### Got any Questions Query Inquisition

- Quantitative Methods
- Economics
- Financial Statement Analysis
- Corporate Issuers
- Equity Investment
- Fixed Income
- Derivatives
- Alternative Investments
- Portfolio Management
- Ethical and Professional Standards

**a**: Interpret interest rates as required rates of return, discount rates, or opportunity costs.

**b**: Explain an interest rate as the sum of a real risk-free rate.

**c**: Calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding.

**d**: Calculate the solution for time value of money problems with different frequencies of compounding.

**e**: Calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash.

**f**: Demonstrate the use of a time line in modeling and solving time value of money problems.

**a**: Identify and compare data types.

**b**: Describe how data are organized for quantitative analysis.

**c**: Interpret frequency and related distributions.

**d**: Interpret a contingency table.

**e**: Describe ways that data may be visualized and evaluate uses of specific visualizations.

**f**: Describe how to select among visualization types.

**g**: Calculate and interpret measures of central tendency.

**h**: Evaluate alternative definitions of mean to address an investment problem.

**i**: Calculate quantiles and interpret related visualizations.

**j**: Calculate and interpret measures of dispersion.

**k**: Calculate and interpret target downside deviation.

**l**: Interpret skewness.

**m: **Interpret kurtosis.

**n**: Interpret correlation between two variables.

**a**: Define a random a variable, an outcome, and an event.

**b**: Identify the two defining properties of probability, including mutually exclusive and exhaustive events, and compare and contrast empirical, subjective, and a priori probabilities.

**c**: Describe the probability of an event in terms of odds for and against the event.

**d**: Calculate and interpret conditional probabilities.

**e**: Demonstrate the application of the multiplication and addition rules for probability.

**f**: Compare and contrast dependent and independent events.

**g**: Calculate and interpret an unconditional probability using the total probability rule.

**h**: Calculate and interpret the expected value, variance, and standard deviation of random variables.

**i**: Explain the use of conditional expectation in investment applications.

**j**: Interpret a probability tree and demonstrate its application to investment problems.

**k**: Calculate and interpret the expected value, variance, standard deviation, covariances, and correlations of portfolio returns.

**l**: Calculate and interpret the covariances of portfolio returns using the joint probability function.

**m**: Calculate and interpret an updated probability using Bayes’ formula.

**n**: Identify the most appropriate method to solve a particular counting problem and analyze counting problems using factorial, combination, and permutation concepts.

**a**: Define a probability distribution and compare and contrast discrete and continuous random variables and their probability functions.

**b**: Calculate and interpret probabilities for a random variable given its cumulative distribution function.

**c**: Describe the properties of a discrete uniform random variable, and calculate and interpret probabilities given the discrete uniform distribution function.

**d**: Describe the properties of the continuous uniform distribution, and calculate and interpret probabilities given a continuous uniform distribution.

**e**: Describe the properties of a Bernoulli random variable and a binomial random variable, and calculate and interpret probabilities given the binomial distribution function.

**f**: Explain the key properties of the normal distribution.

**g**: Contrast a multivariate distribution and a univariate distribution, and explain the role of correlation in the multivariate normal distribution.

**h**: Calculate the probability that a normally distributed random variable lies inside a given interval.

**i**: Explain how to standardize a random variable.

**j**: Calculate and interpret probabilities using the standard normal distribution.

**k**: Define shortfall risk, calculate the safety-first ratio, and identify an optimal portfolio using Roy’s safety-first criterion.

**l**: Explain the relationship between normal and lognormal distributions and why the lognormal distribution is used to model asset prices.

**m**: Calculate and interpret a continuously compounded rate of return, given a specific holding period return.

**n**: Describe the properties of the Student’s t-distribution, and calculate and interpret its degrees of freedom.

**o**: Describe the properties of the chi-square distribution and the Distribution, and calculate and interpret their degrees of freedom.

**p:** Describe Monte Carlo simulation.

**a**: Compare and contrast probability samples with non-probability samples and discuss applications of each to an investment problem.

**b**: Explain sampling error.

**c**: Compare and contrast simple random, stratified random, cluster, convenience, and judgmental sampling.

**d**: Explain the central limit theorem and its importance.

**e**: Calculate and interpret the standard error of the sample mean.

**f**: Identify and describe desirable properties of an estimator.

**g**: Contrast a point estimate and a confidence interval estimate of a population parameter.

**h**: Calculate and interpret a confidence interval for a population mean, given a normal distribution with 1) a known population variance, 2) an unknown population variance, or 3) an unknown population variance and a large sample size.

**i**: Describe the use of resampling (bootstrap, jackknife) to estimate the sampling distribution of a statistic.

**j**: Describe the issues regarding selection of the appropriate sample size, data snooping bias, sample selection bias, survivorship bias, look-ahead bias, and time-period bias.

**a**: Define a hypothesis, describe the steps of hypothesis testing, and describe and interpret the choice of the null and alternative hypotheses.

**b**: Compare and contrast one-tailed and two-tailed tests of hypotheses.

**c**: Explain a test statistic, Type I and Type II errors, a significance level, how significance levels are used in hypothesis testing, levels are used in hypothesis testing, and the power of a test.

