12 Free CFA Level 3 Practice Exams Questions and Answers on Equity Valuation

12 Free CFA Level 3 Practice Exams Questions and Answers on Equity Valuation bring fundamental concepts into focus for better exam preparation. It’s completely trouble-free to understand all of the material showcased here, from that, give the exact decision for all of the given questions. Only spend all day reading through vast CFA study material in the CFA curriculum is not a good idea. You need to study and revise from a collection of free CFA practice exam questions and answers and if possible, take it as much as you can to solidify all the knowledge and familiarize the format of the actual exam. It gives great ease from anxiety to many test-takers, even for freshers. Hope you pass and gain an expected CFA certification.
To view full questions and answers, please kindly visit our site:  http://cfaexampreparation.com/812/12-free-cfa-level-3-practice-exams-questions-and-answers-on-equity-valuation/

*Should be done with both Bottom Up and Top Down.Issues:1. Top Down - May be slow in capturing structural change. Model specifications may be wrong.2. Manager Bias - Bottom up involves taking mgmt. expectations. they are typically overly optimistic.

• Justified PE
• Tobin's Q
• Tobin's Equity Q
• Estimating EPS

Just P/E = VALUEo / EPS1

• Tobin's Equity Q
• Tobin's Q
• Justified PE
• Estimating EPS

Assumes expected operating earnings yield on S&P = Yield of LT Treasuries. Fed Mode = S&P EY/ 10yr Treasury YLDIf S&P EY > Treasury Yeild ---> Equities are cheap.If S&P EY <Treasury Yield --> Equities are overpriced. Issues:1. Ignores Equity Risk Premium2. Ignores Growth of Earnings3. Compares Real Variable (Equities) to Nominal Value (Treasury YLD)

• DDM and Emerging Markets - Issues
• Relative Value Models - Fed Model
• What Causes Changes to TFP
• Relative Value Models - The Yardini Model

Compares Current MV to Replacement Cost of it's assets.Tobin = (MV Debt + Equity) / Asset Replacement CostIf >1 OverpricedIf <1 UnderpricedConsidered to be "Mean reverting"

• Justified PE
• Tobin's Equity Q
• Estimating EPS
• Tobin's Q

Changes in: Technology, Restrictions on capital inflows, labor mobility, trade restrictions, Laws, division of labor, Depleting natural resources.

• Top Down Vs. Bottom Up
• Justified PE
• What Causes Changes to TFP
• Estimating EPS

Adjusted For CPI or Earnings in today's $. As an example Earning x (CPICurr/CPIpast) = Real EarningsPros:Accounts for Inflation / Business cyclesCons:Ignores changes to accounting rulesVery Large/Small 10 year MAEs have persisted, which limits usefulness for S/T forecasts.

• Relative Value Models - The Yardini Model
• Cobb-Douglas Production Function
• 10 Year Moving Average Price / Earnings Ratio
• DDM and Emerging Markets - Issues

1. Data could be scarce or unreliable. Fundamental changes could make past data non-relevant.2. Stock market earnings growth rates will not track economic growth for EM countries w/ structurally changing economies w/ Rising/falling corporate profits. 3. Model does not include inflation factors, won't hold up in erratic or hyperinflation.

• What Causes Changes to TFP
• Relative Value Models - Fed Model
• Estimating EPS
• DDM and Emerging Markets - Issues

Flash Card.

• Top Down Vs. Bottom Up
• Tobin's Equity Q
• Cobb-Douglas Production Function
• What Causes Changes to TFP

Top Down - Macro Based - Int Rates or GDP Growth. Compare relative values of Mkt Composites to historical patterns and look for over priced indices.Bottom Up - Micro Based - Focus on fundamentals of firms. Firm vs Industry, management, cash flow analysis, etc.

• Tobin's Q
• Top Down Vs. Bottom Up
• Tobin's Equity Q
• Estimating EPS

G=GDP - This assumption holds up over time. If you believe economy will decline you can use a H model.

• Top Down Vs. Bottom Up
• Using Dividend Discount Model to Estimate Index Value
• Relative Value Models - Fed Model
• Relative Value Models - The Yardini Model

Estimates the equilibrium earnings yield. See Card for FormulaIf Yardini >0 --> OvervaluedIf Yardini <0 --> UndervaluedIssues:Uses a proxy for Equity Risk Premium - Yield on A rated Corp DebtRisk Premium used is a measure of default risk not equity riskAssumes earnings growth is constantGrowth rate (LTEG) might not be constant or accurate reflection of LTSG.

• What Causes Changes to TFP
• Relative Value Models - Fed Model
• Relative Value Models - The Yardini Model
• DDM and Emerging Markets - Issues

MKT CAP / Replacement Cost of Assets - Liabilities

• Estimating EPS
• Tobin's Q
• Tobin's Equity Q
• Top Down Vs. Bottom Up