What CFA Level 1 Equity Investments actually tests
Equity Investments is 11-14% of the Level 1 exam:
| Area | What it covers |
|---|---|
| Market Organisation | Quote-driven vs. order-driven markets, execution instructions |
| Equity Securities | Common stock, preference shares, depositary receipts, rights, warrants |
| Security Market Indices | Price-weighted, equal-weighted, market-cap-weighted, float-adjusted |
| Market Efficiency | Weak, semi-strong, strong form; implications for active management |
| Industry Analysis | Life cycle, Porter's Five Forces, peer group analysis |
| Company Analysis | Competitive advantage, financial modeling |
| Equity Valuation | DDM, Gordon Growth, multi-stage DDM, FCFE, price multiples (P/E, P/B, P/S, EV/EBITDA) |
Why the Gordon Growth Model is worth over-preparing
It's one of the few equity valuation formulas Level 1 expects you to apply directly, not just recognize conceptually — and it reuses time value of money reasoning from Quantitative Methods. Getting the mechanics automatic here pays off again at Level 2, where multi-stage DDM builds directly on top of it.
Sample question: Gordon Growth Model
A stock just paid a dividend of $2.00 per share. Dividends are expected to grow at a constant 5% per year indefinitely. If the required rate of return is 9%, what is the stock's intrinsic value under the Gordon Growth Model?
V₀ = D₁ / (r − g) = D₀(1 + g) / (r − g) = $2.00 × 1.05 / (0.09 − 0.05) = $2.10 / 0.04 = $52.50.
Choice A ($42.00) is the common error of dividing $2.00 (D₀, not D₁) by 0.04 — using this year's dividend already paid instead of next year's expected dividend, which the model actually requires in the numerator.
The 2026 Equity Investments syllabus, module by module
Pinnacle runs on a syllabus graph — named modules with explicit prerequisites, each one mapped against CFA Institute's official 2026 Level I topic outline. It is the same map the free diagnostic reasons over, not a marketing summary of it. These are the ten confirmed Equity Investments modules, and what each one covers:
Market Organisation & Structure
Quote-driven versus order-driven markets, execution instructions, and the roles of intermediaries.
Equity Securities
Common and preference shares, depositary receipts, rights, and warrants.
Security Market Indices
How indices are built: price-weighted, equal-weighted, market-cap-weighted, and float-adjusted schemes.
Market Efficiency
Weak, semi-strong and strong-form efficiency, and what each implies for active management.
Industry Analysis
Industry life cycles, Porter's five forces, and constructing a peer group.
Company Analysis
What gives a company a competitive advantage, how its business model works, and the inputs that feed a financial model.
Company Analysis: Forecasting
Building the forecast itself: revenue and cost projection approaches, the behaviour of costs, and choosing the forecast object and horizon.
Dividend Discount Models
Valuing shares from their dividends: Gordon growth and multi-stage DDM.
Free Cash Flow Valuation
Constructing and discounting free cash flow to equity and free cash flow to the firm.
Price Multiples
P/E, P/B, P/S, P/CF and EV/EBITDA — and what makes a multiple justified.
A note if you sit in 2027: CFA Institute's 2027 outline renames this topic area Equities while leaving its modules unchanged, so the list above carries across the rename.
Every practice question in the bank is tagged to one of these modules — which is how the diagnostic can name the specific concept underneath a wrong answer, not just the topic area it sat in.
Module names follow CFA Institute's published 2026 Level I topic outline, referenced for accuracy. Pinnacle is an independent adaptive learning platform. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute. Pinnacle is not affiliated with, endorsed by, or connected to that organisation.