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Chapter 1: Introduction to Equity Investments at Level II
- 1.1 Scope of Level II Equity Topics
- 1.2 Transition from Level I: Key Differences
- 1.3 Vignette-Style Question Strategies
- 1.4 Essential Terms and Concepts Review
Chapter 2: Equity Valuation—Applications and Processes
- 2.1 Defining Intrinsic Value and Mispricing
- 2.2 Going Concern vs. Liquidation Values
- 2.3 Relevance of Different Definitions of Value
- 2.4 Vignette Example: Selecting a Valuation Approach
Chapter 3: Return Concepts and Required Rates of Return
- 3.1 Estimating the Equity Risk Premium
- 3.2 Using CAPM, Expanded CAPM, and Other Models
- 3.3 Top-Down vs. Bottom-Up Return Estimation
- 3.4 Vignette Exercise: Determining Discount Rates
Chapter 4: Industry and Company Analysis—Foundations
- 4.1 Identifying Industry Structures and Classifications
- 4.2 Competitive Positioning and Five Forces Analysis
- 4.3 Sector-Specific Growth Drivers and Risks
- 4.4 Practice Vignette: Industry & Competitive Factors
Chapter 5: Equity Market Organization and Efficiency
- 5.1 Market Classification: Developed, Emerging, and Frontier
- 5.2 Market Efficiency vs. Behavioral Biases
- 5.3 Implications for Active and Passive Strategies
- 5.4 Vignette: Market Efficiency Debates
Chapter 6: Dividend Discount Models—Basic Concepts
- 6.1 The Rationale for Dividend-Based Valuation
- 6.2 Single-Period vs. Multi-Period DDM
- 6.3 Constant Growth (Gordon) Model
- 6.4 Practice Vignette: Single-Stage Dividend Scenarios
Chapter 7: Dividend Discount Models—Advanced
- 7.1 Two-Stage and Three-Stage Models
- 7.2 H-Model and Spreadsheet Modeling
- 7.3 Estimating Terminal Value in DDM
- 7.4 Vignette Drill: Multi-Stage Dividend Forecasting
Chapter 8: Free Cash Flow Valuation—Fundamentals
- 8.1 FCFF vs. FCFE: Concepts and Differences
- 8.2 Normalizing Earnings and Adjusting for Non-Recurring Items
- 8.3 Building a Basic Free Cash Flow Model
- 8.4 Practice Vignette: FCFE Calculation
Chapter 9: Free Cash Flow Valuation—Extended Techniques
- 9.1 Multi-Stage FCFF and FCFE Models
- 9.2 Forecasting Capital Expenditures and Working Capital
- 9.3 Sensitivity Analysis in FCF Valuation
- 9.4 Vignette Example: Two-Stage FCFE
Chapter 10: Market-Based Valuation—Price Multiples
- 10.1 P/E Ratios: Trailing, Forward, and PEG
- 10.2 Economic Rationale for P/B, P/S, and P/CF
- 10.3 Interpreting Multiples for Different Industries
- 10.4 Vignette: Choosing the Right Price Multiple
Chapter 11: Market-Based Valuation—Enterprise Value Multiples
- 11.1 EV/EBITDA and EV/EBIT: Calculations and Uses
- 11.2 Strengths and Weaknesses of EV-Based Measures
- 11.3 Unusual Adjustments and Normalization
- 11.4 Vignette Exercise: EV/EBITDA vs. P/E
Chapter 12: Residual Income Valuation—Overview
- 12.1 Economic Value Added (EVA) and Market Value Added (MVA)
- 12.2 Fundamental Principles of Residual Income Models
- 12.3 Relation to Book Value and Other Measures
- 12.4 Practice Vignette: Basic Residual Income Calculations
Chapter 13: Residual Income Valuation—Advanced Topics
- 13.1 Single-Stage vs. Multi-Stage Residual Income Models
- 13.2 Continuing Residual Income and Terminal Value
- 13.3 Adjusting for Off-Balance-Sheet Items
- 13.4 Vignette: Complex Residual Income Scenario
- 13.5 Challenges and Limitations in Residual Income Valuation
- 13.6 Best Practices in Implementation
Chapter 14: Private Company Valuation—Foundations
- 14.1 Unique Features of Private vs. Public Companies
- 14.2 Purposes and Contexts for Private Company Valuation
- 14.3 Adjustments to Financial Statements and Normalized Earnings
- 14.4 Vignette Setup: Identifying Key Private Data
Chapter 15: Private Company Valuation—Income Approach
- 15.1 Capitalized Cash Flow Models
- 15.2 Excess Earnings Method
- 15.3 Choosing a Discount Rate for Private Firms
- 15.4 Vignette Practice: CAPM vs. Build-Up Approach
Chapter 16: Private Company Valuation—Market Approach
- 16.1 Guideline Public Company Method (GPCM)
- 16.2 Guideline Transactions Method (GTM)
- 16.3 Equity vs. Enterprise Value Multiples
- 16.4 Vignette: Selecting Comparable Transactions
Chapter 17: Private Company Valuation—Asset-Based Approach
- 17.1 Book Value Adjustments and Fair Value Estimations
- 17.2 Liquidation Value vs. Going-Concern Value
- 17.3 Minority vs. Controlling Shareholder Perspectives
- 17.4 Vignette: Reconciling Asset-Based Estimates
Chapter 18: Discounts and Premiums in Private Valuation
- 18.1 Control Premium and Minority Discounts
- 18.2 Marketability and Liquidity Discounts
- 18.3 Empirical Evidence and Judgment in Practice
- 18.4 Practice Vignette: Applying Adjustments
Chapter 19: Real Options and Emerging Equity Techniques
