何旋职称：金程教育高级培训师、通过CFA三级、通过FRM 工作经验：2009年至今，担任金程教育CFA（注册金融分析师）高级培训师，主要负责《经济 学》、《固定收益》、《衍生产品》和《组合管理》的课程讲解；2007年2011年4月，在金程教 育金融研究院内担任研究员，主要负责包括CFA项目研发以及的相关内训课程的课程体系开 发，主要项目经验包括：摩根史丹利项目（组长）：组织小组内成员定期讨论；搜集金融基础 知识方面的英文资料，撰写英文课件，确保项目质量；中国银行项目：负责企业财务报表粉饰 及合并报表、关联交易模块的研究与课件撰写；中国工商银行CFA培训项目：CFA一级二级辅 导员；金程教育CFA三级课程体系的整体开发及相关课件、资料制作；金融热点专题研究，包 括：次级债、IPO、一行三会等，形成研究报告，并开发相关课程（形成大纲，研究编写课件 及各类辅助材料）；基于内训客户的培训课程体系开发：南京银行、兴业基金、瑞穗实业银行 等。
授课：讲授CFA® Level I 20次，CFA® Level II 15次等。
授课范围广泛：经济学、固定收益投资、 衍生品投资、投资组合、资产配置、个人理财、数量分析等。
专业能力：金融理论知识扎实，在金融教学中有自己独到的方法。
多年对CFA考试体系的研究 使她全面掌握考试重点，尤其擅长经济学课程的讲授，能将复杂的理论具体化。
，在授课过程 中能够从考生角度出发，提供自己在备考过程中的经验和方法，帮助考生更好的准备考试。
客户：摩根史丹利、工商银行、中国银行、瑞穗实业银行、南京银行、兴业基金等。
联系方法：hexuanf@金程教育2012年CFA一级强化班讲义 Equity Investments讲师：何旋 地点： ■上海 □ 北京 □深圳上海金程国际金融专修学院12-161100% Contribution Breeds ProfessionalismCFA一级课程框架Study Session 1 Study Session 2-3 Study Session 4-6 Study Session 7-10 Study Session 11 Study Session 12 Study Session 13-14 Study Session 15-16 Study Session 17 Study Session 18 Ethics & Professional Standards Quantitative Methods Economic Analysis Financial Statement Analysis Corporate Finance Portfolio Management Equity Investments Fixed Income Analysis Derivative Investments Alternative InvestmentsTotal:Framework of Equity15 12 10 20 8 5 10 12 5 3100Study Session 13 — Market Organization, Indices and Efficiency• • • R47 Market Organization and Structure R48 Security Market Indices R49 Market EfficiencyStudy Session 14 — Equity Analysis and Valuation• • • R50 Overview of Equity Securities R51 Introduction to Industry and company Analysis R52 Equity Valuation: Concept and Basic Tool3-161100% Contribution Breeds Professionalism4-161100% Contribution Breeds ProfessionalismOutlook of R.47 Market Organization and StructureR.47.1 Characteristics of a Financial MarketR.47.1 Characteristics of a Financial Market R.47.2 Classification of assets and markets R.47.3 Organization of the securities market R.47.4 Instructions of transaction processes5-161100% Contribution Breeds Professionalism6-161100% Contribution Breeds ProfessionalismR.47.1 Characteristics of a Financial MarketLos 47.a: Explain the main functions of the financial systemR.47.1 Characteristics of a Financial MarketFirst function: fulfill different entities’ requirements• Risk management: Entities face risks from changing interest rates, currency management values, commodities values, and defaults on debt, among other things. So they would like to find a way to manage these risks. Hedgers enter a financial market with the purpose of reducing the risk of the transaction. Hedging instruments are available from exchanges, investment banks, insurance firms, and other institutions. • Exchanging assets: The financial market also allows entities to exchange assets assets with other entities. For example: currency exchange • Utilizing information: Investors with correctly analyzed information expect to information earn an additional return by identifying assets that are currently undervalued or overvalued.First function: fulfill different entities’ requirements function• Savings: stocks, bonds, certificates of deposit, real assets, and other assets are tools for Savings saving. Individuals save to gain interest. Firms save a portion of their profits for future expenditures. Borrowing: Borrow money from lenders who require collateral, take an equity position, Borrowing or investigate the credit risk of the borrower to protect themselves in case of borrower defaults. Individuals may borrow in order to buy a house or for other purposes. Firms may borrow to meet their finance capital expenditures and for other activities. Governments may issue debt to meet their expenditures. Issuing equity: Another method of raising capital beside borrowing is to issue equity, equity where the capital providers will share in any future profits. Investment bank help with issuance. Analysts value the equity. Regulators and accountants encourage the dissemination of information.7-161 100% Contribution Breeds Professionalism••8-161100% Contribution Breeds ProfessionalismR.47.1 Characteristics of a Financial MarketSecond function: Determine interest rates• Interest rates are justified according to the total supply of savings and the total demand of borrowings. • Equilibrium interest rate: rate when the interest rate at which the entities are willing to borrow is equal to the amount that entities are willing to lend, we say that the supply and demand are balanced, and such balanced interest rate is called the equilibrium interest rate. Equilibrium rates for different types of borrowing and lending will differ due to differences in risk, liquidity, and maturity.R.47.1 Characteristics of a Financial MarketThird function: Allocate capital to its most efficient uses• Investors have to weigh the expected risks and returns of different investments to determine their most preferred investments due to limited availability of capital. • This would result in an allocation to capital to its most valuable uses.9-161100% Contribution Breeds Professionalism10-161 10-100% Contribution Breeds ProfessionalismR.47.1 Characteristics of a Financial MarketLos d: Describe the types of financial intermediaries and the services that they provideR.47.1 Characteristics of a Financial MarketBrokers, Dealers and Exchange (Cont.)