Equity Investments

Online Guide with Free Quizzes

Elevate Your CFA® 2025 Level II Equity Investments Skills

Prepare more effectively for the CFA® 2025 Level II Equity Investments exam with our comprehensive, application-focused online guide.
Delve into complex valuation methods, sharpen your item-set expertise, and reinforce key concepts with 10 free quizzes on every page—all designed to mirror the real exam format. Plus, gain the flexibility to study anywhere with our iOS and Android apps.

📘 What’s Inside This Online Guide?

• Complete Coverage of CFA Level II Equity Investments

  • Dividend Discount Models (DDM), Free Cash Flow (FCF), and Residual Income approaches
  • Market-based valuation multiples: P/E, EV/EBITDA, P/B, P/S
  • Advanced private equity valuation, real options, ESG factors, and emerging market considerations
  • Sum-of-the-parts analysis, mergers and acquisitions, and cross-border valuation strategies

• Vignette-Focused Learning

  • Step-by-step methods for dissecting and interpreting equity item sets
  • Realistic practice scenarios that emphasize critical thinking and problem-solving
  • Proven time management techniques to tackle long and complex vignettes

• 💡 Free Interactive Quizzes

  • Ten focused questions per page to solidify your understanding
  • Immediate, in-depth feedback for every answer
  • Unlimited access to sharpen your equity valuation skills

• App Access for On-the-Go Study

  • Practice queries anytime with our dedicated iOS and Android apps
  • Sync progress for a seamless learning experience across devices

Why Choose This Guide?

• CFA Institute-Approved Curriculum Alignment: Reflecting the most up-to-date 2025 guidelines
• Practical Insights and Real-World Relevance: Discover how equity valuation theories play out in real markets
• Enhanced Exam Techniques: Get proven strategies for reading tables, parsing footnotes, and spotting tricky details
• Expert-Prepared: Built by CFA charterholders and investment professionals who understand your challenge

Who Should Use This Guide?

• CFA Level II Candidates aiming for advanced mastery in Equity Investments
• Study groups or instructors seeking reliable, in-depth practice content
• Finance students wanting a deeper dive into equity valuation methods
• Professionals aiming to refine valuation and analytical skills for real-world application

Start Practicing Now – It’s Free!

Confidently approach advanced equity valuation, growth analysis, and ESG integration.
Explore the guide and attempt free quizzes today!

Step Up Your Equity Investments Game

Whether you’re tackling multi-stage discounted cash flow models, investigating industry-specific performance metrics, or decoding complex merger scenarios, this guide will supercharge your CFA Level II preparedness. Pair it with our free quizzes for a powerful, exam-focused study plan.

Tags: CFA Level II Equity Investments, CFA 2025 Equity Valuation, CACF, FCF modeling, ESG factors, emerging markets, item set practice, free quizzes, iOS study app, Android study app, online guide

