CISI IAD Securities Technical Unit Quick Reference

Exam identity and how to use this page

This Quick Reference supports candidates preparing for the Chartered Institute for Securities & Investment CISI IAD Securities Technical Unit, exam code CISI IAD Securities. It is an independent revision aid, not an official CISI publication.

Use it as a final-pass checklist for:

• Security types and how they behave in client portfolios
• Equity, bond, fund, and exchange-traded product distinctions
• Core valuation formulas and calculation traps
• Trading, settlement, corporate actions, and market terminology
• Suitability, risk, and tax logic commonly tested in applied questions

High-yield exam map

Security types: compact comparison

Equity securities reference

Ordinary shares

Preference shares

Equity ratios and valuation formulas

Use the units consistently: pence with pence, pounds with pounds, annual figures with annual figures.

\[ \text{EPS}=\frac{\text{Profit attributable to ordinary shareholders}}{\text{Weighted average ordinary shares}} \]\[ \text{Dividend yield}=\frac{\text{Annual dividend per share}}{\text{Current market price per share}}\times100 \]\[ \text{P/E ratio}=\frac{\text{Market price per share}}{\text{Earnings per share}} \]\[ \text{Earnings yield}=\frac{\text{Earnings per share}}{\text{Market price per share}}\times100 \]\[ \text{Dividend cover}=\frac{\text{Earnings per share}}{\text{Dividend per share}} \]\[ \text{NAV per share}=\frac{\text{Assets}-\text{Liabilities}}{\text{Shares in issue}} \]\[ \text{Premium or discount to NAV}=\frac{\text{Share price}-\text{NAV per share}}{\text{NAV per share}}\times100 \]

Equity ratio interpretation

Corporate actions

Dividend timetable concepts

Rights issue

A rights issue offers existing shareholders new shares, usually at a discount, in proportion to current holdings.

\[ \text{TERP}=\frac{(\text{Old shares}\times\text{Old price})+(\text{New shares}\times\text{Subscription price})}{\text{Old shares}+\text{New shares}} \]\[ \text{Value per existing share of the right}=\text{Cum-rights price}-\text{TERP} \]\[ \text{Value per new share entitlement}=\text{TERP}-\text{Subscription price} \]

Example: 2-for-5 rights at 180p when the share price is 300p.

\[ \text{TERP}=\frac{(5\times300)+(2\times180)}{7}=265.71\text{p} \]

Other corporate actions

Debt securities reference

Bond anatomy

\[ \text{Dirty price}=\text{Clean price}+\text{Accrued interest} \]\[ \text{Accrued interest}=\text{Coupon payment}\times\frac{\text{Days accrued}}{\text{Days in coupon period}} \]\[ \text{Running yield}=\frac{\text{Annual coupon}}{\text{Clean price}}\times100 \]

Approximate gross redemption yield:

\[ \text{Approx. GRY}=\frac{\text{Annual coupon}+\frac{\text{Redemption price}-\text{Purchase price}}{\text{Years to redemption}}}{\frac{\text{Redemption price}+\text{Purchase price}}{2}}\times100 \]

Approximate price sensitivity:

\[ \%\Delta\text{Price}\approx-\text{Modified duration}\times\Delta\text{Yield} \]

Bond price and yield relationships

Bond types and exam distinctions

Yield curve shapes

Convertibles, warrants, and option-like securities

Convertible bond calculations

\[ \text{Conversion parity}=\text{Share price}\times\text{Conversion ratio} \]\[ \text{Conversion premium}=\text{Convertible price}-\text{Conversion parity} \]\[ \text{Conversion premium \%}=\frac{\text{Convertible price}-\text{Conversion parity}}{\text{Conversion parity}}\times100 \]

Warrants versus options

Pooled investments and listed funds

Active versus passive fund logic

Physical versus synthetic ETF replication

Trading, market structure, and settlement

Order types

Bid-offer spread

\[ \text{Spread}=\text{Offer price}-\text{Bid price} \]\[ \text{Spread \%}=\frac{\text{Offer}-\text{Bid}}{\text{Mid price}}\times100 \]

Market participants and venues

Primary versus secondary market

Settlement logic

Use the settlement cycle, calendar, and day-count convention stated in the question or current study text. If an exam item provides dates, apply those dates rather than relying on memory.

Listing, markets, and issuer status

Tax and wrapper logic for securities questions

Tax rules, allowances, and rates change. In exam calculations, use the rates and assumptions supplied in the question or study material.

Client suitability decision matrix

Suitability checklist

Before selecting a security, identify:

1. Investment objective: income, growth, preservation, liability matching.
2. Time horizon: short, medium, long; known cash needs.
3. Attitude to risk: willingness to accept volatility/loss.
4. Capacity for loss: financial ability to withstand loss.
5. Knowledge and experience: product complexity and client understanding.
6. Liquidity requirement: access to cash and dealing frequency.
7. Tax position: wrapper availability, income/gain preference.
8. Concentration: existing holdings, employer shares, sector bias.
9. Currency exposure: asset currency versus client spending currency.
10. Costs: spread, commission, fund charges, transaction taxes.
11. Complexity: embedded derivatives, leverage, conditional protection.
12. Documentation: rationale linking recommendation to client facts.

Risk reference

Scenario selection table

Calculation checklist

Equity calculations

Bond calculations

Return formulas

\[ \text{Holding period return}=\frac{\text{Income received}+(\text{Sale price}-\text{Purchase price})}{\text{Purchase price}}\times100 \]\[ \text{Approx. real return}\approx\text{Nominal return}-\text{Inflation rate} \]

More exact real return:

\[ \text{Real return}=\left(\frac{1+\text{Nominal return}}{1+\text{Inflation rate}}-1\right)\times100 \]

Common traps to eliminate

Last-pass revision workflow

    flowchart TD
	    A[Read client or security scenario] --> B{Calculation or suitability?}
	    B -->|Calculation| C[Identify units, dates, price basis, tax assumptions]
	    C --> D[Apply formula and check reasonableness]
	    B -->|Suitability| E[Identify objective, horizon, risk, capacity, tax, liquidity]
	    E --> F[Match product features to client facts]
	    F --> G[Reject products with unsuitable risk or complexity]
	    D --> H[Review common traps]
	    G --> H
	    H --> I[Select answer that fits both facts and technical rule]

Practical next step

After reviewing this Quick Reference, practise mixed questions under timed conditions: combine at least one equity ratio, one bond yield/price item, one corporate action, and one suitability scenario so you can switch quickly between calculation technique and client-focused judgement.