**d**: Explain a decision rule and the relation between confidence intervals and hypothesis tests, and determine whether a statistically significant result is also economically meaningful.

**e**: Explain and interpret the p-value as it relates to hypothesis testing.

**f**: Describe how to interpret the significance of a test in the context of multiple tests.

**g**: Identify the appropriate test statistic and interpret the results for a hypothesis test concerning the population mean of both large and small samples when the population is normally or approximately normally distributed and the variance is 1) known or 2) unknown.

**h**: Identify the appropriate test statistic and interpret the results for a hypothesis test concerning the equality of the population means of two at least approximately normally distributed populations based on independent random samples with equal assumed variances.

**i**: Identify the appropriate test statistic and interpret the results for a hypothesis test concerning the mean difference of two normally distributed populations.

**j**: Identify the appropriate test statistic and interpret the results for a hypothesis test concerning (1) the variance of a normally distributed population and (2) the equality of the variances of two normally distributed populations based on two independent random samples.

**k**: Compare and contrast parametric and nonparametric tests, and describe situations where each is the more appropriate type of test.

**l**: Explain parametric and nonparametric tests of the hypothesis that the population correlation coefficient equals zero, and determine whether the hypothesis is rejected at a given level of significance.

**m**: Explain tests of independence based on contingency table data.

**a**: Describe a simple linear regression model and the roles of the dependent and independent variables in the model.

**b**: Describe the least squares criterion, how it is used to estimate regression coefficients, and their interpretation.

**c**: Explain the assumptions underlying the simple linear regression model, and describe how residuals and residual plots indicate if these assumptions may have been violated.

**d**: Calculate and interpret the coefficient of determination and the F-statistic in a simple linear regression.

**e**: Describe the use of analysis of variance (ANOVA) in regression analysis, interpret ANOVA results, and calculate and

interpret the standard error of estimate in a simple linear regression.

**f**: Formulate a null and an alternative hypothesis about a population value of a regression coefficient, and determine whether the null hypothesis is rejected at a given level of significance.

**g**: Calculate and interpret the predicted value for the dependent variable, and a prediction interval for it, given an estimated linear regression model and a value for the independent variable.

**h**: Describe different functional forms of simple linear regressions.

**a:** Calculate and interpret price, income, and cross-price elasticities of demand and describe factors that affect each measure.

**b:** Compare substitution and income effects.

**c:** Contrast normal goods with inferior goods.

**d:** Describe the phenomenon of diminishing marginal returns.

**e:** Determine and interpret breakeven and shutdown points of production.

**f:** Describe how economies of scale and diseconomies of scale affect costs.

**a**: Describe characteristics of perfect competition, monopolistic competition, oligopoly, and pure monopoly.

**b**: Explain relationships between price, marginal revenue, marginal cost, economic profit, and the elasticity of demand under each market structure.

**c**: Describe a firm's supply function under each market structure.

**d**: Describe and determine the optimal price and output for firms under each market structure.

**e**: Explain factors affecting long-run equilibrium under each market structure.

**f**: Describe pricing strategy under each market structure.

**g**: Describe the use and limitations of concentration measures in identifying market structure.

**h**: Identify the type of market structure within which a firm operates.

**a**: Calculate and explain gross domestic product (GDP) using expenditure and income approaches.

**b**: Compare the sum-of-value-added and value-of-final-output methods of calculating GDP.

**c**: Compare nominal and real GDP and calculate and interpret the GDP deflator.

**d**: Compare GDP, national income, personal income, and personal disposable income.

**e**: Explain the fundamental relationship among saving, investment, the fiscal, balance, and the trade balance.

**f**: Explain how the aggregate demand curve is generated.

**g**: Explain the aggregate supply curve in the short run and long run.

**h**: Explain causes of movements along and shifts in aggregate demand and supply curves.

**i**: Describe how fluctuations in aggregate demand and aggregate supply cause short-run changes in the economy and the business cycle.

**j**: Distinguish among the following types of macroeconomic equilibria: long-run full employment, short-run recessionary gap, short-run inflationary gap, and short-run stagflation.

**k**: Explain how a short-run macroeconomic equilibrium may occur at a level above or below full employment.

**l**: Analyze the effect of combined changes in aggregate supply and demand on the economy.

**m**: Describe sources, measurement, and sustainability of economic growth.

**n**: Describe the production function approach to analyzing the sources of economic growth.

**o**: Define and contrast input growth with growth of total factor productivity as components of economic growth.

**a**: Describe the business cycle and its phases.

**b**: Describe credit cycles.

**c**: Describe how resource use, consumer and business activity, housing sector activity, and external trade sector activity vary as an economy moves through the business cycle.