In this section

• Chapter 1: Introduction to Equity Investments at Level II
  • Scope of Level II Equity Topics
    Explore the expanded range of Equity Investments at CFA Level II—covering advanced valuation, in-depth analysis of real-world data, and application-focused exam strategies.
  • Transition from Level I: Key Differences
    Explore key distinctions between CFA Level I and Level II in Equity Investments, focusing on deeper valuation approaches, item set complexities, and the critical shift from calculation-based to analytical thinking.
  • Vignette-Style Question Strategies
    Master the efficiency and precision needed to tackle CFA Level II vignettes by learning how to identify, interpret, and apply key data amid extraneous details.
  • Essential Terms and Concepts Review
    A detailed refresher of the core equity valuation definitions and formulas, linking foundational Level I ideas to more advanced Level II applications.
• Chapter 2: Equity Valuation—Applications and Processes
  • Defining Intrinsic Value and Mispricing
    Explore the fundamentals of intrinsic value, how to detect security mispricing, and how market efficiency factors into valuation in this comprehensive CFA Level II guide.
  • Going Concern vs. Liquidation Values
    Explore how going concern and liquidation valuations differ, when each approach applies, and how they impact equity valuation analysis for CFA® Level II candidates.
  • Relevance of Different Definitions of Value
    Explore how fair market value, investment value, synergies, and more interact in equity valuation, and learn why each definition matters for diverse financial contexts.
  • Vignette Example: Selecting a Valuation Approach
    How to determine the most appropriate valuation methodology under various company-specific, industry, and macroeconomic conditions using vignette-style scenarios.
• Chapter 3: Return Concepts and Required Rates of Return
  • Estimating the Equity Risk Premium
    Explore core methods and best practices for estimating the equity risk premium, from historical averages to forward-looking approaches, including supply-side and implied models.
  • Using CAPM, Expanded CAPM, and Other Models
    An in-depth exploration of CAPM, beta, expanded CAPM approaches, and multifactor models for estimating required returns in equity valuation.
  • Top-Down vs. Bottom-Up Return Estimation
    Explore two powerful methods for forecasting equity returns—Top-Down vs. Bottom-Up—and learn how to combine macroeconomic insights with detailed company analysis for more robust portfolio decisions.
  • Vignette Exercise: Determining Discount Rates
    Learn how to parse vignette-style scenarios to calculate discount rates for equity valuation using CAPM, expanded models, and risk-adjusted methods.
• Chapter 4: Industry and Company Analysis—Foundations
  • Identifying Industry Structures and Classifications
    Learn how major industry classification systems like GICS and ICB shape equity analysis, explore macro-to-sub-industry breakdowns, and discover best practices for handling evolving business models in CFA Level II portfolios.
  • Competitive Positioning and Five Forces Analysis
    Delve into Porter’s Five Forces framework and advanced strategic positioning techniques to assess industry competitiveness, profitability potential, and the implications for equity valuation.
  • Sector-Specific Growth Drivers and Risks
    Explore how macroeconomic, demographic, technological, and regulatory factors shape sector growth and create unique risks for equity investments.
  • Practice Vignette: Industry & Competitive Factors
    Explore a mini-case study analyzing a tech hardware firm entering the semiconductor industry. Learn how to classify the company, apply Porter’s Five Forces, identify sector growth drivers and risks, and summarize key takeaways for competitive outlook and equity valuation.
• Chapter 5: Equity Market Organization and Efficiency
  • Market Classification: Developed, Emerging, and Frontier
    Explore how equity markets are categorized based on market size, liquidity, regulatory environment, and economic development. Learn about developed, emerging, and frontier distinctions, and how these classifications affect investment strategies, risk assessment, and capital flows.
  • Market Efficiency vs. Behavioral Biases
    Explore the Efficient Market Hypothesis and examine the impact of behavioral biases on equity prices.
  • Implications for Active and Passive Strategies
    Explore how market efficiency influences active versus passive equity strategies, covering cost considerations, behavioral biases, and emerging factor investing trends.
  • Vignette: Market Efficiency Debates
    Explore market efficiency questions in the context of emerging markets, weighing active strategies, behavioral biases, and risk-return tradeoffs in a CFA-style vignette scenario.
• Chapter 6: Dividend Discount Models—Basic Concepts
  • The Rationale for Dividend-Based Valuation
    Learn why dividends sit at the heart of certain valuation approaches, how they influence intrinsic value, and how CFA Level II candidates can effectively apply Dividend Discount Models (DDMs).
  • Single-Period vs. Multi-Period DDM
