CFA Level 1 - Equity Investments & Valuation

Primary markets are where new securities are issued by companies (e.g., IPOs). Secondary markets are where previously issued securities are traded between investors.

Exchanges are organized marketplaces with physical locations or electronic systems (e.g., NYSE, NASDAQ) where securities are traded. OTC markets are decentralized dealer networks where trades occur directly between parties.

Represents ownership in a company, confers a residual claim on assets and earnings, typically includes voting rights, and offers potential for capital gains and dividends.

Offers fixed dividend payments, generally has no voting rights, and holds a higher claim on assets/earnings than common stock. Types include cumulative, non-cumulative, participating, and convertible.

An index where the weight of each security is determined by its price. Higher-priced stocks have a greater impact on the index's value. Example: Dow Jones Industrial Average (DJIA).

An index where the weight of each security is determined by its market capitalization. Larger companies have a greater impact on the index's value. Example: S&P 500.

The minimum return an investor expects for bearing the risk of an investment. Using the Capital Asset Pricing Model (CAPM): $R_e=R_f+\beta (R_m-R_f)$, where $R_f$ is the risk-free rate, $\beta$ is the stock's beta, and $(R_m-R_f)$ is the market risk premium.

A dividend discount model used to value a stock assuming dividends grow at a constant rate indefinitely. Formula: $V_0=\frac{D_1}{R_e-g}$, where $D_1$ is the next expected dividend, $R_e$ is the required return on equity, and $g$ is the constant dividend growth rate.