• Dealers: trade by buying for or selling from their own inventory and thus Dealers provide liquidity in the market and profit primarily from the differences of buy and sell prices. Dealers that trade with central banks to affect the money supply are referred to as primary dealers. dealers Broker-dealers: Some dealers also act as brokers. Broker-dealers have an inherent conflict of interest. Brokers: should seek the best prices for their clients; Dealers: are to profit through prices or spreads.Brokers, Dealers and Exchange• • • • • Brokers: Brokers help their clients buy and sell securities by finding Brokers counterparties to trades in a cost efficient manner. Block brokers: help with the placement of Large trades. Typically, large trades brokers are difficult to place without moving the market. Investment banks: help corporations sell common stock, preferred stock, and banks debt securities to investors. Exchanges: provide a venue whew traders can meet. Exchanges sometimes act Exchanges as brokers by providing electronic order matching. Alternative trading systems (ATS): serve the same trading function as exchanges but have no regulatory function, are also known as electronic communication networks (ECNs) or multilateral trading facilities (MTFs). ATS that do not reveal current client orders are known as dark pools. pools (used to reduce market impact)11-161 11100% Contribution Breeds Professionalism12-161 12-100% Contribution Breeds ProfessionalismR.47.1 Characteristics of a Financial MarketSecuritizers• Securitizers pool large amounts of securities or other assets together and sell interests in the pool to other investors. By securitizing the assets, the securitizer creates a diversified pool of assets with more predictable cash flows than the individual assets in the pool. This creates liquidity in the assets, because the ownership interests are more easily valued and traded. There are also economies of scale in the management costs of large pools of assets and potential benefits from the manager’s selection of assets.R.47.1 Characteristics of a Financial MarketSecuritizers (Cont.)• • Assets that are often securitized include mortgages, car loans, credit card receivables, bank loans, and equipment leases. A firm may set up a special purpose vehicle (SPV) or special purpose entity (SPE) to buy firm assets, which removes them from the firm’s balance sheet and may increase their value by removing the risk that financial trouble at the firm will give other investors a claim to the assets’ cash flows. Absorb deposits by paying interest on customer deposits Provide transaction services on one hand, and then make loans with the deposits on the other hand.Depository Institutions• •13-161 13-100% Contribution Breeds Professionalism14-161 14-100% Contribution Breeds ProfessionalismR.47.1 Characteristics of a Financial MarketInsurance Companies• • • Insurance companies collect insurance premiums in return for providing risk reduction to the insured. Such intermediaries are able to do this by pooling policyholders with uncorrelated risk of losses. Insurance firms also provide a benefit to investors by managing the risks: Moral hazard occurs because the insured may take more risks once they are protected against losses. Adverse selection occurs when those most likely to experience losses are the predominant buyers of insurance. In fraud, the insured purposely cause damage or claim fictitious losses so they can collect on their insurance policies.R.47.1 Characteristics of a Financial MarketArbitrageurs• • Arbitrageurs are intermediaries who seek to gain certain return without bearing any risk. In markets with good information, pure arbitrage is rare because traders will favor the markets with the best prices. Clearinghouses: act as buyers when customers want to sell assets and as sellers when customers want to buy assets, and thus limit counterparty risk. Custodians: also improve market integrity by holding client