- CFA Exams
- 2022 Level II
- Study Session 9. Equity Valuation (1)
- Reading 25. Return Concepts
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Learning Outcome Statements PDF Download
| 1. Return concepts a. distinguish among realized holding period return, expected holding period return, required return, return from convergence of price to intrinsic value, discount rate, and internal rate of return; | |
| 2. The equity risk premium b. calculate and interpret an equity risk premium using historical and forward-looking estimation approaches; | |
| 3. The required return on equity - the CAPM approach c. estimate the required return on an equity investment using the capital asset pricing model, the Fama-French model, the Pastor-Stambaugh model, macroeconomic multifactor models, and the build-up method (e.g., bond yield plus risk premium); d. explain beta estimation for public companies, thinly traded public companies, and nonpublic companies; e. describe strengths and weaknesses of methods used to estimate the required return on an equity investment; f. explain international considerations in required return estimation; | |
| 4. The required return on equity - other models c. estimate the required return on an equity investment using the capital asset pricing model, the Fama-French model, the Pastor-Stambaugh model, macroeconomic multifactor models, and the build-up method (e.g., bond yield plus risk premium); d. explain beta estimation for public companies, thinly traded public companies, and nonpublic companies; e. describe strengths and weaknesses of methods used to estimate the required return on an equity investment; f. explain international considerations in required return estimation; | |
| 5. The weighted average cost of capital g. explain and calculate the weighted average cost of capital for a company; | |
| 6. Discount rate selection in relation to cash flows h. evaluate the appropriateness of using a particular rate of return as a discount rate, given a description of the cash flow to be discounted and other relevant facts. |
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