Important Points for IC 99 - Asset Management Exam
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Efficient Capital Market Theory : As per this theory or approach securities markets are perfect or at least not imperfect. Market efficiency depends on three conditions : i) Availability of all information at free of cost to all market participants; ii) No transaction costs; iii) All investors similarly view the implications of available information on current prices and estimation of future prices of each security.
Equity valuation is one of the fundamental aspects in Asset Management. It hlps in determination of intrinsic value of equity shares using various models such as : i) Zero Growth Model, ii) Constant Growth Model, iii) Two stage Growth Model, and iv) H Model
Equity evaluation will determine whether a security is overvalued, fairly valued, or undervalued by the market.
Techniques for Equity Valuations can be broadly divided into three categories : i) Balance Techniques, ii) Discounted Cash Flow Techniques, and iii) Relative Valuation Technique
Book value technique is based on Net Woth of the company. Net Worth is equal to the total sum of Paid-Up Capital and Reserves & Surplus. Book value per share is equal to Net Worth divided by the number of outstanding equity shares.
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