securities and Custodians preventing their loss due to fraud or other events that affect the broker or investment manager.Clearinghouses and Custodians• •15-161 15-100% Contribution Breeds Professionalism16-161 16-100% Contribution Breeds ProfessionalismR.47.1 Characteristics of a Financial MarketLos k. describe the characteristics of a well-functioning financial system A well functioned financial market:• allows entities to achieve their purposes.R.47.1 Characteristics of a Financial MarketLos l. describe the objectives of market regulation.Problems when there are no regulations Fraud and theft: the potential for theft and theft fraud increases because investment managers take advantage of unsophisticated investors. Objectives of market regulations Protect unsophisticated investors. Require minimum standards of competency to make it easier to perform valuation.Characteristics of a well functioned financial Market• Complete markets: Savers receive a return, borrowers can obtain capital. markets hedgers can manage risks, and traders can acquire needed assets. • Operational efficiency: Trading costs are low. efficiency • Informational efficiency: Prices reflect fundamental information quickly. efficiency • Allocational efficiency: Capital is allocated to its most productive use. efficiencyInsider trading: Investors would exit the Prevent insiders from exploiting other trading market and thus reduced liquidity if they believe investors. traders with inside information will exploit them. Costly information: If obtaining information is information relatively expensive, markets will not be as informationally efficient and investors will not invest as much. Defaults: Parties might not honor their Defaults obligations in markets. Require common financial reporting requirements.Require minimum levels of capital so that participants will honor long-term commitments.17-161 17-100% Contribution Breeds Professionalism18-161 18-100% Contribution Breeds ProfessionalismOutlook of R.47 Market Organization and StructureR.47.2 Classification of assets and marketsR.47.1 Characteristics of a Financial Market R.47.2 Classification of assets and markets R.47.3 Organization of the securities market R.47.4 Instructions of transaction processes19-161 19-100% Contribution Breeds Professionalism20-161 20-100% Contribution Breeds ProfessionalismR.47.2 Classification of assets and marketsLos 47.b.c: Describe classification of assets and markets Classification of assets-Financial Assets• Security (Fixed income vs. Equity Securities ) Fixed income securities: make sure the borrowed funds can be repaid securities Bonds Generally long-term (with maturity longer than 10 years) Notes Bills Commercial paper Certificates of deposit Intermediate term (with maturity between 2 to 10 years) Short term (with maturity less than 1 year) Short term issued by firms (with maturity less than 1-2 years) Issued by banksR.47.2 Classification of assets and marketsClassification of assets-Financial Assets-Security• Security (Fixed income vs. Equity Securities ) Equity securities: represent ownership in a firm securities Common stock Residual claim on a firm’s assets. Dividends are paid only after interest is paid to debt holders and dividends are paid to preferred stockholders. Debt holders and preferred stockholders have priority over common stockholders in the event of firm liquidation Is an equity security with scheduled dividends that typically do not change over the security’s life and must be paid before any dividends on common stock may be paid. Are similar to options in that they give the holder the right to buy a firm’s equity shares (usually common stock) at a fixed exercise price prior to the warrant’s expiration.Preferred stockRepurchase agreements Borrower sells a high quality asset and has both the right and obligation to repurchase it (at a higher price) in the future. Repurchase agreements can be for terms as short as one day. Convertible debt21-161 21-WarrantsIs debt that an investor can exchange for a specified number of equity shares of the issuing firm100% Contribution Breeds Professionalism 22-161 22100% Contribution Breeds ProfessionalismR.47.2 Classification of assets and marketsClassification of assets-Financial Assets-Security• Security (Fixed income vs. Equity Securities ) Pooled investment vehicles: vehicles individual securities can be combined in pooled investment vehicles. Include mutual funds, depositories, and hedge funds. The investor’s ownership interests are referred to as shares, units, depository receipts, or limited partnership interests.R.47.2 Classification of assets and