CFA Level 1 - Equity Investments with all Correct &
100% Verified Answers |Latest Version |Already
Graded A+
Financial System Functions ✔Correct Answer-• Allowing entities to borrow, save, issue equity,
manage risk, exchange assets, utilize info
• Determine the returns that equate savings and borrowing across the economy
• Allocate capital efficiently (to the highest valued uses)
Classification of Assets ✔Correct Answer-• Financial vs real assets
• Debt vs equity securities
• Public vs private securities
• Physical derivatives vs financial derivatives
• Spot markets (immediate delivery) vs future markets
• Primary markets vs secondary markets
• Call vs continuous markets
• Money markets vs capital markets
• Traditional markets vs alternative investment markets
Type Of Assets ✔Correct Answer-• Securities
• Currencies
• Contracts
• Commodities
• Real assets
Securities ✔Correct Answer-• Equity
• Fixed Income
• Pooled Investments
- Mutual Funds
- ETFs
- Asset backed securities
- Hedge funds
Fixed Income Securities ✔Correct Answer-Typically refer to debt securities that are promises to
repay borrowed money in the future.
Equity Securities ✔Correct Answer-Represent ownership in a firm and include common stock,
preferred stock, and warrants.
Warrants ✔Correct Answer-Similar to options in that they give the holder the right to buy a firm's
equity shares (usually common stock) at a fixed exercise price prior to the warrant's expiration.
A Call Option ✔Correct Answer-Gives the option buyer the right (but not the obligation) to buy an
asset
A Put Option ✔Correct Answer-Gives the option buyer the right (but not an obligation) to sell an
asset
, Sellers, or writers, of call (put) options ✔Correct Answer-Receive a payment, referred to as the
option premium, when they sell the options but incur the obligation to sell (buy) the asset at the
specified price if the option owner chooses to exercise it
Financial Intermediary Roles ✔Correct Answer-• Brokers, Exchanges: Connect buyers, sellers of
same security at same location and time
• Dealers: Match buyers, sellers of same security at different points in time
• Arbitrageurs: Transact with buyers, sellers of same security at same time but in different markets
• Securitizers, depository institutions: Sell interests in a diversified pool of assets
• Insurance companies: Manage a diversified pool of risks
• Clearinghouses: Reduce counterparty risk and promote market integrity
Investor Positions ✔Correct Answer-• Long position: Gains when asset values increase (purchase
stock or calls, sell puts, take long futures or forward positions)
• Short Position: Can result from borrowing an asset and selling it, with the obligation to replace the
asset in the future (a short sale)- Gain when asset values decrease (sell short, sell/write calls,
purchase puts, take short positions in futures and forwards)
• Financial Leverage: Borrow part of purchase price or post less than asset value with futures
Selling Short ✔Correct Answer-1) Investor borrows stock and sells it
2) Later repurchases the stock and returns it to the lender (covers the short position)
3) Short seller's profit (loss) is the original selling price minus the repurchase price (interest,
commissions)
Rules of Short Selling ✔Correct Answer-• Short sellers pay all dividends to the lender
• Short seller deposits margin/collateral
SELL HIGH AND BUY LOW
Buying Stock on Margin ✔Correct Answer-• Margin: Borrow part of the money needed to buy
stock
• Brokers hold the stock as collateral
• Margin Requirement: Requires equity % is set by the FED (currently 50%)
• Maintenance Margin: Minimum equity in position
Margin Call ✔Correct Answer-If equity< maintenance margin, investor must add cash or
marginable securities, or must close the position
P0 [1-initial margin/1-maintenance margin]
Trading Instructions ✔Correct Answer-• Execution: How to trade
~ Market orders: Best price available
~ Limit orders: Specified price or better
• Validity: When to trade
~ Good-till-cancelled, immediate-or-cancel, day orders
~ Stop orders: Execute if prices reaches specified level
• Clearing: How to settle trade
Stop Orders ✔Correct Answer-• Stop-Sell Orders: Execute when market prices are falling
• Stop-Buy Orders: Execute when the market is rising
100% Verified Answers |Latest Version |Already
Graded A+
Financial System Functions ✔Correct Answer-• Allowing entities to borrow, save, issue equity,
manage risk, exchange assets, utilize info
• Determine the returns that equate savings and borrowing across the economy
• Allocate capital efficiently (to the highest valued uses)
Classification of Assets ✔Correct Answer-• Financial vs real assets
• Debt vs equity securities
• Public vs private securities
• Physical derivatives vs financial derivatives
• Spot markets (immediate delivery) vs future markets
• Primary markets vs secondary markets
• Call vs continuous markets
• Money markets vs capital markets
• Traditional markets vs alternative investment markets
Type Of Assets ✔Correct Answer-• Securities
• Currencies
• Contracts
• Commodities
• Real assets
Securities ✔Correct Answer-• Equity
• Fixed Income
• Pooled Investments
- Mutual Funds
- ETFs
- Asset backed securities
- Hedge funds
Fixed Income Securities ✔Correct Answer-Typically refer to debt securities that are promises to
repay borrowed money in the future.
