Articles Posted in the " CFA Level 1 " Category

  • Reading 44 : Portfolio Risk and Return (P.2)

    4. Explain return generating models (including the market model) and their uses Return generating models are used to estimate the expected returns on risky securities based on specific factors. A simplified ⇒ The market model: Ri = ?i + ?i . Rm + ei Where:       i: Return on asset i, Rm : market return.      ?i: […]


  • Reading 44 : Portfolio Risk and Return (P.1)

    Describe the implications of combining a risk-free asset with a portfolio of risky assets 2. Explain the capital allocation line (CAL) and the capital market line (CML) The line of possible portfolio risk and return combinations given the risk-free rate and the risk and return of a portfolio of risky assets ⇒ Capital Allocation Line. […]


  • Reading 43: Portfolio Risk and Return (P.2)

    Correlation coefficient: ∈ (-1;1) ? = 1: deviations from the mean or expected return are always proportional in the same direction. They are perfectly positive correlated. ? =- 1: in opposite direction. Negative correlated. ? = 0: no linear relationship between 2 stock’s return. Uncorrelated.   4. Explain risk-aversion and its implications for portfolio selection […]


  • Reading 43: Portfolio Risk and Return (P.1)

      Calculate and interpret major return measures and describe their appropriate uses Holding period return (HPR) Average returns The arithmetic mean return is the simple average of a series of periodic returns. The geometric mean return is a compound annual rate. The money-weighted rate of return is the internal rate of return on a portfolio […]


  • Reading 41: The corporate Governance of listed companies: A manual for investors

    1. Define corporate governance   Corporate governance is the set of internal controls, processes and  procedures by which firms are managed. If defines the appropriate rights, roles and responsibilities of management, the board of directors and shareholders within an organization. Good corporate governance practices seek to ensure that: The board of directors protect shareholder interests. […]


  • Reading 40: Working capital management (P3)

    Inventory management Inventory levels are too low ⇒ lost sales due to stock-outs ⇒ insufficient to sale, produce. Inventory levels are too large ⇒ carrying costs, obsolete. Misleading when comparing average days of inventory & inventory turnover ratios between industries or two firms that have different business strategies. Ex: Grocery business need high inventory turnover, […]


  • Reading 40: Working capital management (P2)

    ⇒ High cash conversion cycles are considered undesirable. 4. Describe how different types of cash flows affect a company’s net daily cash position Daily cash position: uninvested cash is available to make routine purchase and pay expenses as they come due. Purposes: Sufficient cash on hand (sure daily cash position never negative) Avoid keeping excess […]


  • Reading 40:  Working capital management

      Describe primary and secondary sources of liquidity and factors that influence a company’s liquidity position Primary sources of liquidity are the sources of cash it uses in its normal day-to-day operations. The company’s cash balance result from selling goods and services, collection receivable and generating cash from other sources such as short-term investments. Typically […]


  • Reading 39: Dividends and repurchases: Basics (Cont.)

    3. Share repurchase methods A share repurchase is a transaction in which a company buys back shares of its own common stock. Company use 3 methods to repurchase shares: Buy in the open market: at the prevailing market price. A share repurchase is authorized by the board of directors for a certain number of shares. […]


  • Reading 39: Dividends and repurchases: Basics

      Describe regular cash dividends, extra dividends, stock dividends, stock splits and reverse stock splits, including their expected effect on shareholder’s wealth and a company’s financial ratios. Cash dividends are payments made to shareholders in a cash. They come in 3 firms: Regular dividends: occur when company pays out profits on a consistent schedule (quarterly). […]