Trade Finance BD · IB study pack
Trade Finance BD · Original revision handnote · Edition 2026.1

IB — Investment Banking

AIBB · Optional · 14 October 2026

Value businesses and securities, assess portfolios and explain capital-market transactions with clear assumptions.

Use this revision pack with the full syllabus and official papers. Important topics are revision priorities, not a promise of future questions.

Contents

  1. A · Services and valuation foundations
  2. B · Issuance and security valuation
  3. C · Portfolio theory and investment analysis
  4. D · Capital structure and transactions
  5. E · Bangladesh institutions, rules and ethics
  6. Worked example
  7. Applied case and model response
  8. Terminology
  9. Official syllabus and papers

Revision priorities

Portfolio theory, diversification and issuance — Reviewed 7th paper: 7th Banking Professional Exam, page 1, Q1–Q4

Portfolio return, Gordon model and WACC — Reviewed 7th paper: 7th Banking Professional Exam, page 1, Q5–Q6

Syllabus-mapped handnotes

Module A

Services and valuation foundations

Syllabus scope: Advisory; financing; DCF; multiples; forecasting; cost of capital; sensitivity/scenarios

Investment banking supports capital raising and corporate transactions through advisory, structuring and related services. Valuation estimates economic value under assumptions; price is the amount at which a transaction occurs. DCF discounts the appropriate future cash flow using a consistent required return. Equity cash flow and firm cash flow require different discount rates and treatment of debt. Multiples compare relevant peers but depend on earnings quality, growth, risk and accounting. Sensitivity changes one assumption; scenarios change a coherent set. State limitations rather than presenting one calculated value as certain.

Apply it in banking

A higher growth assumption can materially raise value. Test whether margins, investment and funding support that growth rather than changing the growth rate alone.

Practice question: Compare DCF and relative valuation and explain their assumptions and limitations.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module B

Issuance and security valuation

Syllabus scope: IPO; underwriting; placement; mutual funds; auctions; settlement; bonds/equity

An IPO brings shares to the public market under the applicable process; a placement has a different distribution structure. Underwriting allocates issuance risk according to the agreement rather than guaranteeing the issuer’s long-term success. Book building gathers eligible investor demand under the relevant rules. A bond is valued from its coupon and principal cash flows; equity value depends on expected shareholder benefits and risk. Mutual funds pool investment under an agreed mandate and fee structure. Clear disclosure, conflicts management and settlement arrangements protect market confidence.

Apply it in banking

An underwriter’s participation does not prove that an issue is a suitable investment for every customer. Explain price, risk, fees and mandate.

Practice question: Explain IPO and underwriting functions and compare bond and equity valuation.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module C

Portfolio theory and investment analysis

Syllabus scope: CAPM; diversification; efficiency; economic/industry/company analysis; portfolio styles

Portfolio return is a weighted average of asset returns; portfolio risk depends on variances and covariances, not just weighted volatility. Diversification can reduce idiosyncratic risk but cannot eliminate shared market risk. CAPM links required return to risk-free return, beta and the market risk premium under its assumptions. Beta measures sensitivity to the market, not total standalone risk. Active and passive strategies differ in objectives, trading, research and cost. Economic, industry and company analysis should connect evidence to cash-flow and risk assumptions.

Apply it in banking

Two shares from the same industry may offer limited diversification when they depend on the same demand and funding shock. Consider correlations and broader exposures.

Practice question: Explain diversification, CAPM and the limitations of a concentrated two-stock portfolio.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module D

Capital structure and transactions

Syllabus scope: Debt/equity; NPV/IRR; securitisation; ABS/MBS; M&A; leveraged buyout

Capital structure balances funding costs, flexibility, tax effects and financial distress risk under the relevant assumptions. WACC weights eligible debt and equity costs consistently with the cash flows valued. NPV assesses incremental value; IRR has limitations with unusual cash flows and mutually exclusive projects. Securitisation pools assets and redistributes claims and risks; assess underwriting, servicing, cash flows and tranche structure. M&A value includes realistic synergies less price and integration costs. A leveraged buyout increases financing pressure and depends on sustainable cash generation and feasible exit assumptions.

Apply it in banking

A merger’s projected savings are not free value if systems integration, customer loss and restructuring costs offset them. Include downside scenarios.

Practice question: Evaluate a capital-raising or acquisition proposal using cash flow, financing and execution risks.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module E

Bangladesh institutions, rules and ethics

Syllabus scope: BSEC; exchanges; ICB; market institutions; governance; bonds; bancassurance; conflicts

Capital-market activity requires the appropriate authorisation, disclosure and governance under current rules. Regulators, exchanges, intermediaries and investment institutions perform distinct roles. Insider information and conflicts can undermine fair markets; maintain access controls, disclosure and appropriate separation. Bond-market development depends on credible issuers, documentation, trading and settlement as well as supply. Bancassurance combines distribution activities with banking and insurance responsibilities and requires the relevant framework. Verify current local rules for eligibility, issuance methods, limits and fees rather than treating a historical practice as current law.

Apply it in banking

An adviser paid by the issuer should disclose relevant conflicts and avoid presenting promotional material as independent investment analysis.

Practice question: Explain institutional roles and ethical safeguards in Bangladesh investment banking.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Worked example

CAPM, dividend value and WACC

Risk-free return is 6%, expected market return 12% and equity beta 1.2. A stable company expects next-year dividend BDT 5 and constant growth 4%. Separately, capital is two-thirds equity costing 12% and one-third debt costing 8%, with 25% tax. Calculate CAPM return, Gordon value and WACC.

  1. CAPM return = 6% + 1.2×(12%−6%) = 13.2%.
  2. Gordon value = D1/(ke−g) = 5/(0.132−0.04) = BDT 54.35 per share.
  3. Separate WACC exercise = (2/3)×12% + (1/3)×8%×(1−25%) = 10%.
  4. The dividend model assumes stable perpetual growth below required return; the WACC exercise uses its independently stated equity cost.
Common mistake: Use next-year dividend D1. If growth is equal to or above required return, this simple perpetual model is not valid.

Case clinic

Conflicting valuation results

DCF gives a share value of BDT 80, a peer multiple gives BDT 110 and market price is BDT 100. An adviser declares the stock definitely undervalued. Evaluate the statement.

Model response

Valuations are conditional estimates. Review forecast cash flows, discount rate, terminal assumptions, peer comparability, earnings quality and leverage before choosing an interpretation.

DCF implies a lower value than the price under its assumptions; the peer method implies a higher value. The disagreement is useful evidence of sensitivity, not a reason to select the favourable result without explanation.

Present a justified range, downside scenarios and material limitations. Disclose the adviser’s conflicts and avoid certainty about future returns. Compare suitability with the investor’s objectives and risk capacity.

Practice marking guide · 20 marks
  • Interpret conflicting estimates (6)
  • Challenge assumptions and comparability (6)
  • Present qualified conclusion (4)
  • Ethics and suitability (4)

Terminology and comparisons

Price / valueObserved transaction amount versus an economic estimate under assumptions.
Systematic / idiosyncratic riskShared market exposure versus asset-specific exposure that diversification may reduce.
Sensitivity / scenarioOne-variable change versus a coherent combination of changes.
Firm / equity valueValue of business claims before the appropriate debt adjustment versus residual shareholder value.

Official references

Official papers are linked for comparison; their full text and official model answers are not reproduced. This pack’s explanations, examples and cases are original. Numerical examples are practice assumptions. Current law, instructions and subsequent amendments must be checked for regulatory answers.