    Discover how to value stocks using dividend discount models (DDMs) over a single period or multiple periods. Learn key formulas, assumptions, common pitfalls, and practical examples to help you tackle CFA Level II equity valuation questions.
  • Constant Growth (Gordon) Model
    Learn how to apply the Gordon Growth Model (GGM) to value equity investments by assuming perpetual, constant dividend growth. Explore key assumptions, best practices, and common pitfalls for exam success.
  • Practice Vignette: Single-Stage Dividend Scenarios
    A practical deep dive into using the Gordon Growth Model with stable dividend assumptions, complete with step-by-step examples, insights, and a guided vignette for real-world application.
• Chapter 7: Dividend Discount Models—Advanced
  • Two-Stage and Three-Stage Models
    Explore the intricacies of multi-stage dividend discount models, including two-stage and three-stage variants, and learn how to value firms with different growth phases effectively.
  • H-Model and Spreadsheet Modeling
    Explore how the H-Model facilitates efficient dividend valuation during a gradual transition from high to steady growth, and learn advanced spreadsheet techniques for multi-stage DDM scenarios.
  • Estimating Terminal Value in DDM
    Discover how to project a company's long-term dividends and determine its final value portion within multi-stage dividend discount models, including key formulas, stress testing, and real-world applications.
  • Vignette Drill: Multi-Stage Dividend Forecasting
    Explore a practical, step-by-step approach to multi-stage dividend discount modeling in a CFA® Level II style vignette, focusing on transitioning growth phases, terminal values, and exam-day strategies.
• Chapter 8: Free Cash Flow Valuation—Fundamentals
  • FCFF vs. FCFE: Concepts and Differences
    A thorough exploration of Free Cash Flow to the Firm (FCFF) versus Free Cash Flow to Equity (FCFE), focusing on key formulas, valuation methodologies, and real-world applications.
  • Normalizing Earnings and Adjusting for Non-Recurring Items
    Learn how to carefully remove non-recurring items, smooth out anomalous revenue or expenses, and arrive at a sustainable long-term earnings figure for more accurate free cash flow valuations.
  • Building a Basic Free Cash Flow Model
    Explore the fundamentals of constructing a clear and practical free cash flow model, including forecast horizons, revenue projections, cost analysis, Capex, and terminal value calculation.
  • Practice Vignette: FCFE Calculation
    Explore a detailed, step-by-step scenario on calculating Free Cash Flow to Equity (FCFE), crucial for equity valuation. Understand non-cash charges, working capital changes, capital expenditures, and debt financing adjustments using a fictional company's data. Dive deeper into best practices, potential pitfalls, and exam-style questions that empower your CFA Level II Equity Investments knowledge.
• Chapter 9: Free Cash Flow Valuation—Extended Techniques
  • Multi-Stage FCFF and FCFE Models
    Explore multi-stage free cash flow valuation models for equity analysis, focusing on varying growth phases, discount rates, and terminal value estimation. This comprehensive guide covers essential steps, best practices, illustrative examples, and a quiz to test your understanding.
  • Forecasting Capital Expenditures and Working Capital
    Learn how to accurately project CapEx and working capital for free cash flow valuation, integrating growth and maintenance spending, depreciation, and working capital assumptions in a cohesive financial model.
  • Sensitivity Analysis in FCF Valuation
    Explore how changes in key assumptions like growth rates, discount rates, and terminal value assumptions can dramatically affect Free Cash Flow (FCF) valuations, illustrated through scenarios, simulations, and practical case studies.
  • Vignette Example: Two-Stage FCFE
    Learn how to apply the two-stage Free Cash Flow to Equity (FCFE) model through a practical, exam-focused vignette that walks you through growth phase transitions, terminal value computations, and equity valuation under changing capital structures.
• Chapter 10: Market-Based Valuation—Price Multiples
  • P/E Ratios: Trailing, Forward, and PEG
    A comprehensive look at how Price-to-Earnings (P/E) multiples are calculated and interpreted, exploring trailing P/E, forward P/E, and the PEG ratio in market-based valuation.
  • Economic Rationale for P/B, P/S, and P/CF
    Discover why analysts rely on alternative price multiples—P/B, P/S, and P/CF—to assess valuation in scenarios where earnings may be misleading or insufficient.
  • Interpreting Multiples for Different Industries
    A comprehensive, real-world guide to interpreting key valuation multiples across different industries, focusing on cyclical sectors, asset-heavy companies, and R&D-intensive firms.
  • Vignette: Choosing the Right Price Multiple
    Learn how to evaluate companies and industries to select the most appropriate price multiple—P/E, P/B, P/S, or P/CF—in a real-world, exam-style vignette context.
• Chapter 11: Market-Based Valuation—Enterprise Value Multiples
  • EV/EBITDA and EV/EBIT: Calculations and Uses
    Explore how Enterprise Value multiples such as EV/EBITDA and EV/EBIT function in equity valuation, with formulas, examples, best practices, and exam-focused insights for CFA Level II.
