read More

101 concepts level I
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