CFA® Equity Valuation
Equity investments, that is, stocks, are probably the most familiar asset to investors worldwide. Whether public or private, equity capitalizes every business endeavor and is ubiquitous in investor portfolios. The nature and valuation of equity, along with equity markets, investments, and investors, are explored in this CFA topic area. As it progresses toward L3, equity valuation principles, models, and techniques become more of the focus of the curriculum. At each successive Program level, models and applications are explored in more depth and detail. In the L3 curriculum, the focus is more on equities’ role in portfolio management.
What to Expect in CFA Level 1 Equity Investments?
This topic explores information used to make investment recommendations and decisions. The uses of fundamental analysis are discussed as the basis for investment decisions. Methods for estimating a company’s intrinsic value are discussed in detail. Equity valuation also teaches about the functions and characteristics of a well-functioning financial system, market efficiency, and various approaches to valuing public and private equity.
CFA Equity Investments (EI) is a heavily weighted topic on the Level 1 exam and is not only fundamental to passing Level 1 but succeeding in the CFA Program overall.
The CFA Institute’s Level I Equity Investments topic has an exam weight of 10-12% of the total exam content so approximately 18-22 questions of the 180 CFA Level 1 exam questions focus on this topic.
|Topic Weight||No. of Learning Modules||No. of Formulas||No. of Questions|
Level 1 Equity Investments Syllabus, Readings and Changes
The 2023 CFA Level 1 Equity syllabus spans 6 learning modules and contains 63 LOS.
|No. of Learning Modules: 6||No. of LOS: 63|
A structural overview of financial markets and their operating characteristics is provided. Overview includes markets for equities, fixed income, derivatives, and alternative investments. Various asset types, market participants, and types of trades within these markets and ecosystems are described. The calculation, construction, and use of security market indexes are discussed together with market efficiency: how well market prices reflect available information.
The weight of the Equity Investments topic increased from 2019 to 2023. Since 2021, it has fluctuated between 10-12%. Please note that there are no changes in the CFA Level 1 Equity Investments curriculum. For a more comprehensive discussion of LOS visit the official CFAI Level 1 syllabus page.
Market Organization and Structure
This reading provides an overview of various types of markets and the actors who participate in them. The overview includes markets for equities, fixed income, derivatives, and alternative investments.
Security Market Indexes
This reading focuses on different types of indexes, how they are constructed, and what they are used for.
This reading presents a detailed discussion on whether and/or how effectively market prices reflect the intrinsic value of securities.
Overview of Equity Securities
This reading provides a qualitative analysis of the features that distinguish equity securities from other asset classes and their roles in the capital markets.
Industry and Company Analysis
This reading looks at the comparative frameworks that are commonly used to analyze corporate equities.
Equity Valuation: Concepts and Basic Tools
This reading introduces valuation models and their appropriate applications, with details about how investors’ estimates of intrinsic value can inform trading decisions.
CFA Equity Investments Level 1 Sample Questions and Answers
The sample questions are typical of the probing multiple-choice questions on the CFA L1 exam. During the exam, you have about 90 seconds to read and answer each question, carefully designed to test knowledge from the CFA Curriculum. UWorld’s question bank is built to expose you to exam-like questions and illustrate and explain the concepts tested thoroughly.
If a country’s security markets are semi-strong form efficient, an investor would most likely be able to generate abnormal returns using:
Expecting a recession, a portfolio manager changes the allocation in a client’s equity portfolio by overweighting consumer staples and utilities while underweighting industrials. The portfolio manager’s action is best described as:
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CFA Equity Portfolio Management Study Tips
- Much of the Level 3 material assumes the depths and breadths of the Levels 1 and 2 curricula, so a solid review may be in order, especially if you've taken some time off between exams.
- Plan to cover this material thoroughly based on its complexity and weight on the exam. The Level 3 exam is all about portfolio management, and equity is a serious component of any portfolio–and the exam.
- When CFA candidates have work experience in finance and/or investing, most often, it's in equity. But even if you've been in the business, don't skip this topic since it has a relatively high exam weight. Although Level 3 Equity focuses more on strategic uses of its asset class, you'll still have to do the math, so be prepared.
Frequently Asked Questions
The Equity Investments curriculum contains nearly 15 formulas in its learning modules, but there is quite a bit of “basic” information on markets and trading as well. Equity is often considered one of the most difficult and important topics of the CFA Level 1. However, past experience with equity valuation should provide an advantage.
After moving through a QBank the best method to monitor your current understanding of the content is to try mock exams. UWorld’s CFA Mock Exams closely replicate the actual CFA L1 exam experience to help you prepare and boost your confidence on test day. Like the actual CFA exam, our mock exams consist of two 2-hour, 15-minute sessions, each with 90 multiple-choice questions spanning multiple subjects that are not included in the standard QBank. Take a look at our CFA L1 Formula sheet page for further resources and tips.
In contrast to Level 1, Equity Valuation at Level 2 focuses on a wider range of topics and goes deeper into each over its 6 readings. It is often considered one of the most difficult and important topics of the CFA Level 2. Consider this when allocating study time to the readings.
In contrast to Level 2, Equity Portfolio Management on Level 3 focuses on managing portfolios. It is often considered one of the most difficult and important topics of the CFA Level 3. Consider this when allocating study time to the readings.
After working through a QBank, take mock exams. UWorld is releasing its CFA Level 3 test prep in 2023, which will closely replicate the actual CFA L3 exam experience.