CFA Level 1 Volume 4

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