CMSA (EQUITY MARKET FUNDAMENTALS) EXAM
QUESTIONS AND ANSWERS WITH COMPLETE
SOLUTIONS VERIFIED GRADED A++
What are the different types of asset classes from least risky to most?
1. Cash & Cash Equivalents
2. Fixed Income (Preferred Stock, Private Debt)
3. Equities
4. Alternative Investments (Real Estate, Commodities)
Define Beta
Beta is the correlation of an asset's return profile relative to the markets returns; This
shows systematic risk and can't be reduced through diversification.
Define Levered Beta
Measured the systematic risk of a stock compared to the overall market while
accounting for the companies capital structure. AKA Equity Beta
Define Unlevered Beta
Measures the systematic risk of a company's assets without considering the effect of
the companies debt. Assumes the company is fully equity financed. AKA Asset Beta
Measures of Beta
,B>1 More volatile than the market (Tech Company)
B=1 Correlated with the market (Index Fund)
B=0 Uncorrelated with the market ($20 Bill)
0<B<1 Less Volatile than the market (Utility Company)
B<0 Negatively correlated with the market (Gold)
Define Adjusted Beta
A measure of a stocks risk that modifies the historical beta to reflect a tendency to move
towards the market beta of 1 over time
What is the Capital Stack?
List of corporate securities from least to most risky
1. Seinor Debt
2. Subordinated Debt
3. Hybrid (Dent with Warrants or Options)
4. Equity
4.a Shareholder Loans
4.b Preferred Shares
4.c Common Shares
Types of preferred stock
Convertible Preferred Stock - Option to convert to common shares
Cumulative Preferred Stock - Unpaid dividends are added to the next divided
, Participating Preferred Stock - Additional participation in the upside of the companies
earnings or liquidation proceeds beyond the fixed dividend.
Different types of Private Equity?
1. Private Equity Firms
2. Venture Capital Firms
3. Distressed Capital Firms
4. Private Real Estate Firms
What is the difference between Public Equity and Private Equity?
Public equity has higher liquidity
Private equity has lower liquidity
This means private equity has a higher expected return
What are the types of equity's?
1. Sectors of Industries (Financials; Materials; Gaming)
2. Equity Size (Small cap; Mid Cap; Large cap; Mega cap)
3. Type of Security ( Common, Preferred, Convertible)
4. Cyclicality (Cyclical, Defense, non-cyclical)
5. Investor Type (Growth, Value, Income)
6. Individual/Fund (Individual companies; ETF's; Mutual Funds)
Define Follow-On Offering
The issuance of additional shares by a company that is already publicly traded.
- Also known as a Secondary Offering
- Raises additional capital for the company
QUESTIONS AND ANSWERS WITH COMPLETE
SOLUTIONS VERIFIED GRADED A++
What are the different types of asset classes from least risky to most?
1. Cash & Cash Equivalents
2. Fixed Income (Preferred Stock, Private Debt)
3. Equities
4. Alternative Investments (Real Estate, Commodities)
Define Beta
Beta is the correlation of an asset's return profile relative to the markets returns; This
shows systematic risk and can't be reduced through diversification.
Define Levered Beta
Measured the systematic risk of a stock compared to the overall market while
accounting for the companies capital structure. AKA Equity Beta
Define Unlevered Beta
Measures the systematic risk of a company's assets without considering the effect of
the companies debt. Assumes the company is fully equity financed. AKA Asset Beta
Measures of Beta
,B>1 More volatile than the market (Tech Company)
B=1 Correlated with the market (Index Fund)
B=0 Uncorrelated with the market ($20 Bill)
0<B<1 Less Volatile than the market (Utility Company)
B<0 Negatively correlated with the market (Gold)
Define Adjusted Beta
A measure of a stocks risk that modifies the historical beta to reflect a tendency to move
towards the market beta of 1 over time
What is the Capital Stack?
List of corporate securities from least to most risky
1. Seinor Debt
2. Subordinated Debt
3. Hybrid (Dent with Warrants or Options)
4. Equity
4.a Shareholder Loans
4.b Preferred Shares
4.c Common Shares
Types of preferred stock
Convertible Preferred Stock - Option to convert to common shares
Cumulative Preferred Stock - Unpaid dividends are added to the next divided
, Participating Preferred Stock - Additional participation in the upside of the companies
earnings or liquidation proceeds beyond the fixed dividend.
Different types of Private Equity?
1. Private Equity Firms
2. Venture Capital Firms
3. Distressed Capital Firms
4. Private Real Estate Firms
What is the difference between Public Equity and Private Equity?
Public equity has higher liquidity
Private equity has lower liquidity
This means private equity has a higher expected return
What are the types of equity's?
1. Sectors of Industries (Financials; Materials; Gaming)
2. Equity Size (Small cap; Mid Cap; Large cap; Mega cap)
3. Type of Security ( Common, Preferred, Convertible)
4. Cyclicality (Cyclical, Defense, non-cyclical)
5. Investor Type (Growth, Value, Income)
6. Individual/Fund (Individual companies; ETF's; Mutual Funds)
Define Follow-On Offering
The issuance of additional shares by a company that is already publicly traded.
- Also known as a Secondary Offering
- Raises additional capital for the company