  • Strengths and Weaknesses of EV-Based Measures
    Explore the pros and cons of enterprise value-based multiples, their application in equity valuation, and practical tips for CFA Level II vignettes.
  • Unusual Adjustments and Normalization
    Discover how to refine enterprise value multiples by adjusting for unusual or one-time items, ensuring truly representative valuation metrics in equity analysis.
  • Vignette Exercise: EV/EBITDA vs. P/E
    Explore how capital structure and depreciation schedules shape EV/EBITDA versus P/E valuations in a hands-on industrial equipment manufacturing case study.
• Chapter 12: Residual Income Valuation—Overview
  • Economic Value Added (EVA) and Market Value Added (MVA)
    Discover how EVA and MVA capture a firm’s ability to generate value above and beyond the costs of capital, and how these measures can guide performance evaluation and investor decisions.
  • Fundamental Principles of Residual Income Models
    Discover how residual income captures a firm's net income in excess of the cost of equity, leveraging the Clean Surplus Relation and a unique valuation framework distinct from dividend discount models.
  • Relation to Book Value and Other Measures
    Understand how residual income leverages a firm's book value to measure intrinsic equity value, and see how it compares with other valuation methodologies.
  • Practice Vignette: Basic Residual Income Calculations
    Dive into an engaging vignette illustrating the step-by-step process of residual income modeling, from equity charges to long-term growth assumptions, culminating in a hands-on valuation approach.
• Chapter 13: Residual Income Valuation—Advanced Topics
  • Single-Stage vs. Multi-Stage Residual Income Models
    Explore how single-stage and multi-stage residual income models differ, their key assumptions, and practical applications for valuing equity. Learn best practices, pitfalls, and strategic exam approaches.
  • Continuing Residual Income and Terminal Value
    Explore how abnormal returns extend beyond the forecast period in residual income models, learn to estimate terminal values underpinning continuing RI, and evaluate the persistence of competitive advantages over time.
  • Adjusting for Off-Balance-Sheet Items
    Learn how to identify and recast off-balance-sheet items in residual income valuation, including operating leases, SPEs, intangible assets, and more.
  • Vignette: Complex Residual Income Scenario
    Explore a multi-stage residual income valuation with intangible assets, partial year adjustments, brand intangibles, and continuing value fade in this advanced equity valuation vignette.
  • Challenges and Limitations in Residual Income Valuation
    Understand the various accounting, forecasting, and operational obstacles that can arise in applying residual income-based equity valuation methods.
  • Best Practices in Implementation
    Explore essential best practices for implementing advanced residual income valuation models, including cross-verification, scenario testing, regular updates, thorough documentation, and peer review.
• Chapter 14: Private Company Valuation—Foundations
  • Unique Features of Private vs. Public Companies
    Learn how private firms differ from their public counterparts in valuation data availability, ownership structures, liquidity, and governance, exploring the extra challenges and opportunities that arise from these distinctions.
  • Purposes and Contexts for Private Company Valuation
    Discover why private company valuations are performed, how different valuation standards and contexts can influence outcomes, and the key reasons owners, investors, and regulators often require these valuations.
  • Adjustments to Financial Statements and Normalized Earnings
    Learn how to adjust private company financial statements, identify non-operating items, normalize expenses, and derive sustainable earnings for accurate valuation.
  • Vignette Setup: Identifying Key Private Data
    Explore how to systematically identify and gather essential financial and operational information from a mid-sized, family-owned private enterprise for valuation purposes.
• Chapter 15: Private Company Valuation—Income Approach
  • Capitalized Cash Flow Models
    Master single-stage valuation for private firms with stable growth assumptions, featuring the capitalized cash flow methodology for streamlined and practical valuations.
  • Excess Earnings Method
    Learn how to allocate and capitalize a firm's intangible assets by isolating earnings that exceed a fair return on tangibles, a key method for private company valuation.
  • Choosing a Discount Rate for Private Firms
    Learn how to determine the right discount rate for private firm valuation, considering additional risks beyond public companies.
  • Vignette Practice: CAPM vs. Build-Up Approach
    Explore how to apply CAPM and the Build-Up Approach for private company valuation, including step-by-step guidance, real-world examples, and vignette practice exercises.
• Chapter 16: Private Company Valuation—Market Approach
  • Guideline Public Company Method (GPCM)
    Learn how to apply the Guideline Public Company Method (GPCM) to value private firms by referencing market multiples, normalizing financial data, and incorporating discounts or premiums.