**d**: Describe theories of the business cycle.

**e**: Interpret a set of economic indicators and describe their uses and limitations.

**f**: Describe types of unemployment and compare measures of unemployment.

**g**: Explain inflation, hyperinflation, disinflation, deflation.

**h**: Explain the construction of indexes used to measure inflation.

**i**: Compare inflation measures, including their uses and limitations.

**j**: Contrast cost-push and demand-pull inflation.

**a**: Compare monetary and fiscal policy.

**b**: Describe functions and definitions of money.

**c**: Explain the money creation process.

**d**: Describe theories of the demand for and supply of money.

**e**: Describe the Fisher effect.

**f**: Describe roles and objectives of central banks.

**g**: Contrast the costs of expected and unexpected inflation.

**h**: Describe tools used to implement monetary policy.

**i**: Describe the monetary transmission mechanism.

**j**: Describe qualities of effective central banks.

**k**: Explain the relationships between monetary policy and economic growth, inflation, interest, and exchange rates.

**l**: Contrast the use of inflation, interest rate, and exchange rate targeting by central banks.

**m**: Determine whether a monetary policy is expansionary or contractionary.

**n**: Describe limitations of monetary policy.

**o**: Describe roles and objectives of fiscal policy.

**p**: Describe tools of fiscal policy, including their advantages and disadvantages.

**q**: Describe the arguments about whether the size of a national debt relative to GDP matters.

**r**: Explain the implementation of implementation.

**s**: Determine whether a fiscal policy is expansionary or contractionary.

**t**: Explain the interaction of monetary and fiscal policy.

**a**: Compare gross domestic product and gross national product.

**b**: Describe benefits and costs of international trade.

**c**: Contrast comparative advantage and absolute advantage.

**d**: Compare the Ricardian and Heckscher–Ohlin models of trade and the source(s) of comparative advantage in each model.

**e**: Compare types of trade and capital restrictions and their economic implications.

**f**: Explain motivations for and advantages of trading blocs, common markets, and economic unions.

**g**: Describe common objectives of capital restrictions imposed by governments.

**h**: Describe the balance of payments accounts including their components.

**i**: Explain how decisions by consumers, firms, and governments affect the balance of payments.

**j**: Describe functions and objectives of the international organizations that facilitate trade, including the World Bank, the International Monetary Fund, and the World Trade Organization.

**a**: Define an exchange rate and distinguish between nominal and real exchange rates and spot and forward exchange rates.

**b**: Describe functions of and participants in the foreign exchange market.

**c**: Calculate and interpret the percentage change in a currency relative to another currency.

**d**: Calculate and interpret currency cross-rates.

**e**: Calculate an outright forward quotation from forward quotations expressed on a points basis or in percentage terms.

**f**: Explain the arbitrage relationship between spot rates, forward rates, and interest rates.

**g**: Calculate and interpret a forward discount or premium.

**h**: Calculate and interpret the forward rate consistent with the spot rate and the interest rate in each currency.

**i**: Describe exchange rate regimes.

**j**: Explain the effects of exchange rates on countries’ international trade and capital flows.

**a**: Describe the roles of financial reporting and statement analysis.

**b**: Describe the roles of the statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows in evaluating a company’s performance and financial position.

**c**: Describe the importance of financial statement notes and supplementary information—including disclosures of accounting policies, methods, and estimates—and management’s commentary.

**d**: Describe the objective of audits of financial statements, the types of audit reports, and the importance of effective internal controls.

**e**: Identify and describe information sources that analysts use in financial statement analysis besides annual financial statements and supplementary information.

**f**: Describe the steps in the financial statement analysis framework.

**a**: Describe the objective of importance of financial reporting standards in security analysis and valuation.

**b**: Describe the roles of financial reporting standard-setting bodies and regulatory authorities in establishing and enforcing reporting standards.

**c**: Describe the International Accounting Standards Board’s conceptual framework, including qualitative characteristics of financial reports, constraints on financial reports, and required reporting elements.

**d**: Describe general requirements for financial statements under International Financial Reporting Standards (IFRS).

**e**: Describe implications for financial analysis of alternative financial reporting systems and the importance of monitoring developments in financial reporting standards.

**a**: Describe the components of the income statement and alternative presentation formats of that statement.

**b**: Describe general principles of revenue recognition and accounting standards for revenue recognition.

**c**: Calculate revenue given information that might in the choice of revenue recognition method.

**d**: Describe general principles of expense recognition, specific expense recognition applications, and implications of expense recognition choices for financial analysis.

**e**: Describe the financial reporting treatment and analysis of non-recurring items (including discontinued operations, unusual or infrequent items) and changes in accounting policies.

**f**: Contrast the operating and non-operating components of the income statement.

**g**: Describe how earnings per share is calculated and calculate and interpret a company’s earnings per share (both basic and diluted earnings per share) for both simple and complex capital structures.

**h**: Contrast dilutive and antidilutive securities and describe the implications of each for the earnings per share calculation.

**i**: Formulate income statements into common-size income statements.

**j**: Evaluate a company’s financial performance using common-size income statements and financial ratios based on the income statement.

**k**: Describe, calculate, and interpret comprehensive income.

**l**: Describe other comprehensive income and identify major types of items included in it.

**a**: Describe the elements of the balance sheet: assets, liabilities, and equity.

**b**: Describe uses and limitations of the balance sheet in financial analysis.

**c**: Describe alternative formats of balance sheet presentation.

**d**: Contrast current and non-current assets and current and non-current liabilities.

**e**: Describe different types of assets and liabilities and the measurement bases of each.

**f**: Describe the components of shareholders’ equity

**g**: Demonstrate the conversion of balance sheets to common-size balance sheets and interpret common-size balance sheets.

