Study Session #14
Learning Outcome Statements
(Last revised 12/5/04)

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1. A. “An Introduction to Security Valuation”
a) explain the top-down approach, and its underlying logic, to the security valuation process;
b) explain the various forms of investment returns;
c) calculate the value of a preferred stock, assuming a perpetual dividend;
d) calculate the value of a common stock, using the dividend discount model (DDM) for both a
one-year holding period and a multiple-year holding period;
e) calculate the value of a common stock, using the infinite period DDM;
f) calculate the value of a common stock for a company experiencing temporary supernormal
growth;
g) show how to use the DDM to develop an earnings multiplier model, and explain the factors in
the DDM that affect a stock’s price-to-earnings (P/E) ratio;
h) explain the components of an investor’s required rate of return (i.e., the real risk-free rate, the
expected rate of inflation, and the risk premium);
i) discuss the risk factors to be assessed in determining a country risk premium for use in
estimating the required return for foreign securities;
j) estimate the dividend growth rate, given the components of return on equity and incorporating
the retention rate;
k) describe a process for developing estimated inputs to be used in the DDM, including the
required rate of return and expected growth rate of dividends.
B. “Stock-Market Analysis”
a) calculate the earnings per share (EPS) of a stock market series;
b) calculate the expected P/E ratio (earnings multiplier) of a stock market series, using the series’
expected dividend payout ratio, required rate of return, and expected growth rate of dividends;
c) estimate the value of, and explain the level of and changes in, the earnings multiplier of a stock
market series;
d) calculate the expected rate of return for a stock market series;
e) explain how the top-down approach can be used to analyze the valuation of world stock markets.
2. “Equity: Concepts and Techniques”
a) classify business cycle stages and identify, for each stage, attractive investment opportunities;
b) discuss, with respect to global industry analysis, the key elements related to return expectations;
c) describe the industry life cycle and identify an industry’s stage in its life cycle;
d) calculate a concentration ratio and a Herfindahl index;.
e) discuss, with respect to global industry analysis, the elements related to risk;
f) describe the basic forces that determine industry competition.
3. A. “Company Analysis and Stock Valuation”
a) differentiate between 1) a growth company and a growth stock, 2) a defensive company and a
defensive stock, 3) a cyclical company and a cyclical stock, and 4) a speculative company and a
speculative stock;
b) describe and estimate the expected earnings per share (EPS) and earnings multiplier for a
company.

B. “Technical Analysis”
a. explain the underlying assumptions of technical analysis;
b. explain how technical analysis differs from fundamental analysis;
c. discuss the advantages of technical analysis;
d. discuss the challenges to technical analysis;
e. identify examples of each of the major categories of technical indicators.
4. “Introduction to Price Multiplies”
a. discuss the rationales for the use of price to earnings (P/E), price to book value (P/BV), price to
sales (P/S), and price to cash flow (P/CF) in equity valuation;
b. discuss the possible drawbacks to the use of each price multiple;
c. calculate, and interpret P/E, P/BV, P/S, and P/CF.

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