Equity Securities ✔Correct Answer-Represent ownership in a firm and include common stock,
preferred stock, and warrants.
Warrants ✔Correct Answer-Similar to options in that they give the holder the right to buy a firm's
equity shares (usually common stock) at a fixed exercise price prior to the warrant's expiration.
A Call Option ✔Correct Answer-Gives the option buyer the right (but not the obligation) to buy an
asset
A Put Option ✔Correct Answer-Gives the option buyer the right (but not an obligation) to sell an
asset
, Sellers, or writers, of call (put) options ✔Correct Answer-Receive a payment, referred to as the
option premium, when they sell the options but incur the obligation to sell (buy) the asset at the
specified price if the option owner chooses to exercise it
Financial Intermediary Roles ✔Correct Answer-• Brokers, Exchanges: Connect buyers, sellers of
same security at same location and time
• Dealers: Match buyers, sellers of same security at different points in time
• Arbitrageurs: Transact with buyers, sellers of same security at same time but in different markets
• Securitizers, depository institutions: Sell interests in a diversified pool of assets
• Insurance companies: Manage a diversified pool of risks
• Clearinghouses: Reduce counterparty risk and promote market integrity
Investor Positions ✔Correct Answer-• Long position: Gains when asset values increase (purchase
stock or calls, sell puts, take long futures or forward positions)
• Short Position: Can result from borrowing an asset and selling it, with the obligation to replace the
asset in the future (a short sale)- Gain when asset values decrease (sell short, sell/write calls,
purchase puts, take short positions in futures and forwards)
• Financial Leverage: Borrow part of purchase price or post less than asset value with futures
Selling Short ✔Correct Answer-1) Investor borrows stock and sells it
2) Later repurchases the stock and returns it to the lender (covers the short position)
3) Short seller's profit (loss) is the original selling price minus the repurchase price (interest,
commissions)
Rules of Short Selling ✔Correct Answer-• Short sellers pay all dividends to the lender
• Short seller deposits margin/collateral
SELL HIGH AND BUY LOW
Buying Stock on Margin ✔Correct Answer-• Margin: Borrow part of the money needed to buy
stock
• Brokers hold the stock as collateral
• Margin Requirement: Requires equity % is set by the FED (currently 50%)
• Maintenance Margin: Minimum equity in position
Margin Call ✔Correct Answer-If equity< maintenance margin, investor must add cash or
marginable securities, or must close the position
P0 [1-initial margin/1-maintenance margin]
Trading Instructions ✔Correct Answer-• Execution: How to trade
~ Market orders: Best price available
~ Limit orders: Specified price or better
• Validity: When to trade
~ Good-till-cancelled, immediate-or-cancel, day orders
~ Stop orders: Execute if prices reaches specified level
• Clearing: How to settle trade
Stop Orders ✔Correct Answer-• Stop-Sell Orders: Execute when market prices are falling
• Stop-Buy Orders: Execute when the market is rising