**h**: Calculate and interpret liquidity and solvency ratios.

**a**: Compare cash flows from operating, investing, and financing activities and classify cash flow items as relating to one of those three categories given a description of the items.

**b**: Describe how non-cash investing and financing activities are reported.

**c**: Contrast cash flow statements prepared under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP).

**d**: Compare and contrast the direct and indirect methods of presenting cash from operating activities and describe arguments in favor of each method.

**e**: Describe how the cash flow statement is linked to the income statement and the balance sheet.

**f**: Describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data.

**g**: Demonstrate the conversion of cash flows from the indirect to direct method.

**h**: Analyze and interpret both reported and common-size cash flow statements.

**i**: Calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios.

**a**: Describe tools and techniques used in financial analysis, including their uses and limitations.

**b**: Identify, calculate, and interpret activity, liquidity, solvency, profitability, and valuation ratios.

**c**: Describe relationships among ratios and evaluate a company using ratio analysis.

**d**: Demonstrate the application of DuPont analysis of return on equity and calculate and interpret effects of changes in its components.

**e**: Calculate and interpret ratios used in equity analysis and credit analysis.

**f**: Explain the requirements for segment reporting and calculate and interpret segment ratios.

**g**: Describe how ratio analysis and other techniques can be used to model and forecast earnings.

**a**: Contrast costs included in inventories and costs recognised as expenses in the period in which they are incurred.

**b**: Describe different inventory valuation methods (cost formulas).

**c**: Calculate and compare cost of sales, gross profit, and ending inventory using different inventory valuation methods and using perpetual and periodic inventory systems.

**d**: Calculate and explain how inflation and deflation of inventory costs affect the financial statements and ratios of companies that use different inventory valuation methods.

**e**: Explain LIFO reserve and LIFO liquidation and their effects on financial statements and ratios.

**f**: Demonstrate the conversion of a company’s reported financial statements from LIFO to FIFO for purposes of comparison.

**g**: Describe the measurement of inventory at the lower of cost and net realisable value.

**h**: Describe implications of valuing inventory at net realisable value for financial statements and ratios.

**i**: Describe the financial statement presentation of and disclosures relating to inventories.

**j**: Explain issues that analysts should consider when examining a company’s inventory disclosures and other sources of information.

**k**: Calculate and compare ratios of companies, including companies that use different inventory methods.

**l**: Analyze and compare the financial statements of companies, including companies that use different inventory methods.

**a**: Identify and contrast costs that are capitalised and costs that are expensed in the period in which they are incurred.

**b**: Compare the financial reporting of the following types of intangible assets: purchased, internally developed, acquired in a business combination.

**c**: Explain and evaluate how capitalising versus expensing costs in the period in which they are incurred affects financial statements and ratios.

**d**: Describe the different depreciation methods for property, plant, and equipment and calculate depreciation expense.

**e**: Describe how the choice of depreciation method and assumptions concerning useful life and residual value affect depreciation expense, financial statements, and ratios.

**f**: Describe the different amortisation methods for intangible assets with finite lives and calculate amortisation expense.

**g**: Describe how the choice of amortisation method and assumptions concerning useful life and residual value affect amortisation expense, financial statements, and ratios.

**h**: Describe the revaluation model.

**i**: Explain the impairment of property, plant, and equipment and intangible assets.

**j**: Explain the derecognition of property, plant, and equipment and intangible assets.

**k**: Explain and evaluate how impairment, revaluation, and derecognition of property, plant, and equipment and intangible assets affect financial statements and ratios.

**l**: Describe the financial statement presentation of and disclosures relating to property, plant, and equipment and intangible assets.

**m**: Analyze and interpret financial statement disclosures regarding property, plant, and equipment and intangible assets.

**n**: Compare the financial reporting of investment property with that of property, plant, and equipment.

**a**: Describe the differences between accounting profit and taxable income and define key terms, including deferred tax assets, deferred tax liabilities, valuation allowance, taxes payable, and income tax expense.

**b**: Explain how deferred tax liabilities and assets are created and the factors that determine how a company’s deferred tax liabilities and assets should be treated for the purposes of financial analysis.

**c**: Calculate the tax base of a company’s assets and liabilities.

**d**: Calculate income tax expense, income taxes payable, deferred tax assets, and deferred tax liabilities, and calculate and interpret the adjustment to the financial statements related to a change in the income tax rate.

**e**: Evaluate the effect of tax rate changes on a company’s financial statements and ratios.

**f**: Identify and contrast temporary versus permanent differences in pre-tax accounting income and taxable income.

**g**: Describe the valuation allowance for deferred tax assets—when it is required and what effect it has on financial statements.

**h**: Explain recognition and measurement of current and deferred tax items.

**i**: Analyze disclosures relating to deferred tax items and the effective tax rate reconciliation and explain how information included in these disclosures affects a company’s financial statements and financial ratios.

**j**: Identify the key provisions of and differences between income tax accounting under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP).

**a**: Determine the initial recognition, initial measurement and subsequent measurement of bonds.

**b**: Describe the effective interest method and calculate interest expense, amortisation of bond discounts/premiums, and interest payments.

