CFA L1 / Equity / M4. Equity Overview
Module 4 · Equity

Overview of Equity Securities

EN: Common & preferred shares, depository receipts, equity-related risk and return.
VN: Cổ phiếu thường, ưu đãi, depository receipts, rủi ro và lợi suất.

1. Common vs Preferred Stock Concept

About: Common — voting + residual claim + variable dividends. Preferred — fixed dividend, priority over common, usually no vote. Cumulative, convertible, callable, putable variants.Tóm tắt: Common (voting + residual). Preferred (fixed div, priority). Có cumulative/convertible/callable/putable.
  • Common Voting rights, residual claim, variable dividends.
  • Preferred Fixed dividends (often), priority over common in liquidation, usually no voting.
  • Cumulative pref. Missed dividends accumulate.
  • Convertible Convertible into common shares.
  • Callable Issuer can redeem at preset price.
  • Putable Holder can sell back to issuer.

2. Depository Receipts Concept

About: ADR — foreign shares trading on US exchanges via custodian bank. GDR — typically London. Sponsored (issuer cooperates) preferred over unsponsored.Tóm tắt: ADR (Mỹ), GDR (London). Sponsored tốt hơn unsponsored.
  • ADR American depository receipt — foreign shares trading on US exchanges.
  • GDR Global depository receipt — typically traded outside the US (London).
  • Sponsored Issuer cooperates — shareholder rights preserved.
  • Unsponsored Created by depositary bank without issuer involvement.

3. Equity Cost of Capital — Required Return Core

About: CAPM is the workhorse: rE = Rf + β·(Rm − Rf). DDM-implied: rE = D1/P0 + g. Multiple methods, triangulate for robustness.Tóm tắt: CAPM hoặc DDM-implied. Dùng nhiều phương pháp để cross-check.
\[ r_E = R_f + \beta \cdot (R_m - R_f) \quad \text{(CAPM)} \]

See PM module for full derivation. Also see DDM-implied return: \(r_E = D_1/P_0 + g\).

Practice problem

Rf = 3%, β = 1.2, market premium = 6%. Compute required return via CAPM.

Show solution
rE = 3 + 1.2(6) = 3 + 7.2
= 10.2%

Practice problem Practice

Practice problem

An investor wants exposure to Toyota (Japan) but only trades on US exchanges. Which security would they buy?

Show solution
ADR: foreign shares packaged for US trading via a US depositary bank.
Sponsored ADR preferred — issuer cooperates.
ADR (American Depositary Receipt) on Toyota