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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.