marketsClassification of assets-Financial Assets-Security• Security (Fixed income vs. Equity Securities ) Pooled investment vehicles: vehicles Mutual funds are pooled investment vehicles in which investors can purchase shares, either from the fund itself (open-end funds) or in the secondary market (closed-end funds) trade like closed-end funds, but have special provisions allowing conversion into individual portfolio securities, or exchange of portfolio shares for ETF shares, that keep their market prices close to the value of their proportional interest in the overall portfolio. represent a claim to a portion of a pool of financial assets such as mortgages, car loans, or credit card debt. organized as limited partnerships( investors limited partners; fund manager general partner). Hedge funds often use leverage. Hedge fund managers are compensated based on the amount of assets under management as well as on their investment results.100% Contribution Breeds ProfessionalismExchange-traded funds (ETFs) & exchange-traded notes (ETNs) Asset-backed securities Hedge funds23-161 23-100% Contribution Breeds Professionalism24-161 24-ExampleThe Standard & Poor's Depositary Receipts (SPDRs) is an investment that tracks the S&P 500 stock market index. Purchases and sales of SPDRs during an average trading day are best described as: A. primary market transactions in a pooled investment. B. secondary market transactions in a pooled investment. C. secondary market transactions in an actively managed investment.R.47.2 Classification of assets and marketsClassification of assets-Financial Assets• Derivative Contract: Contract are agreements between two parties that require some action in the future, such as exchanging an asset for cash. Forward contract Futures contracts Swap contracts Option contracts Insurance contracts Credit default swaps Is an agreement to buy or sell an asset in the future at a price specified in the contract at its inception Are similar to forward contracts except that they are standardized, and are traded on an exchange so that they are liquid investments. A series of forward contracts Gives its owner the right to buy or sell an asset at a specific exercise price at some specified time in the future. Pays a cash amount if a future event occurs. They are used to hedge against unfavorable, unexpected events. Are a form of insurance that makes a payment if an issuer defaults on its bonds.100% Contribution Breeds Professionalism25-161 25-100% Contribution Breeds Professionalism26-161 26-R.47.2 Classification of assets and marketsClassification of assets-Real Assets• Commodity: Commodity Commodities are goods like precious metals, industrial metals, agricultural products, energy products, and credits for carbon reduction that are traded in spot, forward, and futures markets. Note: Spot markets are for immediate delivery while forwards, futures, and options markets are for the future delivery of physical and financial assets.R.47.2 Classification of assets and marketsClassification of assets-Real Assets (Cont.)• Real Assets: Assets Examples of real assets are real estate, equipment, and machinery. Characteristics: Provide income, tax advantage, diversification benefits Entail substantial management costs Require substantial due diligence before investing Investor may choose to buy real assets indirectly: REIT (real estate investment trust) MLP (master limited partnership)27-161 27-100% Contribution Breeds Professionalism28-161 28-100% Contribution Breeds ProfessionalismR.47.2 Classification of assets and marketsLos e. compare the positions an investor can take in an asset Long Position• • An investor who owns an asset, or has the right or obligation under a contract to purchase an asset, is said to have a long position. Benefit form an increase in the priceR.47.2 Classification of assets and marketsShort Position• For a short-sale, the procedure is as below: Borrow the stock through your broker and simultaneously sell it in the market. Return the stocks upon your brokers request Maintain the proceeds of short-sales as collateral. • • • Benefit from a decrease in the price Unlike a long position, the potential loss of a short sale is unlimited Payment-in-lieu: the received dividends and interests must be paid back to the Payment- in- lieu investor who lent the stockStock Lender Div.29-161 29100% Contribution Breeds Professionalism 30-161 30-Deposit Short Seller Interest Broker100% Contribution Breeds ProfessionalismR.47.2 Classification of assets and marketsLeveraged Positions• Margin Requirement: the required equity position is called the margin requirement. Initial Margin: a minimum amount of equity at the time of a new margin purchase Maintenance Margin: is the investor’s required equity position in the Margin account. Margin Call: if an investor’s margin account balance falls below the Call maintenance margin, the investor will receive a margin call and will be required to either liquidate the position or bring the account back to its maintenance (minimum) margin requirementR.47 Leverage ratioLos f. 