**c**: Explain the derecognition of debt.

**d**: Describe the role of debt covenants in protecting creditors.

**e**: Describe the financial statement presentation of and disclosures relating to debt.

**f**: Explain motivations for leasing assets instead of purchasing them.

**g**: Explain the financial reporting of leases from a lessee’s perspective.

**h**: Explain the financial reporting of leases from a lessor’s perspective.

**i**: Compare the presentation and disclosure of defined contribution and defined benefit pension plans.

**j**: Calculate and interpret leverage and coverage ratios.

**a**: Compare and contrast financial reporting quality with the quality of reported results (including quality of earnings, cash flow, and balance sheet items).

**b**: Describe a spectrum for assessing financial reporting quality.

**c**: Explain the difference between conservative and aggressive accounting.

**d**: Describe motivations that might cause management to issue financial reports that are not high quality.

**e**: Describe conditions that are conducive to issuing low-quality, or even fraudulent, financial reports.

**f: **Describe mechanisms that discipline financial reporting quality and the potential limitations of those mechanisms.

**g**: Describe presentation choices, including non-GAAP measures, that could be used to influence an analyst’s opinion.

**h**: Describe accounting methods (choices and estimates) that could be used to manage earnings, cash flow, and balance sheet items.

**i**: Describe accounting warning signs and methods for detecting manipulation of information in financial reports.

**a**: Evaluate a company’s past financial performance and explain how a company’s strategy is reflected in past financial performance.

**b**: Demonstrate how to forecast a company’s future net income and cash flow.

**c**: Describe the role of financial statement analysis in assessing the credit quality of a potential debt investment.

**d**: Describe the use of financial statement analysis in screening for potential equity investments.

**e**: Explain appropriate analyst adjustments to a company’s financial statements to facilitate comparison with another company.

**a**: Describe corporate governance.

**b**: Describe a company’s stakeholder groups, and compare interests of stakeholder groups.

**c**: Describe principal–agent and other relationships in corporate governance and the conflicts that may arise in these relationships.

**d**: Describe stakeholder management.

**e**: Describe mechanisms to manage stakeholder relationships and mitigate associated risks.

**f**: Describe functions and responsibilities of a company’s board of directors and its committees.

**g**: Describe market and non-market factors that can affect stakeholder relationships and corporate governance.

**h**: Identify potential risks of poor corporate governance and stakeholder management, and identify benefits from effective corporate governance and stakeholder management.

**i**: Describe factors relevant to the analysis of corporate governance and stakeholder management.

**j**: Describe environmental and social considerations in investment analysis.

**k**: Describe how environmental, social, and governance factors may be used in investment analysis.

**a**: Describe the capital allocation process and basic principles of capital allocation.

**b**: Demonstrate the use of net present value (NPV) and internal rate of return (IRR) in allocating capital and describe the advantages and disadvantages of each method.

**c**: Describe expected relations among a company’s investments, company value, and share price.

**d**: Describe types of real options relevant to capital investment.

**e**: Describe common capital allocation pitfalls.

**a**: Describe types of financing methods and considerations in their selection.

**b**: Describe primary and secondary sources of liquidity and factors that influence a company’s liquidity position.

**c**: Compare a company’s liquidity position with that of peer companies.

**d**: Evaluate choices of short-term funding.

**a**: Calculate and interpret the weighted average cost of capital (WACC) of a company.

**b**: Describe how taxes affect the cost of capital from different capital sources.

**c**: Calculate and interpret the cost of debt capital using the yield-to-maturity approach and the debt-rating approach.

**d**: Calculate and interpret the cost of noncallable, nonconvertible preferred stock.

**e**: Calculate and interpret the cost of equity capital using the capital asset pricing model approach and the bond yield plus risk premium approach.

**f**: Explain and demonstrate beta estimation for public companies, thinly traded public companies, and nonpublic companies.

**g**: Explain and demonstrate the correct treatment of flotation costs.

**a**: Describe how a company’s capital structure may change over time.

**b**: Explain the Modigliani–Miller propositions regarding capital structure.

**c**: Describe the use of target capital structure in estimating WACC, and calculate and interpret target capital structure weights.

**d**: Explain factors affecting capital structure decisions.

**e**: Describe competing stakeholder interests in capital structure decisions.

**a**: Define and explain leverage, business risk, sales risk, operating risk, and financial risk and classify a risk.

**b**: Calculate and interpret the degree of operating leverage, the degree of financial leverage, and the degree of total leverage.

**c**: Analyze the effect of financial leverage on a company’s net income and return on equity.

**d**: Calculate the breakeven quantity of sales and determine the company’s net income at various sales levels.

**e**: Calculate and interpret the operating breakeven quantity of sales.

**a**: Explain the main functions of the financial system.

**b**: Describe classifications of assets and markets.

**c**: Describe the major types of securities, currencies, contracts, commodities, and real assets that trade in organized markets, including their distinguishing characteristics and major subtypes.

**d**: Describe types of financial intermediaries and services that they provide.

**e**: Compare positions an investor can take in an asset.

**f**: Calculate and interpret the leverage ratio, the rate of return on a margin transaction, and the security price at which the investor would receive a margin call.

**g**: Compare execution, validity, and clearing instructions.

**h**: Compare market orders with limit orders.

**i**: Define primary and secondary markets and explain how secondary markets support primary markets.

**j**: Describe how securities, contracts, and currencies are traded in quote-driven, order-driven, and brokered markets.

