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Equity and Fixed Income

Module description

This module is intended for Financial Services Apprenticeship students who are looking to examine the characteristics of markets from the financial analyst’s perspective. You will have a sound understanding on a structural overview of financial markets and their operating characteristics. The module provides an overview of equity securities and their different features and establishes the background required to analyse and value equity securities in a global context. Various assets types, market participants, and how assets trade within these markets and ecosystems are presented. The module also covers an introduction to the fixed-income securities and their markets, yield measures, risk factors, and valuation measures and drivers.

Module aims - intentions of the module

This module is designed to introduce you to the characteristics, analysis and valuation of equity and fixed-income securities. You will have an overview of global equity markets, including a discussion on their risk and return characteristics. The role of equity securities in creating company value is examined as well as the relationship between a company’s cost of equity, its accounting return on equity, investors’ required rate of return, and the company’s intrinsic value. The various industry classification approaches for global equities and useful frameworks for conducting industry and individual company analysis are presented. Three main equity valuation approaches (present value, multiplier and asset based) are covered in the module.

The module presents an overview of global fixed-income markets and how these markets are classified, including some descriptive statistics on the size of the different bond market sectors. You will be introduced to the fixed-income securities and their markets, yield measures, risk factors, and valuation measures and drivers. You will be able to calculate yields and values of fixed-income securities. The module examines the fundamental elements underlying bond returns and risks with a specific focus on interest rate and credit risk. Duration, convexity, and other key measures for assessing a bond’s sensitivity to interest rate risk are introduced.

The module examines the functions of the financial system and introduces assets that investors, information-motivated traders, and risk managers use to advance their financial objectives and presents the ways in which practitioners classify these assets into markets. You will be able to discuss the characteristics of a well-functioning financial system and how regulation helps financial markets function better. You will have an overview of industry analysis and illustrate approaches that are widely used by financial analysts to examine an industry.

The module provides an overview of the theory and evidence regarding market efficiency. You will be able to evaluate the different forms of market efficiency as well as the implications for fundamental analysis, technical analysis, and the choice between active and passive portfolio management. Behavioural finance and its potential relevance to understanding market anomalies are also discussed.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

• 1. Explain the main functions of the financial system and characteristics of a well-functioning financial system
• 2. Evaluate the implications of each form of market efficiency for fundamental analysis, technical analysis, and the choice between active and passive portfolio management
• 3. Describe behavioural finance and its potential relevance to understanding market anomalies
• 4. Examine the role of equity securities in creating company value and the relationship between a company’s cost of equity, its return on equity, and investors’ required rate of return
• 5. Describe fixed-income securities and their markets, yield measures, risk factors, and valuation measures and drivers and calculate yields and values of fixed-income securities
• 6. Explain benefits of securitisation for economies and financial markets
• 7. Describe basic principles of credit analysis and credit-related risks affecting corporate bonds

ILO: Discipline-specific skills

On successfully completing the module you will be able to...

• 8. Understand the legal, regulatory and tax framework associated with the investments
• 9. Apply asset-based valuation and demonstrates how these models can be used to estimate value
• 10. Demonstrate a sound understanding of industry analysis and the relation of industry analysis to company analysis

ILO: Personal and key skills

On successfully completing the module you will be able to...

• 11. Understand the impact the external environment has on Financial Services as appropriate to their role, together with relevant best practice.
• 12. Demonstrate a sound understanding of the relevant Financial Service products and services offered to clients/customers by their organisation
• 13. Deliver technical advice to clients/customer and implements product solutions

Syllabus plan

• Market organisation and structure
• Security market indexes and market efficiency
• Overview of equity securities
• Introduction to industry and company analysis
• Equity valuation: concepts and basic tools
• Fixed-income securities: defining elements
• Fixed-income markets: issuance trading and funding
• Introduction to fixed-income valuation
• Introduction to asset-backed securities
• Understanding fixed-income risk and return
• Fundamentals of credit analysis

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Re-assessment notes

Deferral – if you miss an assessment for certificated reasons judged acceptable by the Mitigation Committee, you will normally be either deferred in the assessment or an extension may be granted. The mark given for a re-assessment taken as a result of deferral will not be capped and will be treated as it would be if it were your first attempt at the assessment.

Referral – if you have failed the module overall (i.e. a final overall module mark of less than 40%) you will be required to submit a further assessment. The mark given for a re-assessment taken as a result of referral will count for 100% of the final mark and will be capped at 40%.

Indicative learning resources - Basic reading

• Equity and Fixed-Income, CFA® Program Curriculum Level I Volume 5, CFA Institute.
• K. Palepu, P. Healy, V. Bernard, and E. Peek (2015), Business Analysis and Valuation, IFRS edition (Third Edition), Cengage Learning Business Press.

Indicative learning resources - Web based and electronic resources

https://vle.exeter.ac.uk/

Key words search

Equity investments, fixed-income instruments