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 callLeverage ratioLeverage ratio=•value of the asset value of the equity positionPrice Triggering a Margin Call Margin Call Price for a Long Position⎛ 1 − IM ⎞ PL' = P0 ⎜ ⎟ ⎝ 1 − MM ⎠ Margin Call Price for a Short Position⎛ 1 + IM ⎞ PS' = P0 ⎜ ⎟ ⎝ 1 + MM ⎠31-161 31100% Contribution Breeds Professionalism 32-161 32100% Contribution Breeds ProfessionalismExampleA trader has purchased 200 shares of a non-dividend-paying firm on margin at a price of $50 per share. The leverage ratio is 2.5. Six months later, the trader sells these shares at $60 per share. Ignoring the interest paid on the borrowed amount and the transaction costs, what was the return to the trader during the six-month period? A. 20 percent.. B. 33.33 percent. C. 50 percent. The current price of a stock is $25 per share. You have $10,000 to invest. You borrow an additional $10,000 from your broker and invest $20,000 in the stock. If the maintenance margin is 30 percent, at what price will a margin call first occur? A. $9.62. B. $17.86. C. $19.71.33-161 33100% Contribution Breeds ProfessionalismR.47.2 Classification of assets and marketsLos i. describe the primary and secondary markets and explain how secondary markets support primary markets Classification of markets• Primary vs. Secondary markets Primary market: is the market where newly issued securities are sold. market Newly issued securities involve: IPO (initial public offerings): first-time issues by firms whose shares are not currently publicly traded. Seasoned offerings (secondary issues): new shares issued by firms whose shares are already trading in the marketplace. • Money vs. Capital markets • Traditional vs. Alternative markets34-161 34-100% Contribution Breeds ProfessionalismR.47.2 Classification of assets and marketsClassification of markets• Primary vs. Secondary markets • Money vs. Capital markets Money markets: refer to markets for debt securities with maturities of one markets year or less. Capital markets: refer to markets for longer-term debt securities and markets equity securities that have no specific maturity date. • Traditional vs. Alternative marketsR.47.2 Classification of assets and marketsClassification of markets• Primary vs. Secondary markets • Money vs. Capital markets • Traditional vs. Alternative markets Traditional investment markets: refer to markets for debt and equity. Alternative markets: refer to markets for hedge funds, commodities, real markets estate, collectibles, gemstones, leases, and equipment.35-161 35-100% Contribution Breeds Professionalism36-161 36-100% Contribution Breeds ProfessionalismOutlook of R.47 Market Organization and StructureR.47.3 Organization of the securities marketR.47.1 Characteristics of a Financial Market R.47.2 Classification of assets and markets R.47.3 Organization of the securities market R.47.4 Instructions of transaction processes37-161 37-100% Contribution Breeds Professionalism38-161 38-100% Contribution Breeds ProfessionalismR.47.3 Organization of the securities marketHow securities are sold through primary market• Sold Publicly : Underwritten Offering (the most common way) Best Efforts Indications of Interest • Sold Privately Private placement • Other transaction methods Shelf registration Dividend Reinvestment Plan Rights Offering Competitive bids Negotiated salesR.47.3 Organization of the securities marketHow securities are sold through primary market- Sold Publicly :• Difference between underwritten offering and best efforts Underwritten offering Obligated to buy the unsold portion Investment bank would prefer that the price be set low enough to gain more profit Best Efforts Not obligated to buy the unsold portion Investment bank sets the issue price as high as possible to raise the most funds for the issuer39-161 39-100% Contribution Breeds Professionalism40-161 40-100% Contribution Breeds ProfessionalismR.47.3 Organization of the securities marketHow securities are sold through primary market- Sold Publicly :• Indications of Interest Indications of interest: the investment bank finds investors who agree to interest buy part of the issue. This process of gathering indications of