The key Equity Investments formulas and decision rules for 2026, module by module. Equity Investments is 11-14% of the Level I exam.
Free to read, no sign-up. A revision companion to use alongside your curriculum or prep provider. The full sheet (32 concepts, 16 formulas, 4 decision rules) is in the study dashboard.
The ones to know cold before exam day.
Where: Return generated on shareholders' investment
Open the lessonWhere: Profitability × Efficiency × Leverage
Open the lessonWhere: D1 = next year dividend, r = required return, g = constant growth
Open the lessonKey concepts and formulas from each of the 6 Equity Investments modules. Open a module for its lesson page, or the dashboard for the full sheet.
Achieve purposes: save, borrow, raise equity, manage risk, exchange assets, trade on information.
Securities (stocks, bonds), Currencies, Commodities, Real assets, Contracts (forwards, futures, options, swaps).
Where: Higher leverage = more risk and potential return
Where: For long positions
Full sheet: 7 concepts · 3 formulas · 1 decision rules
Weight by share price (e.g., DJIA). Higher-priced stocks have more influence. Affected by stock splits.
Weight by market value (e.g., S&P 500). Larger companies dominate. Free-float adjusted: exclude closely held shares.
Where: Divisor adjusted for splits and changes
Where: wi = market capi / total market cap
Full sheet: 4 concepts · 2 formulas · 1 decision rules
Security prices fully reflect all available information. Prices adjust rapidly to new information.
Prices reflect all past market data. Technical analysis cannot earn excess returns.
Full sheet: 6 concepts · 1 decision rules
Residual claim, voting rights, dividends not guaranteed. Represents ownership. Risk: last in liquidation.
Fixed dividend, priority over common. Cumulative: missed dividends accumulate. Participating: share in excess earnings.
Where: Accounting value of equity per share
Where: Return generated on shareholders' investment
Full sheet: 5 concepts · 3 formulas
Revenue drivers, pricing power, cost structure (fixed vs variable), competitive position.
Top-down (economy → industry → company) or bottom-up (product-level). Identify volume vs price drivers.
Where: Profitability × Efficiency × Leverage
Where: Decomposes ROE into 5 components
Full sheet: 4 concepts · 2 formulas
True worth based on fundamentals. Compare to market price: undervalued if V > P.
V = Σ D<sub>t</sub>/(1+r)<sup>t</sup>. Value of stock = PV of all expected future dividends.
Where: D1 = next year dividend, r = required return, g = constant growth
Where: Vn = terminal value using Gordon model
Full sheet: 6 concepts · 6 formulas · 1 decision rules
Start with the free module, then add your own notes to every Equity Investments cheat sheet in the dashboard.