  • Guideline Transactions Method (GTM)
    Explore how the Guideline Transactions Method leverages recent M&A deal data to value private companies, adjusting for control premiums, synergy influences, and market conditions.
  • Equity vs. Enterprise Value Multiples
    A comprehensive look at comparing equity-based multiples (like P/E, P/B) and enterprise-value multiples (e.g., EV/EBITDA, EV/EBIT), with a focus on private company valuation, capital structure differences, synergy-based negotiations, and exam-oriented best practices.
  • Vignette: Selecting Comparable Transactions
    Explore how to identify and adjust relevant M&A deals for a robust market-based valuation of private companies, focusing on the nuances of synergy potential, growth rates, and intangible assets.
• Chapter 17: Private Company Valuation—Asset-Based Approach
  • Book Value Adjustments and Fair Value Estimations
    Learn how to adjust private company balance sheets from book value to fair value, including tangible and intangible asset revaluations, off-balance-sheet items, and sensitivity analyses under IFRS 13 and U.S. GAAP.
  • Liquidation Value vs. Going-Concern Value
    Comparing liquidation-based valuations with ongoing operational assumptions, focusing on distressed conditions, forced sales, synergy, and advanced private company valuation techniques.
  • Minority vs. Controlling Shareholder Perspectives
    Explore how control premiums, minority discounts, and marketability adjustments impact the asset-based valuation of private companies, with practical examples, diagrams, and exam-style questions.
  • Vignette: Reconciling Asset-Based Estimates
    Discover how to adjust, compare, and reconcile asset-based valuations under going-concern and liquidation scenarios in private company valuation, with a particular focus on intangible assets, control factors, and scenario-based assumptions.
• Chapter 18: Discounts and Premiums in Private Valuation
  • Control Premium and Minority Discounts
    Understand why controlling stakes in private firms often command higher prices, while minority positions may trade at a discount, and learn practical methods to estimate and apply these valuation adjustments.
  • Marketability and Liquidity Discounts
    Explore the key drivers and valuation impacts of marketability and liquidity discounts in private company valuation, with practical examples, study approaches, and best practices for CFA Level II candidates.
  • Empirical Evidence and Judgment in Practice
    Learn how empirical data, judgment, and market cycles influence discounts and premiums in private company valuation, including real-world examples, case studies, and best practices for CFA® Level II exam readiness.
  • Practice Vignette: Applying Adjustments
    Comprehensive guide to applying minority and marketability discounts in private valuations for a family-owned business scenario.
• Chapter 19: Real Options and Emerging Equity Techniques
  • Types of Real Options in Equity Valuation
    Explore how real options add strategic, flexible decision-making value in equity valuation, focusing on expansion, abandonment, deferral, contract, and switching options.
  • Valuation Steps for Real Options
    A practical guide to identifying and valuing real options using DCF, binomial trees, Black-Scholes, and sensitivity analysis, with emphasis on integrating these option values into equity valuation.
  • Impact on DCF, FCF, and Residual Income Approaches
    Explore how real options can influence traditional Discounted Cash Flow, Free Cash Flow, and Residual Income valuations to capture strategic flexibility, growth potential, and risk considerations beyond standard models.
  • Vignette: Strategic Project Decision Making
    Explore how real options and strategic decision points can enhance project valuation, featuring a practical binomial model and key exam insights.
• Chapter 20: Industry and Competitive Analysis—Deep Dive
  • Life Cycle, Growth, and Decline Phases
    Explore the five key stages of the industry life cycle—introduction, growth, shakeout, maturity, and decline—and learn how to integrate qualitative and quantitative signals to refine equity valuations and analysis.
  • Macro and Micro Drivers of Equity Prices
    Explore how economic forces, industry conditions, and company-specific catalysts drive equity prices. Learn to integrate macro forecasts with micro-level insights for robust equity valuations.
  • Putting It All Together: Top-Down Framework
    Explore how to synthesize macroeconomic, regional, industry, and company-level insights into a cohesive equity valuation approach.
  • Vignette: Sector-Specific Valuation Signals
    Explore a top-down valuation scenario spanning technology, energy, and consumer staples. Learn macro impact, sector-specific risk factors, and scenario-based modeling to arrive at fair values.
• Chapter 21: Mergers, Acquisitions, and Equity Valuation
  • Effects of M&A on Target and Acquirer Equity
    Explore how mergers and acquisitions impact share prices, ownership structure, and performance for both target and acquirer firms. Learn about immediate market reactions, dilution, deal financing, post-merger integration, and regulatory considerations to master M&A equity valuation at CFA Level II.
  • Synergies, Purchase Premiums, and Deal Structures