**k**: Describe characteristics of a well-functioning financial system.

**l**: Describe objectives of market regulation.

**a**: Describe a security market index.

**b**: Calculate and interpret the value, price return, and total return of an index.

**c**: Describe the choices and issues in index construction and management.

**d**: Compare the different weighting methods used in index construction.

**e**: Calculate and analyze the value and return of an index given its weighting method.

**f**: Describe rebalancing and reconstitution of an index.

**g**: Describe uses of security market indexes.

**h**: Describe types of equity indexes.

**i**: Describe types of fixed-income indexes.

**j**: Describe indexes representing alternative investments.

**k**: Compare types of security market indexes.

**a**: Describe market efficiency and related concepts, including their importance to investment practitioners.

**b**: Contrast market value and intrinsic value.

**c**: Explain factors that affect a market’s efficiency.

**d**: Contrast weak-form, semi-strong-form, and strong-form market efficiency.

**e**: Explain the implications of each form of market efficiency for fundamental analysis, technical analysis, and the choice between active and passive portfolio management.

**f**: Describe market anomalies.

**g**: Describe behavioral finance and its potential relevance to understanding market anomalies.

**a**: Describe characteristics of types of equity securities.

**b**: Describe differences in voting rights and other ownership characteristics among different equity classes.

**c**: Compare and contrast public and private equity securities.

**d**: Describe methods for investing in non-domestic equity securities.

**e**: Compare the risk and return characteristics of different types of equity securities.

**f**: Explain the role of equity securities in the financing of a company’s assets.

**g**: Contrast the market value and book value of equity securities.

**h**: Compare a company’s cost of equity, its (accounting) return on equity, and investors’ required rates of return.

**a**: Explain uses of industry analysis and the relation of industry analysis to company analysis.

**b**: Compare methods by which companies can be grouped.

**c**: Explain the factors that affect the sensitivity of a company to the business cycle and the uses and limitations of industry and company descriptors such as “growth,” “defensive,” and “cyclical.”

**d**: Describe current industry classification systems, and identify how a company should be classified , given a description of its activities and the classification system.

**e**: Explain how a company’s industry classification can be used to identify a potential “peer group” for equity valuation.

**f**: Describe the elements that need to be covered in a thorough industry analysis.

**g**: Describe the principles of strategic analysis of an industry.

**h**: Explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and price competition.

**i**: Describe industry life-cycle models, classify an industry as to life-cycle stage, and describe limitations of the life-cycle concept in forecasting industry performance.

**j**: Describe macroeconomic, technological, demographic, governmental, social, and environmental influences on industry growth, profitability, and risk.

**k**: Compare characteristics of representative industries from the various economic sectors.

**l**: Describe the elements that should be covered in a thorough company analysis.

**a**: Evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market.

**b**: Describe major categories of equity valuation models.

**c**: Describe regular cash dividends, extra dividends, stock dividends, stock splits, reverse stock splits, and share repurchases.

**d**: Describe dividend payment chronology.

**e**: Explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models.

**f**: Calculate the intrinsic value of a non-callable, non-convertible preferred stock.

**g**: Calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate.

**h**: Identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate.

**i**: Explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables.

**j**: Calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value.

**k**: Describe enterprise value multiples and their use in estimating equity value.

**l**: Describe asset-based valuation models and their use in estimating equity value.

**m**: Explain advantages and disadvantages of each category of valuation model.

**a**: Describe basic features of a fixed-income security.

**b**: Describe content of a bond indenture.

**c**: Compare affirmative and negative covenants and identify examples of each.

**d**: Describe how legal, regulatory, and tax considerations affect the issuance and trading of fixed-income securities.

**e**: Describe how cash flows of fixed-income securities are structured.

**f**: Describe contingency provisions affecting the timing and/or nature of cash flows of fixed-income securities and whether such provisions benefit the borrower or the lender.

**a**: Describe classifications of global fixed-income markets.

**b**: Describe the use of interbank offered rates as reference rates in floating-rate debt.

**c**: Describe mechanisms available for issuing bonds in primary markets.

**d**: Describe secondary markets for bonds.

**e**: Describe securities issued by sovereign governments.

**f**: Describe securities issued by non-sovereign governments, quasi-government entities, and supranational agencies.

**g**: Describe types of debt issued by corporations.

**h**: Describe structured financial instruments.

**i**: Describe short-term funding alternatives available to banks.

**j**: Describe repurchase agreements (repos) and the risks associated with them.

**a**: Calculate a bond’s price given a market discount rate.

**b**: Identify the relationships among a bond’s price, coupon rate, maturity and market discount rate (yield-to-maturity).

**c**: Define spot rates and calculate the price of a bond using spot rates.

**d**: Describe and calculate the flat price, accrued interest, and the full price of a bond.

**e**: Describe matrix pricing.

**f**: Calculate annual yield on a bond for varying compounding periods in a year.

**g**: Calculate and interpret yield measures for fixed-rate bonds and floating-rate notes.

**h**: Calculate and interpret yield measures for money market instruments.

**i**: Define and compare the spot curve, yield curve on coupon bonds, par curve, and forward curve.

**j**: Define forward rates and calculate spot rates from forward rates, forward rates from spot rates, and the price of a bond using forward rates.