- 19.1 Types of Real Options in Equity Valuation
- 19.2 Valuation Steps for Real Options
- 19.3 Impact on DCF, FCF, and Residual Income Approaches
- 19.4 Vignette: Strategic Project Decision Making
Chapter 20: Industry and Competitive Analysis—Deep Dive
- 20.1 Life Cycle, Growth, and Decline Phases
- 20.2 Macro and Micro Drivers of Equity Prices
- 20.3 Putting It All Together: Top-Down Framework
- 20.4 Vignette: Sector-Specific Valuation Signals
Chapter 21: Mergers, Acquisitions, and Equity Valuation
- 21.1 Effects of M&A on Target and Acquirer Equity
- 21.2 Synergies, Purchase Premiums, and Deal Structures
- 21.3 Examining EPS Accretion/Dilution in M&A Vignettes
- 21.4 Vignette Exercise: Valuing M&A Transactions
Chapter 22: Sum-of-the-Parts and Other Approaches
- 22.1 Evaluating Conglomerates and Holding Companies
- 22.2 Segment Valuation Techniques
- 22.3 Cross-Border and Emerging Market Considerations
- 22.4 Practice Vignette: Breaking Down a Multisegment Firm
- 22.5 Common Pitfalls and Practical Considerations
- 22.6 Synergies and Overlaps Among Segments
Chapter 23: ESG and Sustainability in Equity Valuation
- 23.1 Environmental, Social, and Governance Factors
- 23.2 Integrating ESG Data into Traditional Models
- 23.3 Impact on Cost of Equity and Risk Premiums
- 23.4 Vignette Analysis: ESG-Driven Investment Cases
Chapter 24: Equity in Emerging and Frontier Markets
- 24.1 Unique Risks: Political, Liquidity, and Currency
- 24.2 Approaches for Data Scarcity and Volatility
- 24.3 Adjusting WACC for Country Risk
- 24.4 Vignette: Valuing a Frontier Market Company
Chapter 25: Behavioral Biases and Equity Market Anomalies
- 25.1 Behavioral Finance and the Efficient Market Hypothesis
- 25.2 Common Biases Affecting Equity Valuation
- 25.3 Identifying and Exploiting Market Anomalies
- 25.4 Vignette: Behavioral Factors in Estimating Intrinsic Value
Chapter 26: Integrating Macroeconomic Analysis
- 26.1 GDP Growth, Inflation, and Interest Rates
- 26.2 Monetary and Fiscal Policy Impacts on Equity Valuation
- 26.3 Sector Rotations Linked to Economic Cycles
- 26.4 Vignette: Top-Down Forecasting and Equity Selection
Chapter 27: Risk Management in Equity Portfolios
- 27.1 Diversification, Beta, and Alpha Concepts
- 27.2 Value at Risk (VaR) for Equity Investments
- 27.3 Stress Testing and Scenario Analysis
- 27.4 Vignette Practice: Evaluating Portfolio Risk and Returns
Chapter 28: Active vs. Passive Equity Strategies
- 28.1 Fundamentals of Active Management
- 28.2 Indexing and ETF Innovations
- 28.3 Factor Investing (Smart Beta)
- 28.4 Vignette Example: Strategy Selection
Chapter 29: Performance Evaluation and Attribution
- 29.1 Calculating Portfolio Returns and Benchmarks
- 29.2 Attribution Analysis: Sector, Style, and Security Selection
- 29.3 Risk-Adjusted Performance Metrics (Treynor, Sharpe, IR)
- 29.4 Item Set: Identifying Sources of Alpha
- 29.5 GIPS (Global Investment Performance Standards) Overview
Chapter 30: Corporate Actions and Equity Prices
- 30.1 Stock Splits, Dividends, and Share Repurchases
- 30.2 Rights Issues and Dilution Effects
- 30.3 Corporate Announcements and Market Efficiency
- 30.4 Vignette Analysis: Corporate Actions and Valuation
Chapter 31: Multifactor Models for Equity
- 31.1 Macroeconomic Factor Models
- 31.2 Fundamental Factor Models
- 31.3 Statistical Factor Models and Limitations
- 31.4 Practice Vignette: Factor Exposures
Chapter 32: Advanced Data Considerations
- 32.1 Handling Outliers and Non-Stationary Data
- 32.2 Normalizing Financial Statements for Valuation
- 32.3 Identifying Quality of Earnings Concerns
- 32.4 Vignette Drill: Data Scrubbing Techniques
Chapter 33: Comprehensive Valuation Case Studies
- 33.1 Combining DDM, FCFE, and Multiples
- 33.2 Reconciling Different Valuation Approaches
- 33.3 Sensitivity and Scenario Analysis in Practice
- 33.4 Full Vignette: Holistic Company Valuation
Chapter 34: Mixed Item Set Exercises—Part 1
- 34.1 Industry & Company Analysis Drills
- 34.2 Private Company and Residual Income Combo
- 34.3 Behavioral Bias and Emerging Market Twist
- 34.4 Detailed Solutions and Explanations
Chapter 35: Mixed Item Set Exercises—Part 2
- 35.1 ESG-Heavy Scenario with Factor-Based Valuation
- 35.2 Complex M&A and Sum-of-the-Parts Valuation
- 35.3 Final Composite Vignette: End-to-End Equity Evaluation
- 35.4 Wrap-Up: Exam Day Strategies and Key Takeaways

Chapter 29: Performance Evaluation and Attribution

In this section

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.

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Chapter 28: Active vs. Passive Equity Strategies

Chapter 30: Corporate Actions and Equity Prices