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  • Examining EPS Accretion/Dilution in M&A Vignettes
    Gain a practical understanding of how mergers and acquisitions can impact an acquirer’s earnings per share, including key calculation steps, synergy assumptions, financing effects, and typical exam pitfalls for CFA Level II candidates.
  • Vignette Exercise: Valuing M&A Transactions
    Explore key strategies for modeling synergies, integration costs, and valuation premiums in M&A deals, complete with a practical case vignette and sample exam questions.
• Chapter 22: Sum-of-the-Parts and Other Approaches
  • Evaluating Conglomerates and Holding Companies
    Comprehensive insights into the approach and challenges of valuing conglomerates and holding companies, with emphasis on sum-of-the-parts analysis, governance structures, and scenario-based techniques.
  • Segment Valuation Techniques
    Learn how to value each business segment individually, adjust for synergies and overhead, and arrive at a comprehensive sum-of-the-parts appraisal for multi-division companies.
  • Cross-Border and Emerging Market Considerations
    Explore key challenges, methodologies, and best practices in valuing multinational conglomerates and emerging market segments using a sum-of-the-parts approach. Learn how to incorporate country-specific risk premiums, regulatory differences, and exchange rate assumptions into discount rates while managing data reliability, transfer pricing, and local valuation nuances.
  • Practice Vignette: Breaking Down a Multisegment Firm
    An in-depth exploration of sum-of-the-parts valuation for multi-segment companies. Learn overhead allocation, synergy, cross-border discount rates, and final equity calculations using best-practice approaches for the CFA Level II exam.
  • Common Pitfalls and Practical Considerations
    Learn how to avoid double counting, manage intercompany transactions, and handle intangible assets when performing sum-of-the-parts valuations, with tips on reconciling segment data, maintaining consistent discount rates, and tackling real-world challenges in valuation.
  • Synergies and Overlaps Among Segments
    Learn how operating, financial, managerial, and revenue synergies interact in multi-segment firms, how to quantify them, and how to incorporate negative synergy effects into valuations.
• Chapter 23: ESG and Sustainability in Equity Valuation
  • Environmental, Social, and Governance Factors
    Explore how Environmental, Social, and Governance pillars inform equity valuation, the materiality principle, and evolving ESG regulations, with real-world examples and best practices for CFA Level II exam success.
  • Integrating ESG Data into Traditional Models
    Learn how to enhance your equity valuation by incorporating ESG data, from adjusting DCF models to calibrating multiples and cost of capital, with real-world examples, best practices, and a practical quiz.
  • Impact on Cost of Equity and Risk Premiums
    Explore how ESG factors alter a company's cost of equity, from theoretical CAPM adjustments to real-world risk premium impacts, with in-depth examples and best practices.
  • Vignette Analysis: ESG-Driven Investment Cases
    Discover a step-by-step approach to analyzing ESG-driven challenges and opportunities in equity valuation, focusing on practical tactics, potential pitfalls, and real-world examples for successful exam performance.
• Chapter 24: Equity in Emerging and Frontier Markets
  • Unique Risks: Political, Liquidity, and Currency
    Explore the distinct challenges and risks that emerging and frontier market equities pose to investors, focusing on political instability, liquidity constraints, and currency volatility. Learn how these factors influence equity valuations and required returns.
  • Approaches for Data Scarcity and Volatility
    Learn how to tackle limited and unreliable data in emerging and frontier markets. Explore alternative data sources, proxies, smoothing techniques, and advanced statistical tools to handle high volatility effectively.
  • Adjusting WACC for Country Risk
    Explore how to modify the weighted average cost of capital (WACC) in emerging and frontier markets by incorporating country risk premiums, sovereign spreads, and advanced multi-factor approaches.
  • Vignette: Valuing a Frontier Market Company
    Explore how to value a hypothetical manufacturing firm operating in a frontier market, accounting for country risk premiums, currency devaluation, and multi-stage growth dynamics.
• Chapter 25: Behavioral Biases and Equity Market Anomalies
  • Behavioral Finance and the Efficient Market Hypothesis
    Explore how investor psychology challenges traditional views of market efficiency. Understand forms of EMH, bounded rationality, prospect theory, and biases that shape equity pricing.
  • Common Biases Affecting Equity Valuation
    Explore how common cognitive and emotional biases impact equity valuation decisions and learn practical mitigation strategies.
  • Identifying and Exploiting Market Anomalies
    Explore how market anomalies challenge the Efficient Market Hypothesis, uncover the behavioral biases that sustain them, and learn practical strategies to capture excess returns while managing risks in equity investing.