**k**: Compare, calculate, and interpret yield spread measures.

**a**: Explain benefits of securitization for economies and financial markets.

**b**: Describe securitization, including the parties involved in the process and the roles they play.

**c**: Describe typical structures of securitizations, including credit tranching and time tranching.

**d**: Describe types and characteristics of residential mortgage loans that are typically securitized.

**e**: Describe types and characteristics of residential mortgage-backed securities, including mortgage pass-through securities and collateralized mortgage obligations, and explain the cash flows and risks for each type.

**f**: Define prepayment risk and describe the prepayment risk of mortgage-backed securities.

**g**: Describe characteristics and risks of commercial mortgage-backed securities.

**h**: Describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and risks of each type.

**i**: Describe collateralized debt obligations, including their cash flows and risks.

**j**: Describe characteristics and risks of covered bonds and how they differ from other asset-backed securities.

**a**: Calculate and interpret the sources of return from investing in a fixed-rate bond.

**b: **Define, calculate, and interpret Macaulay, modified, and effective durations.

**c**: Explain why effective duration is the most appropriate measure of interest rate risk for bonds with embedded options.

**d**: Define key rate duration and describe the use of key rate durations in measuring the sensitivity of bonds to changes in the shape of the benchmark yield curve.

**e**: Explain how a bond’s maturity, coupon, and yield level affect its interest rate risk.

**f**: Calculate the duration of a portfolio and explain the limitations of portfolio duration.

**g**: Calculate and interpret the money duration of a bond and price value of a basis point (PVBP).

**h**: Calculate and interpret approximate convexity and compare approximate and effective convexity.

**i**: Calculate the percentage price change of a bond for a specified change in yield, given the bond’s approximate duration and convexity.

**j**: Describe how the term structure of yield volatility affects the interest rate risk of a bond.

**k**: Describe the relationships among a bond’s holding period return, its duration, and the investment horizon.

**l**: Explain how changes in credit spread and liquidity affect yield-to-maturity of a bond and how duration and convexity can be used to estimate the price effect of the changes.

**m**: Describe the difference between empirical duration and analytical duration.

**a**: Describe credit risk and credit-related risks affecting corporate bonds.

**b**: Describe default probability and loss severity as components of credit risk.

**c**: Describe seniority rankings of corporate debt and explain the potential violation of the priority of claims in a bankruptcy proceeding.

**d**: Compare and contrast corporate issuer credit ratings and issue credit ratings and describe the rating agency practice of “notching.”

**e**: Explain risks in relying on ratings from credit rating agencies.

**f**: Explain the four Cs (Capacity, Collateral, Covenants, and Character) of traditional credit analysis.

**g**: Calculate and interpret financial ratios used in credit analysis.

**h**: Evaluate the credit quality of a corporate bond issuer and a bond of that issuer, given key financial ratios of the issuer and the industry.

**i**: Describe macroeconomic, market, and issuer-specific factors that influence the level and volatility of yield spreads.

**j**: Explain special considerations when evaluating the credit of high-yield, sovereign, and non-sovereign government debt issuers and issues.

**a**: Define a derivative and distinguish between exchange-traded and over-the-counter derivatives.

**b**: Contrast forward commitments with contingent claims.

**c**: Define forward contracts, futures contracts, options (calls and puts), swaps, and credit derivatives and compare their basic characteristics.

**d**: Determine the value at expiration and profit from a long or short position in a call or put option.

**e**: Describe purposes of, and controversies related to, derivative markets.

**f**: Explain arbitrage and the role it plays in determining prices and promoting market efficiency.

**a**: Explain how the concepts of arbitrage, replication, and risk neutrality are used in pricing derivatives.

**b**: Explain the difference between value and price of forward and futures contracts.

**c**: Calculate a forward price of an asset with zero, positive, or negative net cost of carry.

**d**: Explain how the value and price of a forward contract are determined at expiration, during the life of the contract, and at initiation.

**e**: Describe monetary and nonmonetary benefits and costs associated with holding the underlying asset and explain how they affect the value and price of a forward contract.

**f**: Define a forward rate agreement and describe its uses.

**g**: Explain why forward and futures prices differ.

**h**: Explain how swap contracts are similar to but different from a series of forward contracts.

**i**: Explain the difference between value and price of swaps.

**j**: Explain the exercise value, time value, and moneyness of an option.

**k**: Identify the factors that determine the value of an option and explain how each factor affects the value of an option.

**l**: Explain put–call parity for European options.

**m**: Explain put–call–forward parity for European options.

**n**: Explain how the value of an option is determined using a one-period binomial model.

**o**: Explain under which circumstances the values of European and American options differ.

**a**: Describe types and categories of alternative investments.

**b**: Describe characteristics of direct investment, co-investment, and fund investment methods for alternative investments.