interest is called book building, building and the investment bank during this process is called book builder or book runner. runner If securities must be issued quickly, the process is called accelerated book building. buildingR.47.3 Organization of the securities marketHow securities are sold through primary market- Sold Privately :• Private placement Securities are sold directly to qualified investors, typically with the assistance of an investment bank. • Shelf registration In a shelf registration a firm makes its public disclosures as in a regular offering, but then issues the registered securities over time when it needs capital and when the markets are favorable. • Dividend Reinvestment Plan A dividend reinvestment plan (DRP or DRIP) allows existing shareholders to use their dividends to buy new shares from the firm at a slight discount. • Rights Offering In rights offering, existing shareholders are given the right to buy new shares at a discount to the current market price.41-161 41-100% Contribution Breeds Professionalism42-161 42-100% Contribution Breeds ProfessionalismExampleA German publicly traded company, to raise new capital, gave its existing shareholders the opportunity to subscribe for new shares. The existing shareholders could purchase two new shares at a subscription price of €4.58 per share for every 15 shares held. This is an example of a(n): A. rights offering. B. private placement. C. initial public offering.R.47.3 Organization of the securities marketSecondary Capital Markets• • The secondary market is the place where securities are traded after their initial offerings. The secondary market supports the primary market by providing: Liquidity Investors who buy stocks in the primary markets want to sell then again to acquire other securities such as risk free bonds and cash. Price discovery New issues of stocks and bonds are based on prices in the secondary markets.43-161 43-100% Contribution Breeds Professionalism44-161 44-100% Contribution Breeds ProfessionalismR.47.3 Organization of the securities marketSecondary Capital Markets• When securities are traded in a secondary market Call Markets Trading for individual stocks occurs at specific times. All bids and asks are gathered and then a negotiated price is produced to make the demand quantity as close as possible to the supply quantity. Continuous Markets Trades occur at any time when market is open. The price is determined either by an auction process or through a dealer bid-ask process. There are differences between dealer markets and an auction market in continuous markets.R.47.3 Organization of the securities marketLos j. describe how securities, contracts, and currencies are traded in quotedriven markets, order-driven markets and brokered markets; Secondary Capital Markets• How securities are traded in Secondary Markets Order-Driven Market Quote-Driven Market Brokered Markets45-161 45-100% Contribution Breeds Professionalism46-161 46-100% Contribution Breeds ProfessionalismR.47.3 Organization of the securities marketSecondary Capital Markets• • How securities are traded in Secondary Markets- Order-Driven Market Two sets of rules are used in these markets: Order matching rules: establish an order precedence hierarchy. Price priority: trades with the highest bid (buy) and lowest ask (sell) prices are traded first, this is so-called price priority. Secondary precedence rule: if orders are at the same prices, the earliest arriving orders are traded first. Trade pricing rules: are used to determine the price after orders are created using order matching rules. Under the uniform pricing rule, all orders trade at the same price, which is the price that results in the highest volume of trading. The discriminatory pricing rule uses the limit price of the order that arrived first as the trade price.47-161 47100% Contribution Breeds ProfessionalismR.47.3 Organization of the securities marketSecondary Capital Markets• How securities are traded in Secondary Markets Quote-Driven Market QuoteQuote-driven market is also referred to as a dealer market, a pricedriven market or an over-the-counter market. Individual dealers provide liquidity for investors by buying and selling the shares of stock for themselves. Numerous dealers compete against each other to provide the highest bid prices when investors are selling and the lowest asking price when investors are buying stock. Brokered Markets In brokered markets, brokers trade with the counterparty they find. This service is especially valuable when the trader has a security that is unique or illiquid.48-161 48100% Contribution Breeds Professionalism。