  • Vignette: Behavioral Factors in Estimating Intrinsic Value
    Explore how investor biases influence equity valuation, with a mid-cap technology case study highlighting overconfidence, confirmation bias, euphoria, and the importance of rigorous fundamentals-based analysis.
• Chapter 26: Integrating Macroeconomic Analysis
  • GDP Growth, Inflation, and Interest Rates
    Explore how economic indicators—particularly GDP growth, inflation, and interest rates—shape equity markets, and discover analytical tools for integrating these macro variables into equity valuation models.
  • Monetary and Fiscal Policy Impacts on Equity Valuation
    Explore how monetary and fiscal policies shape equity valuation through interest rate changes, government spending, and investor sentiment, with real-world examples and exam-focused insights.
  • Sector Rotations Linked to Economic Cycles
    Explore how to align equity sector decisions with macroeconomic phases, leveraging leading indicators, portfolio allocation tips, and practical CFA exam strategies.
  • Vignette: Top-Down Forecasting and Equity Selection
    Learn how macroeconomic indicators, policy outlooks, and industry trends converge to shape top-down forecasts and influence equity selection decisions.
• Chapter 27: Risk Management in Equity Portfolios
  • Diversification, Beta, and Alpha Concepts
    Explore how diversification reduces unsystematic risk, learn about beta as a metric of market sensitivity, and uncover alpha generation strategies to enhance portfolio performance.
  • Value at Risk (VaR) for Equity Investments
    Explore how VaR quantifies potential equity losses at specific confidence levels, including main calculation methods, assumptions, limitations, and practical applications.
  • Stress Testing and Scenario Analysis
    Explore the nuances of stress testing and scenario analysis in equity portfolios, focusing on advanced risk management techniques, real-world applications, and best practices for finance professionals and CFA Level II candidates.
  • Vignette Practice: Evaluating Portfolio Risk and Returns
    Explore a realistic equity portfolio scenario that examines sector exposures, risk management metrics, VaR simulations, and strategic actions to optimize return and control risk.
• Chapter 28: Active vs. Passive Equity Strategies
  • Fundamentals of Active Management
    Explore the core principles of active management—alpha generation, market timing, manager skill evaluation, risk controls, and behavioral biases—in a practical and slightly informal guide for CFA candidates and curious investors.
  • Indexing and ETF Innovations
    Explore how indexing strategies and ETF innovations reshape passive investing, including various index constructions, ETF creation and redemption mechanisms, and cutting-edge fund structures for diverse market exposures.
  • Factor Investing (Smart Beta)
    Explore how factor-based investing, or Smart Beta, systematically targets drivers of return such as value, momentum, quality, low volatility, and size to blend active-like performance potential with passively oriented rules-based execution.
  • Vignette Example: Strategy Selection
    Explore how a mid-sized pension fund compares active growth-focused management versus passive broad-market indexing, weighing fees, risk, market efficiency, and long-term performance.
• Chapter 29: Performance Evaluation and Attribution
  • Calculating Portfolio Returns and Benchmarks
    Discover the key methods for evaluating portfolio performance and selecting appropriate benchmarks, covering Time-Weighted and Money-Weighted Returns, Geometric vs. Arithmetic Means, and the SAMURAI benchmark criteria.
  • Attribution Analysis: Sector, Style, and Security Selection
    Learn how to dissect excess returns through sector, style, and security-level performance attribution, covering allocation, selection, and interaction effects in equity portfolios.
  • Risk-Adjusted Performance Metrics (Treynor, Sharpe, IR)
    Learn how to evaluate portfolio performance by adjusting returns for different forms of risk, and understand real-world applications of Treynor, Sharpe, Jensen's Alpha, Information Ratio, and M2.
  • Item Set: Identifying Sources of Alpha
    Discover how to identify and evaluate skill-based returns in equity portfolios. Learn to dissect benchmark relative performance, decompose return drivers, and apply risk-adjusted metrics to pinpoint true alpha in the CFA performance evaluation context.
  • GIPS (Global Investment Performance Standards) Overview
    A comprehensive guide to understanding GIPS compliance, its core principles, and its importance for fair and consistent performance reporting in equity investments.
• Chapter 30: Corporate Actions and Equity Prices
  • Stock Splits, Dividends, and Share Repurchases
    Explore how corporate actions like stock splits, dividends, and share repurchases influence equity valuation, market perception, and financial ratios.
  • Rights Issues and Dilution Effects
    In-depth exploration of rights issues, how they're structured, why companies use them, and their impact on ownership dilution, share price, and long-term valuation.
  • Corporate Announcements and Market Efficiency
    Discover how corporate announcements like earnings guidance, mergers, and leadership changes shape stock price behavior under semi-strong market efficiency.
