Equities

KNOWLEDGE EXPECTED OF: QAFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Identify the primary investment objectives typically associated with the asset class of equities.
    • Growth of capital
    • Preservation of purchasing power
    • Income 
  • Explain purposes for holding the asset class of equities, such as:
    • Capital appreciation
    • Generate income 
  • Identify investment vehicles that are a part of the asset class of equities, such as: 
    • Preferred shares1
    • Common shares
    • Equity funds2 
  • Explain characteristics of each equity investment, such as: 
    • Relative potential for loss of capital 
    • Level of liquidity 
    • Relative level of volatility
    • Expected rate of return 
  • Determine how each of these factors may impact the suitability of an equity investment: 
    • Time horizon 
    • Volatility
    • Risk tolerance
    • Investment objective 
    • Financial situation 
    • Personal situation 
    • Income
    • Liquidity 
    • Control 
    • Tax impact
    • Investment management process
    • Economic cycle
    • Cost
    • Historical performance 
    • Performance expectations 
  • Evaluate how each of the factors may impact the suitability of an equity investment. 
  • Explain for whom each equity investment may be suitable.  
  • Explain how a return is generated for each equity investment. 
  • Interpret the return for an equity investment. 
  • Explain risks associated with each equity investment. 
  • Explain opportunities for diversification within the asset class of equities, such as: 
    • By the country in which the company operates (geographic diversification)
    • By the country in which the shares reside (international diversification)
    • By the industry in which the company operates (sector diversification)
    • By the size of the company (market capitalization diversification)
    • By the investment opportunities for the company (growth versus value) 
  • Explain types of income that may be generated by each equity investment, such as:
    • Dividends
    • Capital gains 
  • Explain the tax treatment (based on the asset location) for each type of equity investment. 
    • When receiving income from the equity investment
    • When disposing of the equity investment 
  • Estimate the tax impact (based on the asset location) for each type of equity investment. 
    • When receiving income from the equity investment
    • When disposing of the equity investment 
  • Explain that the main purpose of issuing share capital is to raise unencumbered debt.  
  • Identify the issuers of share capital.
    • Public corporations
    • Private corporations 
  • Explain types of share capital that a company may have, such as: 
    • Voting shares
    • Non-voting shares
    • Subordinate shares
    • Restricted shares 
  • Explain the preferred shareholder’s preference as to assets upon dissolution of company.  
  • Explain features that a preferred share may contain, such as:
    • Par value
    • Price
    • Dividend 
      • Cumulative
      • Non-cumulative
      • Fixed rate
      • Variable rate
    • Features
      • Convertible
      • Retractable
      • Redeemable
      • Callable
      • Purchase or sinking fund
      • Voting privileges
      • Participation in earnings
      • Rights
      • Warrants 
  • Identify that each of the components of a preferred share influence the price of the share. 
  • Explain how the price of a preferred share may be affected by interest rates and the profitability of the issuing company.  
  • Explain rights of a common shareholder, such as: 
    • Right to share in the earnings of the corporation
    • Right to receive any common share dividends paid by the corporation
    • Right to voting privileges, including the election of directors and the approval of financial statements
    • Right to residual value of the assets upon the dissolution of the corporation 
  • Calculate the characteristics of a common share:
    • The market capitalization given the market price and number of shares outstanding
    • The dividend yield given the value of the dividend and the market price of the share
    • The amount of the dividend given the dividend yield and the market price of the share 
  • Explain components of a common share, such as:
    • Price
    • Dividend 
  • Identify who is responsible for declaring dividends payable.
    • For a public corporation
    • For a private corporation 
  • Explain types of dividends that may be payable, such as:
    • Regular
    • Special
    • Liquidating 
  • Explain forms in which dividends may be paid to shareholders, such as:
    • Stock
    • Cash
    • Other property 
  • Explain dates related to the payment of dividends, such as:
    • Declaration date
    • Date of Record
    • Ex-Dividend Date
    • Cum-Dividend Date 
  • Explain the factors that may affect the price of a publicly traded stock, such as:
    • Demand and supply
    • Profitability
    • Expectation of future cash flow
    • Rumour
    • Market sentiment
    • News
    • Market cycles 
  • Define a stock split.  
  • Explain the impact of a stock split.
    • Number of shares
    • Shareholder’s equity
    • Price of stock 
  • Define a stock consolidation.  
  • Explain the impact of a stock consolidation.
    • Number of shares
    • Shareholder’s equity
    • Price of stock 
  • Define types of orders that may be used when trading in the equity market, such as: 
    • Market order
    • Limit order
    • Day order
    • Good-till-cancelled order
    • All-or-none order
    • Partial order
    • Good-through order
    • Stop-loss order
    • Stop-buy order
    • Professional (Pro) order 
  • Define major methods for analyzing equity investments.
    • Fundamental analysis
    • Technical analysis 
  • Compare the variables that are used in technical and fundamental analysis.


REFERENCES

1 Preferred shares share many similarities with fixed income investments and are sometimes classed as a fixed income investment.  

2 Investment structures with a focus on equity investment such as mutual funds, pooled funds, segregated funds, exchange-traded funds and similar investment structures are regularly included in the asset class of equities because of their underlying holdings. 