**c**: Describe investment and compensation structures commonly used in alternative investments.

**d**: Explain investment characteristics of hedge funds.

**e**: Explain investment characteristics of private capital.

**f**: Explain investment characteristics of natural resources.

**g**: Explain investment characteristics of real estate.

**h**: Explain investment characteristics of infrastructure.

**i**: Describe issues in performance appraisal of alternative investments.

**j**: Calculate and interpret returns of alternative investments on both before-fee and after-fee bases.

**a**: Describe the portfolio approach to investing.

**b**: Describe the steps in the portfolio management process.

**c**: Describe types of investors and distinctive characteristics and needs of each.

**d**: Describe defined contribution and defined benefit pension plans.

**e**: Describe aspects of the asset management industry.

**f**: Describe mutual funds and compare them with other pooled investment products.

**a**: Calculate and interpret major return measures and describe their appropriate uses.

**b**: Compare the money-weighted and time-weighted rates of return and evaluate the performance of portfolios based on these measures.

**c**: Describe characteristics of the major asset classes that investors consider in forming portfolios.

**d**: Calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data.

**e**: Explain risk aversion and its implications for portfolio selection.

**f**: Calculate and interpret portfolio standard deviation.

**g**: Describe the effect on a portfolio’s risk of investing in assets that are less than perfectly correlated.

**h**: Describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio.

**i**: Explain the selection of an optimal portfolio, given an investor’s utility (or risk aversion) and the capital allocation line.

**a**: Describe the implications of combining a risk-free asset with a portfolio of risky assets.

**b**: Explain the capital allocation line (CAL) and the capital market line (CML).

**c**: Explain systematic and nonsystematic risk, including why an investor should not expect to receive additional return for bearing nonsystematic risk.

**d**: Explain return generating models (including the market model) and their uses.

**e**: Calculate and interpret beta.

**f**: Explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML).

**g**: Calculate and interpret the expected return of an asset using the CAPM.

**h**: Describe and demonstrate applications of the CAPM and the SML.

**i**: Calculate and interpret the Sharpe ratio, Treynor ratio, M2, and Jensen’s alpha.

**a**: Describe the reasons for a written investment policy statement (IPS).

**b**: Describe the major components of an IPS.

**c**: Describe risk and return objectives and how they may be developed for a client.

**d**: Explain the difference between the willingness and the ability (capacity) to take risk in analyzing an investor’s financial risk tolerance.

**e**: Describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances and their implications for the choice of portfolio assets.

**f**: Explain the specification of asset classes in relation to asset allocation.

**g**: Describe the principles of portfolio construction and the role of asset allocation in relation to the IPS.

**h**: Describe how environmental, social, and governance (ESG) considerations may be integrated into portfolio planning and construction.

**a**: Compare and contrast cognitive errors and emotional biases.

**b**: Discuss commonly recognized behavioral biases and their implications for financial decision making.

**c**: Describe how behavioral biases of investors can lead to market characteristics that may not be explained by traditional finance.

**a**: Define risk management.

**b**: Describe features of a risk management framework.

**c**: Define risk governance and describe elements of effective risk governance.

**d**: Explain how risk tolerance affects risk management.

**e**: Describe risk budgeting and its role in risk governance.

**f**: Identify financial and non-financial sources of risk and describe how they may interact.

**g**: Describe methods for measuring and modifying risk exposures and factors to consider in choosing among the methods.

**a**: Explain principles and assumptions of technical analysis.

**b**: Describe potential links between technical analysis and behavioral finance.

**c**: Compare principles of technical analysis and fundamental analysis.

**d**: Describe and interpret different types of technical analysis charts.

**e**: Explain uses of trend, support, and resistance lines.

**f**: Explain common chart patterns.

**g**: Explain common technical indicators.

**h**: Describe principles of intermarket analysis.

**i**: Explain technical analysis applications to portfolio management.

**a**: Describe “Fintech.”

**b**: Describe Big Data, artificial intelligence, and machine learning.

**c**: Describe fintech applications to investment management.

**d**: Describe financial applications of distributed ledger technology.

**a**: Explain ethics.

**b**: Describe the role of a code of ethics in defining a profession.

**c**: Describe professions and how they establish trust.

**d**: Describe the need for high ethical standards in investment management.

**e**: Explain professionalism in investment management.

**f**: Identify challenges to ethical behavior.

**g**: Compare and contrast ethical standards with legal standards.

**h**: Describe and apply a framework for ethical decision making.

**a**: Describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards.

**b**: Identify the six components of the Code of Ethics and the seven Standards of Professional Conduct.

**c**: Explain the ethical responsibilities required by the Code and Standards, including the sub-sections of each Standard.

**a**: Demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity.

**b: **Identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards.

**c**: Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.

**a**: Explain why the GIPS standards were created, what parties the GIPS standards apply to, and who is benefitted by the standards.

**b**: Describe the key concepts of the GIPS standards for firms.

**c**: Explain the purpose of composites in performance reporting.

**d**: Describe the fundamentals of compliance, including the recommendations of the GIPS standards with respect to the definition of the firm and the firm’s definition of discretion.

**e**: Describe the concept of independent verification.

**a**: Evaluate practices, policies, and conduct relative to the CFA Institute Code of Ethics and Standards of Professional Conduct.

**b**: Explain how the practices, policies, and conduct do or do not violate the CFA Institute Code of Ethics and Standards of Professional Conduct.