  • Vignette Analysis: Corporate Actions and Valuation
    Explore how corporate actions like share splits, dividends, share repurchases, and rights issues can affect equity valuation, featuring advanced item-set vignettes and practical scenario modeling insights.
• Chapter 31: Multifactor Models for Equity
  • Macroeconomic Factor Models
    Explore how macroeconomic factor models elucidate equity market returns through sensitivities to key economic indicators such as GDP, inflation, interest rates, and risk premia.
  • Fundamental Factor Models
    Explore how fundamental factor models identify company-specific traits—like P/E ratio or book-to-market ratio—to explain cross-sectional returns, and learn practical ways to apply them in equity investing.
  • Statistical Factor Models and Limitations
    Explore how statistical factor models, such as PCA-driven approaches, uncover hidden structures in large equity datasets and learn to interpret, implement, and manage their limitations for more effective investment analysis.
  • Practice Vignette: Factor Exposures
    Explore a detailed, real-world scenario on building, interpreting, and rebalancing equity portfolios with multiple factor exposures. Learn how macro, fundamental, and statistical factors converge to shape portfolio risk and return.
• Chapter 32: Advanced Data Considerations
  • Handling Outliers and Non-Stationary Data
    Learn how to identify, handle, and transform outliers and non-stationary datasets in equity valuation to ensure more reliable analysis and forecasts.
  • Normalizing Financial Statements for Valuation
    Learn how to adjust financial statements to reflect a company’s sustainable performance by removing one-time or extraordinary items, smoothing revenues and expenses, and ensuring comparability across peers.
  • Identifying Quality of Earnings Concerns
    Learn how to evaluate the reliability of reported earnings, identify red flags in financial statements, and protect your valuations from distorted data.
  • Vignette Drill: Data Scrubbing Techniques
    Explore real-world item set scenarios focusing on detecting and correcting inaccurate financial data, normalizing earnings, and spotting non-recurring items to build more reliable equity valuations.
• Chapter 33: Comprehensive Valuation Case Studies
  • Combining DDM, FCFE, and Multiples
    Explore how to blend Dividend Discount Model, Free Cash Flow to Equity, and multiple-based approaches for a robust equity valuation.
  • Reconciling Different Valuation Approaches
    Learn how to reconcile DDM, FCFE, and market-based methods into one cohesive valuation conclusion, covering weighting schemes, scenario analysis, qualitative overlays, and more.
  • Sensitivity and Scenario Analysis in Practice
    Explore how to apply sensitivity and scenario analysis in equity valuations, including practical techniques, best practices, and exam-relevant insights.
  • Full Vignette: Holistic Company Valuation
    Explore a comprehensive, step-by-step application of multiple equity valuation methods—DDM, FCFE, residual income, and market-based approaches—woven into a single, cohesive case study.
• Chapter 34: Mixed Item Set Exercises—Part 1
  • Industry & Company Analysis Drills
    Intensive item-set exercises testing top-down and bottom-up equity valuation approaches, advanced industry classification, macroeconomic impacts, Porter’s Five Forces, and strategic ratio analysis for nuanced sector and company insights.
  • Private Company and Residual Income Combo
    A comprehensive guide to combining private company valuation techniques with a residual income framework, highlighting normalization, cost of capital, and key adjustments like minority discounts and control premiums.
  • Behavioral Bias and Emerging Market Twist
    Explore how behavioral biases can affect equity valuations in emerging markets, including overconfidence, anchoring, and recency bias, and learn practical strategies for mitigating these pitfalls in environments with political risk, currency volatility, and incomplete data.
  • Detailed Solutions and Explanations
    Step-by-step item set solutions for equity valuation, focusing on partial-credit scoring, multi-method comparisons, and thorough answer reviews.
• Chapter 35: Mixed Item Set Exercises—Part 2
  • ESG-Heavy Scenario with Factor-Based Valuation
    Learn how to integrate ESG metrics into quantitative factor models, address data challenges, and perform scenario analysis in an equity valuation context.
  • Complex M&A and Sum-of-the-Parts Valuation
    Explore advanced approaches to synergy analysis, purchase premiums, cross-border deals, and Sum-of-the-Parts valuation to handle complex M&A item sets for CFA Level II.
  • Final Composite Vignette: End-to-End Equity Evaluation
    Explore a multi-faceted equity valuation scenario that integrates DDM, FCFE, residual income, market multiples, and top-down/bottom-up analyses.
  • Wrap-Up: Exam Day Strategies and Key Takeaways
    Consolidate your equity valuation expertise for CFA Level II, sharpen your time management, and finalize exam-day strategies. Focus on partial credit, advanced ESG and factor-based topics, synergy analysis, and the logic behind every calculation.