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CA Final · Advanced Financial Management

Security Analysis & Portfolio Management

Chapter 2 · 4 formulas · 4 exam-critical pointers

Core concepts

  1. 01Fundamental analysis: EIC framework (Economy → Industry → Company).
  2. 02Technical analysis: charts, trends, momentum indicators, support/resistance.
  3. 03EMH: weak (past prices reflected), semi-strong (public info), strong (all info incl. insider).
  4. 04Markowitz portfolio theory: diversification reduces unsystematic risk.
  5. 05CAPM: only systematic risk (β) priced; SML: E(Ri) = Rf + βi(Rm − Rf).

Flowchart

Portfolio Theory | Risk = Systematic (β) + Unsystematic (diversifiable) | Efficient Frontier (Markowitz) | Capital Market Line (with Rf) | Security Market Line: E(R) = Rf + β(Rm − Rf)

Exam-critical pointers

  • ⭐Optimal portfolio: tangent of CML to efficient frontier (highest Sharpe).
  • ⭐Two-fund separation theorem under CAPM assumptions.
  • ⭐Fama-French 3-factor model adds size & value factors to CAPM.
  • ⭐Arbitrage Pricing Theory (APT): multiple factor model alternative to CAPM.

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