Study Guide II

1. Book value vs. liquidation value vs. replacement cost*

2. Risk adjusted interest rate using the Capital Asset Pricing Model

3. Constant-growth dividend discount model

4. Two-stage dividend discount model

5. Relationship between price/earnings ratio and the return on equity

6. Problems with price/earnings analysis

7. Price/earnings analysis and the dividend discount model

8. Income statement, balance sheet, and statement of cash flows

9. Profitability measures – return on assets, return on capital, return on equity, economic value added

10. Leverage measures – interest burden, interest coverage, leverage, compound leverage factor

11. Asset utilization measures – total asset turnover, fixed asset turnover, inventory turnover, days sales in receivables

12. Liquidity measures – current ratio, quick ratio, cash ratio

13. Market price measures – market–to-book value, price earnings ratio

14. Errors in information processing*

15. Behavioral biases*

16.  Limits to arbitrage*

17. Measuring trends and corrections – moving averages, relative strength, breadth

18. Sentiment indicators – trin, confidence index, short interest, put/call ratio

19. Efficient market hypothesis

20. Versions of the efficient market hypothesis

21. Implications of efficient market hypothesis – technical analysis, fundamental analysis, active vs. passive portfolio management, allocation of resources*

22. Factors making it difficult to test efficient markets hypothesis*

23. Anomalies

24. Role of professional management in an efficient market*

*These items need to be known without the aid of notes.

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Recommended Problems

 Chapter 13 – 4, 5, 17, 23, CFA problem 4

Chapter 14 – 1, 14, CFA problem 6

Chapter 9 – 14, 15, 17, 21, 22, 23, 24

Chapter 8 – 10, 11, 12, 17, 18

Answers to recommended problems