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Identify the primary investment objectives typically associated with the asset class of equities.
    • Growth of capital
    • Preservation of purchasing power
    • Income 
  • Explain purposes for holding the asset class of equities, such as:
    • Capital appreciation
    • Generate income 
  • Identify investment vehicles that are a part of the asset class of equities, such as: 
    • Preferred shares1
    • Common shares
    • Equity funds2 
  • Explain characteristics of each equity investment, such as: 
    • Relative potential for loss of capital 
    • Level of liquidity 
    • Relative level of volatility
    • Expected rate of return 
  • Determine how each of these factors may impact the suitability of an equity investment: 
    • Time horizon 
    • Volatility
    • Risk tolerance
    • Investment objective 
    • Financial situation 
    • Personal situation 
    • Income
    • Liquidity 
    • Control 
    • Tax impact
    • Investment management process
    • Economic cycle
    • Cost
    • Historical performance 
    • Performance expectations 
  • Evaluate how each of the factors may impact the suitability of an equity investment. 
  • Explain for whom each equity investment may be suitable.  
  • Explain how a return is generated for each equity investment. 
  • Interpret the return for an equity investment. 
  • Explain risks associated with each equity investment. 
  • Explain opportunities for diversification within the asset class of equities, such as: 
    • By the country in which the company operates (geographic diversification)
    • By the country in which the shares reside (international diversification)
    • By the industry in which the company operates (sector diversification)
    • By the size of the company (market capitalization diversification)
    • By the investment opportunities for the company (growth versus value) 
  • Explain types of income that may be generated by each equity investment, such as:
    • Dividends
    • Capital gains 
  • Explain the tax treatment (based on the asset location) for each type of equity investment. 
    • When receiving income from the equity investment
    • When disposing of the equity investment 
  • Estimate the tax impact (based on the asset location) for each type of equity investment. 
    • When receiving income from the equity investment
    • When disposing of the equity investment 
  • Explain that the main purpose of issuing share capital is to raise unencumbered debt.  
  • Identify the issuers of share capital.
    • Public corporations
    • Private corporations 
  • Explain types of share capital that a company may have, such as: 
    • Voting shares
    • Non-voting shares
    • Subordinate shares
    • Restricted shares 
  • Explain the preferred shareholder’s preference as to assets upon dissolution of company.  
  • Explain features that a preferred share may contain, such as:
    • Par value
    • Price
    • Dividend 
      • Cumulative
      • Non-cumulative
      • Fixed rate
      • Variable rate
    • Features
      • Convertible
      • Retractable
      • Redeemable
      • Callable
      • Purchase or sinking fund
      • Voting privileges
      • Participation in earnings
      • Rights
      • Warrants 
  • Identify that each of the components of a preferred share influence the price of the share. 
  • Explain how the price of a preferred share may be affected by interest rates and the profitability of the issuing company.  
  • Explain rights of a common shareholder, such as: 
    • Right to share in the earnings of the corporation
    • Right to receive any common share dividends paid by the corporation
    • Right to voting privileges, including the election of directors and the approval of financial statements
    • Right to residual value of the assets upon the dissolution of the corporation 
  • Calculate the characteristics of a common share:
    • The market capitalization given the market price and number of shares outstanding
    • The dividend yield given the value of the dividend and the market price of the share
    • The amount of the dividend given the dividend yield and the market price of the share 
  • Explain components of a common share, such as:
    • Price
    • Dividend 
  • Identify who is responsible for declaring dividends payable.
    • For a public corporation
    • For a private corporation 
  • Explain types of dividends that may be payable, such as:
    • Regular
    • Special
    • Liquidating
  • Explain forms in which dividends may be paid to shareholders, such as:
    • Stock
    • Cash
    • Other property 
  • Explain dates related to the payment of dividends, such as:
    • Declaration date
    • Date of Record
    • Ex-Dividend Date
    • Cum-Dividend Date 
  • Explain the factors that may affect the price of a publicly traded stock, such as:
    • Demand and supply
    • Profitability
    • Expectation of future cash flow
    • Rumour
    • Market sentiment
    • News
    • Market cycles 
  • Define a stock split.  
  • Explain the impact of a stock split.
    • Number of shares
    • Shareholder’s equity
    • Price of stock 
  • Define a stock consolidation.  
  • Explain the impact of a stock consolidation.
    • Number of shares
    • Shareholder’s equity
    • Price of stock 
  • Define types of orders that may be used when trading in the equity market, such as: 
    • Market order
    • Limit order
    • Day order
    • Good-till-cancelled order
    • All-or-none order
    • Partial order
    • Good-through order
    • Stop-loss order
    • Stop-buy order
    • Professional (Pro) order
  • Define major methods for analyzing equity investments.
    • Fundamental analysis
    • Technical analysis 
  • Compare the variables that are used in technical and fundamental analysis.

REFERENCES

1 Preferred shares share many similarities with fixed income investments and are sometimes classed as a fixed income investment.  

2 Investment structures with a focus on equity investments--such as mutual funds, pooled funds, segregated funds, exchange traded funds and similar investment structures--are regularly included in the asset class of equities because of their underlying holdings. 
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